Regulation Economics

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Food Truck

Food Truck

Over the past few decades, economists have turned their attention to bureaucracy and regulation. By applying standard economic tools to these subjects, some valuable insights emerge.  This article will focus on regulation economics with a specific example.

Economic Analysis of Regulation

Regulation of an economic activity puts constraints on the activity.  This creates a market imperfection, meaning above-normal profits are available.  Entrepreneurs will try to find ways to earn those economic profits, often by “inventing around” the regulationsThis often leads to even more regulations, and so on.  One of the results is an ever-expanding group of bureaucrats who write and enforce the regulations.

A Local Example

First Lady Michelle Obama has heavily promoted healthier school lunches. This is the first regulation. Many schools (including our local high school) have signed up for this program.  The school cafeteria now sells food that many students do not want to eat.  Aha!  An entrepreneurial opportunity.

In this case the entrepreneurs are food trucks. These folks park on the street behind the high school (actually right next to the tennis courts).  Students flock to them to pay for food they actually want to eat.  This creates negative externalities for those living on the street: congestion and litter.

A neighboring town has attacked this problem by banning the food trucks from parking near schools.  In other words, there is a new regulationThe city manager of that town is lobbying our city council to adopt a similar regulation.  Currently the thinking seems to favor requiring the food trucks to bring trash bins and clean up the area before they leave.  That alleviates the litter externality, but not the congestion.

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The Future

If the city council bans food trucks, the language of the regulation will need to be carefully written.  What about ice cream trucks?  What about pizza delivery?  In fact, if the regulation is put in place, I look forward to a local entrepreneur offering to be the delivery intermediary between food trucks, local restaurants, and so on. Will the council then ban food deliveries to campus?  Good luck with that.

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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.

3 Replies to “Regulation Economics”

  1. tag

    Thinking about it, food trucks are kind of a dinosaur. You take your kitchen someplace and hope people come up to it and let you cooks stuff. You’d expect somebody to write an app that allows you to order from someplace and have them deliver it (for schools, could require a minimum order, so kids have to get together for a delivery). You could serve multiple schools at once that way (and minimal congestion).

  2. Tony Lima

    But we already have that, sort of. Pizza delivery, “waiters on wheels,” and several grocery delivery options. The real mystery is why more students don’t just get pizza delivered. Or something else. Guess that requires too much planning and coordination.

  3. Nick

    I believe there’s a disincentive to ordering over the phone because it eliminates the joy of entering a food court or open bazaar. You can’t order a meal due to whimsy or quick judgment.

    In this case, the healthy options are so gross that students would rather find the food trucks across the street.