Selective enforcement and rent extraction.
Why aren't all laws enforced? The traditional answer is that there is a cost to marshaling all the resources necessary to enforce a law and the state faces a budget constraint for enforcement (Becker & Stigler, 1974). Rational enforcement occurs when the expected penalties of breaking the law are met with increased punishment such that on net there is no marginal gain from committing larger offenses; this doesn't require laws to be enforced in all instances (Stigler 1970). However, a cost to enforcing the law often neglected by economists is that of the forgone opportunity for extortion. Since laws impose constraints on those subject to the laws, rule followers are often willing to pay in order to avoid being subject to the rule; by choosing to enforce the law, those with the authority to enforce the law effectively sacrifice their subjects' willingness to pay for an exemption.
Economists have well documented how the willingness to pay for a legal exemption from a rule leads government to create rents for firms (Stigler 1974, Krueger 1974, Tullock 2005). However, a willingness to pay for legal exemption from a rule need not manifest itself in rent seeking, it could also 1 2 result in rent extraction. In the case of rent extraction, lawmakers extort payment in exchange for some inaction. This paper uses public choice theory and the rent extraction framework to explain why some laws are selectively enforced; specifically, the author extends the rent extraction framework to explain how selectively enforcing laws can also be a form of rent extraction.
This paper contributes to the literature on regulation, specifically regulation that is rent extracting. Beginning the 1970's economists began to question the prevailing welfare model of regulation (Posner 1971 and Stigler 1974). Stigler (1974) explained that if producers stand to gain from regulation, they would demand regulation from politicians. Not only did Stigler cast doubt on the on the welfare model of regulation, but also he framed regulation as an exchange between business and government. McChesney (1997) points out that this view conceptualizes politicians as mere brokers in the exchange. Politicians' own utility functions and constraints are not present in this theory of regulation (McChesney suggests Tullock (1993, p. 26) as an example).
Peltzman (1976) improved the Stiglerian model by allowing politicians and business to share in created rents and argued that regulators allocate benefits across their constituent (consumer and producer) groups to maximize political gain. Peltzman does realize that politicians threaten to transfer consumer surplus to producers who can regain some of the surplus at a price, but his model does not recognize that this threat leads to wealth losses instead of mere transfers (3).
McChesney (1997) further integrates the politician into the theory of regulation by examining politicians' utility functions, constraints, and the methods politicians employ to improve their gains. By considering politicians' constraints, McChesney is able to highlight a weakness in the Stiglerian approach: "in a standard market model of exchange, including auctions, politician-brokers respond to private demands for rents with a supply of regulation, but they do not actively enter the market for rents with their own demands" (McChesney 1997, p 17). McChesney's objection to the standard Stiglerian view gave rise to the theory of rent extraction.
Given a framework that considers politicians as participants, instead of simply brokers, in the regulatory exchange, McChesney theorizes that if the expected costs of the act threatened exceed the value of what the private parties must give up to avoid government action, private parties will surrender what government demands. He calls this phenomena rent extraction (McChesney 1987, 1991, 1997). The McChesney rent extraction framework does not significantly differ from the Stiglerian model, but it denies consumer sovereignty in regulatory models by pointing out that the bidders for a given group's surplus always include the group itself.
The rent extraction framework doesn't exclude traditional rent seeking, rather the framework explains that rent seeking will only occur under certain conditions. "Whether or not a firm will benefit from rent seeking depends on the elasticity of demand. Some firms will pay to keep regulation out" (McChesney 1997, p. 25). McChesney also explains "[i]n the absence of transactions costs, all regulatory activity would be rent extraction. Existing owners of rights to future capital flows or present wealth will always pay at least as much, and usually more, to keep what they have rather than have it transferred away." (McChesney 1997, p. 155).
The standard rent extraction model involves payments to withdraw or retract a proposed law. McChesney explains how legislators often create 'milker' bills to extract rents from different groups. Milker bills are bills proposed with the intention of retracting the proposal once sufficient rents have been collected from those groups or corporations who stand to be adversely affected by the proposed bill. If a legislator is able to credibly threaten to pass the milker bill, stakeholders will be willing to pay the lawmaker to retract it. The rent extraction literature has documented a host of instances where lawmakers have successfully utilized milker bills to extract rents (see McChesney 1997, R. Beck, C. Hoskins and J. M. Connolly 1992, and Schweizer 2013).
While milker bills are the most studied form of rent extraction, rent extraction can occur anytime a politician withholds action that would destroy existing private rents. This paper argues that selective enforcement of law can be another type of rent extraction. Just as politicians are paid to not enact a milker bill, a politician can also extract rents from ensuring that a law is not enforced in exchange for rents. In light of the theory of rent extraction, section 2 of the paper will develop the selective enforcement mechanism further and explain how it is a particularly effective tool for rent extraction. Section 3 will provide a case study of the selective enforcement mechanism, and Section 4 will offer some implications.
2. THE SELECTIVE ENFORCEMENT MECHANISM AND ITS MERITS
Selective enforcement occurs when government actors strategically refrain from enforcing a law in order to extort rents from those subject to the law. There are, generally, two types of situations that motivate politicians to selectively enforce law: those subject to rules have become accustomed to lax enforcement such that enforcing the rules would impose a great cost on them; this is extortion. Or, the current enforcement of rules imposes such a constraint on those subject to them that rule bound actors are willing to pay politicians to refrain from enforcing the rule; this is bribery. In both cases, enforcing the law places a high enough cost on those subject to the rule that lawmakers can offer an exchange profitable for both parties--citizens pay politicians to ensure the rules are not enforced. This paper focuses only on selective enforcement that involves extortion. (4) In order for a law to be selectively enforced the gains of breaking the law must be clearly higher than the costs of changing one's behavior in the event the law is enforced. In that instance, the expected costs of the act threatened exceed the value of what the private parties must give up to avoid government action, so private parties choose to surrender to government demands. Recall that in the McChesney rent extraction framework lawmakers extract rents by threatening to pass a milker bill. The same rent extraction framework can be applied to cases where government threatens to enforce an already existing law (5). In both cases government threatens to change the status quo unless citizens comply with the rent extractors' demands.
The language and intent of law is often sufficiently ambiguous to provide for a variety of interpretations and subjective evaluations of different criteria; this ambiguity (whether intentional or not) provides another avenue for rent extraction. The selective enforcement concept encompasses rent extraction that arises from ambiguities in the law. For example, construction permit approvals typically require some kind of subjective evaluation of an applicant's qualifications. Those charged with making those subjective valuations stand in a position to extract rents in exchange for approval. This type of activity is certainly commonplace, but is only a subset of selective enforcement. In circumstances where the law is ambiguous or the law requires a law enforcer to subjectively evaluate citizen eligibility for approval, citizens are asking for permission to do something based on established criteria, but selective enforcement of law can also involve actions that are universally and unambiguously illegal, yet, permitted. Ambiguous and subjectively determined aspects of law could be selectively used against citizens in order to extract rents, but such actions are only a type of selective enforcement as described above.
Selective enforcement is also distinct from (but supported by) sparse enforcement. As discussed in Section 1, law enforcers are typically charged with enforcing more laws than their time or material resources permit them to enforce, so not all laws are enforced. The fact that law enforcers face a tradeoff between enforcing different laws does not imply that there is a bias in determining which laws are enforced. In other words, law enforcers' constraints necessitate that some laws go unenforced, but it does not necessitate that laws be enforced tendentiously. Extending the rent extraction framework to include selective enforcement provides an explanation regarding which laws are enforced: (6) the unenforced laws are those who affect citizens with rents that can be extracted.
Critical examination of selective enforcement as a mechanism for rent extraction reveals how it is an ideal tool for extracting rents. One merit of using selective enforcement to extract rents is that the mechanism provides lawmakers with a low cost way to make credible threats to citizens. When politicians draft and propose a milker bill, they will only be able to extort rents in as much as stakeholders believe that the milker bill is a credible threat. While extorters can typically place milker bills in front of the appropriate legislative committee without much difficulty, it is unlikely the bill would pass the legislature and become law, but those hurdles do not exist when a lawmaker threatens to enforce an existing law. Enforcing an already existing law is usually less costly than drafting and implementing a new law; thus, when threatening to enforce a law already on the books, government officials' threats appear more credible.
Furthermore, since milker bills are typically directed at a particular group or industry, identifying lawmakers' true motives is less difficult than in the selective enforcement case. Lawmakers could convincingly claim to be acting in the public interest by working to enforce already existing laws, so it would be difficult for victims of extortion to prove that lawmakers had alternative motives making paying rents more likely to be the cheaper option.
Selective enforcement also allows politicians to economize on the legislative process. Drafting a milker bill requires time, and bringing that bill to vote in a committee requires obtaining and spending social capital with other lawmakers. Because a single legislator cannot easily orchestrate the legislative process, the milker bill proponent will likely have to share the extracted rents with others who help his cause (7). However, by simply passing one law and then selectively enforcing it in exchange for rents, or by utilizing an already existing law and selectively enforcing it, politicians can extract rents without investing as much time in the legislative process and reduce the need to share extracted rents with other lawmakers. Nonetheless, since most lawmakers aren't also law enforcers, selective enforcement may require lawmakers to share rents with the enforcers.
Economizing on the legislative process saves lawmakers more than just social capital; it also helps them minimize the amount of voters that their extortive actions could offend. Since politicians maintain, and ultimately increase, their power by staying in office, maximizing the votes they receive is of upmost importance. Whenever a politician introduces a bill, he runs the risk of alienating potential voters who would have otherwise supported him. Because milker bills exist explicitly for no public welfare enhancing purpose other than to extract private rents, such bills will almost certainly offend certain constituent groups. There certainly may be circumstances where, on net, a politician decides to introduce a milker bill in light of the costs, but this tradeoff is eliminated when a law is selectively enforced. Because selective enforcement does not require a politician to endorse a bill, he does not run the risk of alienating supporters. While it is possible that threatening to enforce an already existing law could alienate supporters, again, a politician could very easily appeal to a public interest defense for why he is choosing to enforce a law without endorsing the content of that law.
Perhaps the greatest benefits of using selective enforcement to extract rents are the economies of scale and scope to extracting rents via selective enforcement. Thus far, the author has argued that the threat of enforcement can be used to extract 'rents' without specifying what 'rents' entail. 'Rent extraction' may refer to extortion of some monetary sum, but extortion need not be limited to a monetary domain. Politicians may easily extort behavior of some sort or compliance with their will. A broader conceptualization of rent is necessary to understand how selective enforcement provides economies of scope to selective enforcement. A politician can extort a variety of behavior in accordance with his will by neglecting to enforce one law and then threatening enforcement. In this sense by threatening to enforce an already established law, the extorter can effectively enforce a variety of unwritten rules; since selective enforcement need not be limited to a single law each law that is selectively enforced provides government actors with an increasingly wider range of rent they can extract.
Traditional rent extraction, that involves a threat to pass a law instead of a threat to enforce an existing law, may appear to provide equal economies of scope benefits, but further examination shows that this is not the case. Threatening to enforce a law ordinarily may not have any more extortive power than threatening to create a new law with the same content. However, when threatening to create a new law in order to extract rents, government actors face several constraints that are not present when selectively enforcing a law. The most problematic of these constraints is the constitutional rule that no ex post facto law be established. (8) Furthermore, those who would find themselves in violation under the new law can simply change their behavior. Constitutional constraints aside, there are a variety of logistical problems to threatening to pass a new law, which could limit the economies of scope. Politicians might lack the necessary coalitions to successfully pass a law, which limits their ability to credibly threaten to do so. Finally, it is possible that not all constituent groups would be content with the new law. In this case the politician would need to devise a way to credibly promise to selectively enforce the new law only on the group he wants to extract rents from.
Selective enforcement is not subject to any of the aforementioned problems. By selectively enforcing already existing laws, politicians can avoid accusations of passing a law ex post facto. Unlike threatening to pass a new law where citizens have time to change their behavior, threatening to enforce an existing law is only a threat if citizens are already in violation of the law, so citizens stand to gain little by changing their behavior. Finally, as previously discussed, selective enforcement does not require politicians to navigate the costly legislative process, and this makes their threats all the more credible. Since the selective enforcement method is not subject to the aforementioned problems, it provides lawmakers with economies of scope in extracting rents.
The lower cost of selectively enforcing a law versus threatening to pass a new law drives the economies of scale afforded to politicians by selective enforcement. By selectively enforcing law, the cost of extracting rent is much lower than the traditional milker bill method. Once a politician has either implemented or identified a law that can be selectively enforced, the marginal cost of rent extraction is relatively low. Because with selective enforcement politicians don't need to pass (or threaten to pass) a new law each time they want to extract rents, the average cost of selective enforcement decreases with each instance of rent extraction.
Of critical importance to their argument presented herein is a clear examination of the relationship between lawmakers and law enforcers. Successful rent extraction via selective enforcement may require complementary action by both political and administrative officers. In some cases, political agents, like a Mayor, may have a wide degree of latitude to hire and fire administrative officers of his choice.
McCubbins, Noll, and Weigngast theorize that legislators design administrative procedures to lead to the administrative outcomes congruent with legislator preferences (1987) and elaborate on how the same mechanisms are adapted as political coalitions change (1989). (9)
Richard Wagner draws a parallel between such complex coordination and Donald Trump's The Art of the Deal (Wagner 2014). Wagner emphasizes that while market exchanges are didactic (are composed of two traders) political exchanges are triadic: a political authority exchanges (perhaps via some policy change) with an influential citizen but the exchange also impacts the citizens in the minority or those who have opposing preferences but insufficient influence. Thus, successful triadic exchanges that leave everyone better off (or at least not sufficiently worse off to inspire taking action to reverse the exchange) require complex coordination. Selective enforcement is another avenue that the aforementioned parties can use to reach agreements.
The standard economics paradigm suggests that there must be gains from trade between political and administrative officers in order for them to coordinate. While such gains from trade may not always exist, there is good reason to believe that they often do: political officers often control administrators' budgets and consequently have some power to set their agendas.
The relationship between lawmakers and law enforcers is even more intimate on the local level. At the local level, executive and legislative officers are often not as distinct as they are at the national level. For example, city (or county level) council members have executive, legislative, and administrative power. Furthermore, mayors and city managers can and do begin city (county) initiatives aimed at improving specific areas of public welfare: better education, lower crime, etc. Such initiatives can manifest themselves in explicit attempts to increase enforcement of a specific law or set of laws. These differences between the structure of national and local governments may explain why, empirically, we tend to observe rent extraction via milker bills at the national level and selective enforcement at the local level.
3. ZONING LAWS AND NEW ORLEANS
3.1. ZONING LAWS AS IDEAL LAWS TO SELECTIVELY ENFORCE
Several aspects of zoning and land use laws make them ideal for rent extraction via selective enforcement. First, nearly all residents in a city are affected by zoning rules making the costs of forming a concentrated interest group large and allowing politicians to enforce zoning laws with less fear of alienating supporters. Second, businesses that stand to be adversely affected by zoning law enforcement or changes are typically capital-intensive businesses that lack close substitutes to their capital. For example, restaurants, clubs, and apartment buildings are all businesses that derive much of their profit from real estate; in most cases there are no close substitutes for buildings, especially when a business' location is part of the business itself. Third, the complexity of most municipal zoning codes combined with the number of dwellings gives law enforcers a convincing and convenient public interest rational for why the code cannot be enforced at all times in all places; finally, zoning violations are often of diminutive consequence.
The standard rent extraction model McChesney lays out predicts that industries least prone to cartelization are most likely to be subject to rent extraction and vice versa (McChesney, 1997). The types of businesses which zoning laws stand to impact the most have very low tendency to cartelize. Few landlords, restaurants owners, and bar owners are part of cartels.
The judicial record on selective enforcement of zoning laws gives politicians more reason to be confident in their ability to successfully extract rents via selective enforcement. Aside from having to incur usually significant legal expenses to file a lawsuit against a zoning authority, claiming 'unequal enforcement' has not been a successful defense for citizens in court. Several courts have iterated that selective enforcement is in no way a defense for having broken the law. (10)
3.2. THE CASE STUDY METHOD
Since politicians and citizens both have an incentive to conceal instances where laws are selectively enforced and rent extracted, finding empirical support for the phenomena will always be a difficult task. Furthermore, the economies of scope afforded to lawmakers via selective enforcement suggests that the rent extorted from a citizen could be distant and unrelated to the content of the selectively enforced law, making identifying coercion even more challenging. Finally, selective enforcement is very difficult to distinguish from public interest motivated enforcement; the distinction between the two ultimately lies in the motivation, intention, and knowledge of the enforcer.
Because of the difficulties in identifying true selective enforcement and rent extraction from public interest motivated increases in enforcement, investigating the selective enforcement mechanism requires a thorough and detailed investigation of instances where rents may be extracted via selective enforcement. A thorough and detailed analysis of the political and social norms and other conditions surrounding the enforcement of a law is best captured by the case study method. Using a case study allows us to isolate a variety of factors that would be difficult to control for in a regression analysis. The tradeoff to using a case study versus standard statistical methods is the generalizability that statistical results justify; thus, the author does not claim to generalize the results of this paper. Not all-selective enforcement is rent extraction; the author remains agnostic as to whether or not selective enforcement is usually rent extraction. Our purpose in this paper has been to develop a framework of rent extraction via selective and investigate whether this framework affords us any explanatory power.
The selective enforcement mechanism for rent extraction suggests that a political environment with selective enforcement will have at least three characteristics, and selectively enforced laws in that political environment will have at least three characteristics. Those six criteria form the basis by which the findings of our case study will be evaluated.
A political environment that uses selective enforcement to extract rents would have the following three characteristics: Since lawmakers are traditionally not also law enforcers, an environment with selective enforcement would require lawmakers to have a clear and significant influence over the enforcement agenda. Secondly, because those with few substitutes for complying with the law would be most willing to pay rents, we expect victims of extortion to be in open and unambiguous defiance of the law, and such defiance might even occur for an extended period of time. Finally, while violations would be apparent, if rent is actually being extracted in order for violations to be ignored, not all violators would begin to comply or receive punishment after their defiance has been exposed.
In addition to the three aforementioned characteristics of an environment with selective enforcement, selectively enforced laws themselves are likely to have some combination of the following three characteristics: The laws would be structured to ensure that paying rents is cheaper than compliance. Selectively enforced laws would likely afford small social welfare gains for compliance, and thus there would be little consequences to breaking them. Finally, laws that anger organized constituent groups will be either enforced or un-enforced but not selectively enforced.
3.3. A CASE STUDY OF ZONING LAWS IN NEW ORLEANS
In 2010 newly elected New Orleans mayor Mitch Landrieu began an initiative to grow New Orleans tourism scene and satisfy new post-Katrina New Orleans residents looking for quieter residential neighborhoods. This initiative manifested itself in a city beatification campaign, which involved stricter enforcement of the city's zoning ordinances- especially zoning ordinances related to noise levels.
The 2010 mayoral political change in New Orleans provides an excellent case study for selective enforcement as rent extraction since it is a situation where an elected leader is trying to influence the enforcement agenda (of which laws become enforced) and is attempting to increase enforcement with respect to zoning laws. The following case study will explore New Orleans zoning laws and their compliance both before and after this increase in enforcement.
The Mayor's bold campaign angered groups on all sides of the debate over how to improve the city. Town hall meetings became so tense and neighborhood associations so active in local debates that the city government commissioned a sound scientist to prepare a study comparing noise levels and noise ordinances throughout the city. The report explains that the principal problems with the noise ordinances stem from the fact that rules are selectively enforced (Woolworth 2013). Stricter enforcement of the law may have upset the previous balance in an environment where selective enforcement was the norm. This situation provides for an opportunity to examine potential selective enforcement in action.
Heightened enforcement of zoning ordinances revealed that lax enforcement in New Orleans was extensive enough to permit more than just marginal violations of the law. The 20th Annual NOLA Designer Costume Bazaar was forced to shut down in 2011 for not having the proper operating permits even though the program has operated without the required permits for twenty years (Kjorness 2013a). One resident moved to a street with various nightclubs only to discover that the neighborhood zoning ordinances don't even permit live music in the area (Kjorness 2013a).
Many clubs located in areas where live music was not permitted were asked to shut down, but only some did so (Kjorness 2013a). New Orleans zoning law includes a provision that allows businesses to continue to operate in defiance of the law if they can prove they have already been doing so for five years.
The penalties for breaking zoning laws in New Orleans are not trivial. In fact, breaking the noise ordinances is a criminal offense in many cases. Investigative journalist Chris Kjorness reports that officers threaten musicians with criminal charges, yet there isn't a single case where noise ordinance violations have led to criminal charges (Kjorness 2013a).
Another zoning ordinance that became increasingly enforced in New Orleans involves "bandit signs." Local artists very commonly use posters, flyers and other types of printed materials to advertise their events. Though these advertisements exist in multitude all over the city it is considered littering to post these flyers on any public right-of-way. Fines for violating the law range from $25 to $50. Part of the Mayor's beatification campaign involved cracking down on these flyers. Musicians had to battle for limited space in coffee shops for a short time, but only a few months after the crackdown began, the flyers began appears throughout the city again (Kjorness 2013a). Kjorness reports that there is no record of anyone complaining about being fined for this violation, yet the zoning ordinance is clearly on the books (Kjorness 2013a).
During New Orleans parades, street vendors typically follow the parade and sell food and drinks from small pushcarts. Street vendors are required to have a license to sell goods during parades, but this ordinance is scarcely enforced. Kjorness reports that there is long tradition of unlicensed vendors providing zero price drinks and food to officials in exchange for selectively enforcing of the license ordinance (2013 a).
Mayor Landrieu's campaign to start enforcing more of the cities laws included the law requiring licenses for street vendors. The street vendor complaints were so loud that the City Council unanimously passed an ordinance that allowed street vendors to obtain a permit for only $25 (Kjorness 2013 a). The new law made licenses low cost but it also included a provision that assigns street vendors responsibility for keeping the area within 10 feet of their pushcart free of litter. During a parade, many trinkets thrown from floats during a parade are left on the sidewalk, and the large numbers of spectators all create litter that street vendors play no role in creating. Furthermore, street vendors typically walk with their carts alongside the parade making the ten-foot radius they are responsible for one that is continuously changing. A similar law exists for stationary street vendors, but that law assigns a fifty-foot radius of responsibility to those vendors.
The New Orleans Mayor's campaign to enforce more of the cities laws animated an interest group to discover that dozens of small retailers on the city's French Quarter district were illegally selling t-shirts and other souvenirs (Kjorness 2013b). Even though many of these shops had been in operation for years, the Vieux Care Property Owners, Residents, and Associates (VCPORA) gave the city government a list of dozens of retailers they believed were in violation of zoning laws (Kjorness 2013b). It turns out that the city zoning laws prohibit any store opened after 2011 from selling t-shirts or souvenirs for a majority of its revenue. (11)
Even though VCPORA claimed that dozens of retailers were violating the zoning law, the city announced that only thirteen stores were in violation (Kjorness 2013b). These thirteen businesses were issued citations and asked to remove the illegal souvenirs within 10 days. The business owners have since asked for a hearing before the zoning board, and the hearing has been postponed for more than half a year (Kjorness 2013b). Even though VCPORA claimed that several businesses are violating the law and the city even admitted that thirteen businesses are in violation, there have yet to be any penalties for such behavior.
Some evidence suggests that VCPORA isn't complaining about selective enforcement per se but rather whom the city is selectively enforcing the law against. Kjorness points out that an upscale boutique called "Fleurty Girl" is in clear violation of the zoning rules yet it has not faced any objection from VCPORA (Kjorness 2013b). Kjorness further explains that poor and middle class Asian immigrants own almost all of the stores that VCPORA highlighted as violators (2013b).
Journalists C.W. Cannon believes "what really drives the loathing of Tshirt shops in the Quarter is the fear that New Orleans will be seen as a minor capital of the Redneck Riviera rather than a paragon of elite culture" (Cannon 2014). Its seems that the battle amongst political groups in New Orleans isn't over whether the city should selectively enforce laws or not but over which groups should be subject to selective enforcement.
Cannon and Kjorness suggest that the difference between t-shirt shops and the remaining shops in the French Quarter is not that the t-shirt shops sell souvenirs; it's the price tag of their products. There are plenty of fancy shops that sell high price art and antiques; these stores have not faced any problems that threaten their livelihood.
Another New Orleans zoning ordinance that became increasingly enforced is the curfew on live music. Though one would never know it by visiting the city, live music is not allowed on the streets after 8 p.m. Since 2002, a group named "To be continued" started playing on Bourbon Street in order to raise money to go on tour. After more than eight years of time on the same street corner, the band became a fixture in the neighborhood. When the local government suddenly attempted to enforce the 8 p.m. curfew, the band came back the next night and played until 9 p.m. Police didn't make a single arrest (Reckdahl 2010).
Since beginning a campaign to clean up New Orleans by enforcing more of the cities laws Mayor Landrieu seems to have completely changed his position on the merits of increasing enforcement levels. In May 2014 the mayor said that he has no intention of enforcing the curfew law on live music (Rainy 2014). Landrieu has even gone so far as to warn residents who, during a city council meeting, were demanding stricter enforcement of many city ordinances to "be careful what you ask for" (Kjorness 2013 a).
Given the New Orleans case study, we shall examine Mayor Landrieu's city beatification campaign in light of the six criteria established prior to investigating New Orleans. Recall, we established three criteria pertaining to a political environment with selective enforcement and the three criteria pertaining to laws that would be selectively enforced.
The political environment in New Orleans appears to evidence all three of the criteria that would need to exist for selective enforcement. First, there appears to be a clear avenue for elected officials to influence the enforcement agenda. (12) Mayer Landrieu stated that he would increase enforcement of certain laws and later stated he would scale back enforcement of the noise ordinance; he succeeded in both increasing and decreasing enforcement. The fact that the Mayor was able to move the enforcement agenda in both directions, and publicly announce his intentions, is very clear evidence that political officials can influence the enforcement agenda. However, the mayor's influence over the enforcement agenda itself does not serve as evidence that the Mayor was extracting rents, but as will be examined subsequently, by changing the enforcement agenda, the Mayor's initiative revealed citizen and government behavior that is congruent with selective enforcement.
In addition to evidence that political officials are able to influence the enforcement agenda, the second of three characteristics of a political environment with selective enforcement would be evidence of citizens who are in open and unambiguous defiance of the law. Various nightclubs operating on a street where night clubs are illegal is provides strong evidence of citizens in open an unambiguous defiance of the law. The t-shirt shops, bandit signs, alleged 20 year illegality of an annual conference, and street music are also all examples of citizens in open and unambiguous defiance of the law. While these groups could simply have been lucky enough to be governed by regulations that the city chose not to enforce due to resource constraints, the scale and scope of the violations suggests that resources constraints are not the reason for why these laws were unenforced.
Recall that while violations would be apparent, if rent is actually being extracted in order for violations to be ignored, not all violators would begin to comply. An increase in enforcement of particular laws could very well be motivated by a genuine public interest on behalf of politicians, so increased enforcement alone does not indicate imply rent extraction. However, a public interest theory of increased enforcement cannot explain why some violators would be punished and not others while all are in clear and unambiguous defiance of the law. The rent extraction framework can explain this: not all violations are punished since once enforcement is increased, some citizens choose to pay rents and others don't. Kjorness (2013 a; 2013b) documents how some violators of the New Orleans zoning laws continue to operate in violation of the law while others are punished. Recall, of the several nightclubs operating in a neighborhood where live music is illegal, only some clubs were shut down. There are no reports of criminal proceedings pertaining to the nightclub owners who still operate. Additionally, the VCPORA neighborhood association reported dozens of illegal t-shirt shops, but the city of New Orleans only claims that thirteen were in violation. Kjorness (2013b) documents the stores that are in clear and open violation, yet did not receive a citation. The lack of punishment (and even punishment proceedings) for select citizens further suggests that these laws were selectively enforced and not simply unenforced because of resource constraints.
The laws that were potentially selectively enforced are congruent with the three criteria that suggest selective enforcement. The first of the three characteristics of a law ripe for selective enforcement is that compliance with the law should be more expensive than paying rents. In all of the instances where citizens were in open and unambiguous defiance of the law, violators were all engaged in activities with few substitutes: night clubs, live music, bandit signs, street vendors, and t-shirt shops are not goods with close substitutes--especially from the business owners' perspective. For example, there are not close substitutes to advertising with flyers, and the quantity of flyers in the city is so great that enforcers can easily legitimate selective enforcement by claiming that the costs of catching all violators are prohibitive. A lack of substitutes makes paying rents the relatively cheaper option over compliance with the law.
Aside from being laws that regulated activities with few substitutes, the laws had other characteristics that would make paying extortion the relatively cheaper option: criminal penalties for zoning violations. Contrary to the typical economic theory of punishment, even though catching noise ordinance violators would not be difficult, the selective enforcement framework would predict that selectively enforced laws should have high penalties (since high penalties only exist to extort rents) for those found in violation of them since this makes paying rents the relatively cheaper option.
The rule challenging businesses to operate in defiance of the law for five years before being grandfathered in makes extortion the marginally cheaper option over time. While this law could be interpreted, through the lens of a public interest theory of government, as an attempt to limit selective enforcement of the zoning laws, the provision could also induce extortion. Business owners confronted with the decision to pay rents or face the consequences of being in violation of the law may choose to incur the consequences of the law if there is no clear upper bound in the length or frequency of the extortion. By limiting the potential extortion period to five years, business owners don't face a choice between endless extortion and the one time cost of compliance; thus, the law effectively makes extortion a cheaper option for business owners. After the five-year period expires, the extorter might not be in the same politician office and if he is, could move simply begin selectively enforcing another law to extract rents.
Finally, compliance with other laws is very costly if not impossible: keeping a, continuously moving, 10ft radius free of trash during a parade where floats throw trinkets to the crowd, keeping a 50 foot radius trash free on a city street is nearly impossible to comply with. Furthermore, ensuring the revenue in a retail store (where owners cannot predict which items are most popular nor do they have control over which items consumers buy) is not in excess of the legal limit for t-shirt sales is, at best, a costly enterprise.
The second characteristic of laws suited for selective enforcement is that compliance will afford small, if any, welfare gains while lack of compliance won't result in large, if any, welfare losses. There likely are welfare gains from lower noise and less trash. With regards to the noise ordinance, the independent report commissioned by the city did not attribute the current decibel limits; instead the report explicitly attributed controversy over noise levels to selective enforcement. Furthermore, while lower amounts of trash in the streets are very likely to increase citizens' welfare, the law does not assign responsibility to litterers and instead demands a level of compliance that is likely impossible from an easily identifiable party (street vendors) who have few substitutes for their behavior. Thus, if litter was a true concern, nearly other alternative rule would be more effective. Finally, one would be hard pressed to argue that selling too many t-shirts is a potential detriment to public welfare.
The third and final characteristic of laws that may be selectively enforced is that such laws will not adversely impact an organized group. Conversely, selectively enforced laws are more likely to target an unorganized group of citizens or an individual. Recall that when New Orleans increasingly enforced the zoning ordinance against live music, the result was to effectively outlaw the local favorite 'to be continued.' Public outrage was so strong that the band was allowed to continue playing in the streets after city authorities attempted to enforce the zoning ordinance only one time. Furthermore, by announcing that he would no longer enforce the restriction on live music while simultaneously warning citizens to be careful what they ask for regarding enforcement, is further evidence that public opinion influences the enforcement agenda.
The political environment in New Orleans satisfies all three criteria that would permit selective enforcement, and the laws placed on the enforcement agenda in our case study all have the three characteristics congruent with laws that would be ripe for selective enforcement. The fact that all six conditions exist simultaneously, and both the mayor and an independent scientist independently and explicitly acknowledge that selective enforcement exists, is clear evidence that the phenomena exists in New Orleans.
Finally, the author would like to distinguish the selective enforcement phenomena from being an anomaly or conspiracy theory. The Public Choice framework emphasizes using symmetric assumptions to understand individual action in both the public and private sectors: if economic actors are purposeful actors who peruse their self-interests' in the private sector, they will do the same in the public sector. Consistently and persistently applying public choice framework suggests that in a world of scarcity where all laws cannot be enforced, officials in the public sector must set an enforcement agenda. Insofar as politicians can benefit from strategically constructing that agenda instead of constructing it randomly, selective enforcement is a rational activity.
This work has two main implications. The first is that selective enforcement is a powerful and relatively unexplored phenomenon that is an important tool for regulators, especially for those attempting to extract rents. The framework of selective enforcement developed in this paper suggests that both the content of the rules and their enforcement should both be part of discussions on regulation.
The second implication is that focusing on government 'action' will not yield a complete understanding of regulatory behavior. Economists and other social scientists have created lots of scholarship detailing rent seeking and regulatory capture, but the persistent and consistent application of the economic way of thinking suggests that rent seeking is only a part of the regulatory landscape. Recent scholarship has highlighted more of the regulatory landscape by developing a theory of rent extraction strategies that politicians use, but the current rent extraction literature has focused on milker bills and other government 'action.' The selective enforcement framework draws our attention to what government can extort via inaction. Incorporating the power government wields via inaction is important in order to fully understand regulatory behavior when studying political economy.
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Alexander C. Cartwright (1,2)
George Mason University
(1.) Email: acartwr2@GMU.edu. Address: Department of Economics, George Mason University, MS 3G4, Fairfax, VA 22030, USA.
(2.) I would like to thank Richard Wagner and Anthony Carilli for helpful comments on an earlier draft and all participants in the Mercatus Center Graduate Student Paper Workshop in Fall 2014 for a fruitful discussion. I thank Chris Coyne for support and advice on the publication process. Finally, I would like to thank Jennifer Dirmeyer for inspiring this research topic.
(3.) For additional problems with the Peltzman approach, see Goldberg (1982).
(4.) Extortion and bribery are similar in many respects, since they both involve exchange, but are distinct concepts. Unlike bribery, the nature of an extortive exchange doesn't leave the extorted party with anything besides being free from the present threat.
(5.) An important part of this analysis is the relationship between lawmakers and law enforcers since these groups would have to synchronize their efforts in order for lawmakers to extract rents. The author addresses this point explicitly in a subsequent part of the paper.
(6.) Throughout the paper, the author will use the term 'enforcement agenda' to refer to the body of laws public officials decide to enforce.
(7.) See Buchanan (1994) for more on rent extraction and the legislative process.
(8.) See Article I section 9 of the U.S. Constitution. An ex post facto law is a law that retroactively changes the legal status of an action after the act has already been committed.
(9.) For an extended summary on literature pertaining to legislative oversight of administrative agencies, see Coyne 2013.
(10.) The fact that a similar violation by someone else has not been prosecuted is not a valid defense. In City of Gastonia v. Parrish, 271 N.C. 527, 157 S.E.2d 154 (1967), the court held that an allegation of unequal enforcement of the zoning ordinance is no defense to an illegal act (an illegal junkyard in a residential district in that case). Laxity of prior enforcement against others does not in and of itself establish a defense. See Owens 2010.
(11.) According to the New Orleans city ordinances, a place where the majority of business comes from the sale of t-shirts or souvenirs is an illegal t-shirt shop. Majority constitutes at least 35 percent of sales are from "items, exclusive of books, magazines, or maps, which serve as a token of remembrance of New Orleans and which bear the name of the city or geographic areas or streets thereof, or of events associated with New Orleans including but not limited to Mardi Gras, the Sugar Bowl, or the World's Fair." http://www.documentcloud.org/documents/816469-t-shirt-ord.html#document/p5/a130928.
(12.) Enforcement Agenda refers to the rules that actually get enforced due to resources constraints. See the opening paragraph of this paper for a review of this concept.
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|Author:||Cartwright, Alexander C.|
|Publication:||Public Finance and Management|
|Date:||Jan 1, 2016|
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