If ICBC were a private-sector monopolist, we would expect to see high prices and high profits. But ICBC is a public entity with no profit mandate and we observe the lowest prices for primary insurance for any province. What can explain these low prices?

A monopoly supplier is a larger organization than a set of competitive suppliers. Large organizations benefit from economies of scale. Monopolists of low-elasticity goods do not need to spend money on marketing. Competitive firms sometimes engage in price wars outside of price equilibria, which is a waste of resources when the war ends in a stalemate.

Private-sector firms are required by their owners or shareholders to “skim” profit off the difference between sales and costs. From the consumer’s point of view, this profit is an inefficiency (it would be cheaper to buy the firm’s inputs directly). Since ICBC has no profit motive, they should be able to provide their product for a slightly lower price. If ICBC suffers a shortfall in revenue, it will be covered by the taxpayers of BC.

Since primary insurance is legally required, the government would likely regulate a competitive market. This regulation, possibly in the form of a commission office, adds an additional cost to BC taxpayers. ICBC currently regulates itself, so essentially it may be impossible to privatize this function.

Insurers’ costs go down when the number and severity of accidents goes down. As a public entity, ICBC can directly offer policy advice on safety, for example the recent ban on cell phone use, to cabinet. A private insurer has more options for reducing costs and even an industry association does not have the lobbying power of a Crown corporation. BC should have less accidents with a public insurance agency than a competitive market, but it is difficult to calculate this benefit.

Car insurance provides opportunity for insider fraud. Despite recent high-profile cases, it may be easier to control corruption with public sector values than private-sector monitoring. Public servants believe that the social cost of fraud is higher than private employees. Lower fraud results in lower costs.

There are some reasons why BC should consider privatizing ICBC and opening the primary insurance market to competition:

ICBC has a legislated monopoly on a low-elasticity good: primary insurance is legally required and few consumers are willing to go without a car. If ICBC were a private sector company, they would increase the price of primary insurance to maximize profits. Since ICBC does not have a mandate to profit, they do not maximize the price but they also do not minimize it. A primary insurance market with competition should result in lower prices.

Since ICBC is not collecting a profit from the non-minimal prices, where else is the money going? It is being passed along to their suppliers. ICBC’s bigger supplier, by far, is their employees. Employees in monopolies engage in “rent seeking”: earning a higher wage by virtue of their position in the market. A market with competition of employers should result in lower wages (the savings passed on to consumers).

ICBC’s employees also have no incentives to work smarter: there’s no competition attacking their market share and, as public sector employees, their pay is not linked to company performance. Competition in a market increases productivity. Existing firms invest and innovate to increase their competitiveness and new firms grab a share of the market through innovation. Higher productivity results in lower cost.

As the sole supplier, ICBC has less incentive and opportunity to innovate. For example, many economists advocate pay-as-you-drive insurance rates. But ICBC has no reason to implement changes without political will. A competitive market would produce more innovative services.

Recent scandals at ICBC demonstrate a sense of entitlement. Employees of a monopolist feel that they “own” the market. Being a Crown corporation under control of a Minister opens the door to political meddling. Consumers would receive higher quality from independent organizations.

BC Ferries is one of the key pieces of infrastructure in BC. It used to be a Crown corporation. Now it’s…something else. “Independently-operated public corporation”, let’s say.

I think very few people know how BC Ferries is structured despite the importance of the service. I had the opportunity to do an assignment on BC Ferries so now I can explain it to you:

BC Ferry Services Inc (BCFS) owns the ferries, leases the terminals (from the province) and employs the unionized workers that run them. BCFS has a contract with the Ministry of Transportation that includes subsidies for some of the routes. BCFS has issued some bonds that are mostly held by national banks – as far as I can tell, there are no covenants on those bonds that give the holders control of BCFS.

Ferry ticket prices are set by the BC Ferry Commission, which is an independent statutory office appointed by the Legislative Assembly. (So if you think prices are too high, write your MLA.)

The board of BCFS is mostly members of the BC Ferry Authority (BCFA), which is a public partnership. The BCFA is appointed as follows:

• 4 by coastal regional districts
• 2 by Cabinet
• 1 by the BC Ferry & Marine Workers’ Union
• 2 by the previous directors of the BCFA

I think the point of having the two-layer BCFA-BCFS board is to prevent political meddling and accountability but mostly to make BCFS independent enough to secure its own bonds. The other value of independence is that the only constraints on BC Ferries is the contract. (If you don’t like the terms of the contract, write the Minister of Transportation.)

The two big questions I have are:

• What principles is the BCFS board operating under? Maximizing shareholder value doesn’t make sense.
• How do the banks and the markets see the reality of this whole thing? How would you create a model for the value of the bonds?

I was given the assignment to do the Learning Style Inventory based on Kolb’s Experiential Learning model. I scored in the 99th percentile* for abstract conceptualization! I might be pretty abstract and pretty conceptual, but I don’t buy that I am such a beautiful and unique snowflake.

I believe this is a subject-expectancy effect: I expect to my learning style to be abstract-conceptual so I choose answers to confirm my expectation. It’s a pre-test effect because the reason I expect that is other personality and learning tests I’ve taken in the past.

This makes me wonder about the validity of this test (and similar self-reports), but at least we weren’t using the neuro-linguistic programming model that highschool teachers seem to think is scientific: visual, auditory, kinesthetic and the other one.

* An unpublished draft of this post said “100th percentile”, which is impossible because I am in the sample.

What is significant about the word ‘public’ in public administration? How does public administration differ from private (or business) administration and what do the two have in common?

I like Max Weber’s political theory that government is granted a monopoly on violence. Democracy, accountability and unionization are ways the public controls that monopoly. Government properly provides services that require the potential for violence. Regulation services use violence as a deterrent. Violence is also used to levy taxes, which pay for market failures: externalities, economies of scale, irrational economic agents, etc.

So the difference between public and private administration is that public administration is ultimately above public choice.

A course I’m taking required me to write a fictional grant proposal. I wrote one to AIDS Vancouver Island and I decided it was interesting enough to share. I’ve already submitted it, so I’m not interested in critical feedback.

Introduction

The needles around St Andrew’s elementary school are left there by members of the street community. The ideal solution is for that community to deal with its own issues and act as “good neighbours”. I propose using grant money to create an incentive for the street community to clean the neighbourhood itself.

Many street people are self-employed as “binners”: they collect recyclables and return them for the items’ deposit. If used needles had similar value, street people would collect and return them. Employing marginalized people meets social goals beyond the immediate public health goal of this project. Engaging people close to the source of the problem will hopefully have lasting impact. This innovative approach will be well-received by the rest of the neighbourhood.

Body

Statement of work

A needle depot would be established that exchanges used needles for small amounts of cash. There is no way to specifically target needles in the St. Andrew’s neighbourhood, so effective use of funds would be ensured in two ways:

• placing the depot in the centre of the target area
• setting a needle value low enough to not compete with the city-wide needle exchange

The needle depot would be staffed, by volunteers if possible. The depot would operate out of a car, hopefully donated for the hours of use. The depot would open for a short period immediately before school hours.

Needle value can be set using a market mechanism based on random sampling of the neighbourhood. Needle value would be adjusted to keep the frequency below a target rate.

Plan

[boring bits deleted]

Budget

Assume the needle depot will be open two hours/day, six days/week. The worst-case scenario requires hiring staff rather than volunteers and renting a car: assume the combined resources will cost $25/hour. Add an extra hour per week for sampling. Administrative costs for one year are approximately $17,000.

The mobile needle exchange gives out approximately 900 needles per day and collects 350 returns. For estimation purposes, assume that the needle depot will collect the same number of needles as the exchange. Assume that valuing needles at $0.25 will provide enough incentive to collect needles locally but not compete with the needle exchange for city-wide collection. Total payment for needles will be approximately $27,000.

A conservative yearly budget estimate is $44,000.

Qualifications

The program would be managed by Jared who has post-secondary training and two years experience in business process development, and a personal interest in microeconomics.

Conclusion

The St Andrew’s neighbourhood should be cleaned up by members of that neighbourhood. A needle depot is based on a proven model for cleaning up recyclables. It creates a market for used needles and gives the street community an incentive to clean up while increasing social justice. This innovative project includes measures to ensure cost-effectiveness and budgetary control.