Market failure: information asymmetry

In this post, I am going to explain the basics behind another common market failure, information asymmetry. If you would like a more broad overview of what a market failure is, I have a previous blog post on that topic. If you want more deep dives on market failures, check out my posts on the tragedy of the commons, externalities and natural monopolies. Additionally, I won’t be going into any of the math behind this concept. Instead, this will be a more intuitive discussion of how information asymmetries work and what their impact on markets is. 

What is information asymmetry?

Information asymmetry occurs when one person in a market transaction has some hidden information that impacts the transaction. In an ideal market, all the information would be public so that buyers and sellers can accurately judge the value of the goods they are trading. Information asymmetries distort markets by undermining this condition.

A classic example of information asymmetry is in the used car market, where sellers often have significantly more information about the condition of a car than buyers do. If a car has hidden mechanical issues, the seller is unlikely to volunteer that information, while the buyer has limited ability to detect those problems before purchasing. Because of this uncertainty, buyers may be unwilling to pay a high price, even for cars that are actually in good condition. This specific example was made famous by the economist George Akerlof in his paper “The Market for Lemons”.

Why is information asymmetry a market failure?

Information asymmetry leads to market failure because it prevents markets from reaching efficient outcomes. In a well-functioning market, prices reflect the true value of goods based on accurate information. When one side of a transaction has better information than the other, prices instead reflect uncertainty and risk.

This often results in two related problems: adverse selection and moral hazard. Adverse selection occurs before a transaction takes place, when hidden information causes one side of the market to disproportionately attract lower-quality participants. In the used car example, buyers anticipating hidden defects lower the price they are willing to pay, which pushes out sellers of high-quality cars and leaves behind mostly lower-quality options.

Moral hazard occurs after a transaction takes place, when one party changes their behavior because they are not fully exposed to the consequences of their actions. For example, an individual might begin to drive more recklessly knowing they have a comprehensive car insurance plan. The insurance company doesn’t know that this person is going to change their behavior after the contract is signed (that’s the asymmetry) so they can’t properly account for that risk in the market transaction.

How policymakers respond to information asymmetry

Because information asymmetry can undermine markets, both private institutions and public policy often step in to reduce its effects. One common approach is to increase transparency by requiring disclosure of relevant information. For example, sellers may be required to report known defects, and companies may need to provide standardized financial statements so investors can make informed decisions.

Another approach is signaling, where the better-informed party takes steps to demonstrate quality. Warranties, certifications, and professional licenses all serve as signals that help build trust between buyers and sellers. For instance, a warranty on a used car gives buyers confidence that the seller stands behind the product. 

Another example of signaling are reputation mechanisms like Uber’s rating system. Both drivers and passengers have their performance rated so both parties can get a better idea of how the transaction is going to go. These systems have been shown to be effective in reducing the impacts of information asymmetry.

Regulators can also play a role in setting minimum standards and protecting consumers. Laws around fraud, product safety, and truth in advertising all aim to reduce the most harmful effects of asymmetric information.

While information asymmetry cannot be eliminated entirely, these tools help markets function more effectively by narrowing the information gap. When buyers and sellers have better access to reliable information, they can make more informed decisions, leading to outcomes that are closer to what we would expect in an ideal market.

Will a new bill help bring Ohio’s public service delivery into the 21st century?

Last month, state Rep. David Thomas introduced Ohio House Bill 834, a bill designed to improve delivery of government services.

Ohio’s state government provides a range of services to its residents.

When people lose their jobs, the state provides unemployment insurance.  Ohio issues licenses to professionals, benefits to low-income families, permits for environmental and health clearance, and business registration.

How well the state provides these services can have an impact on the economy.

If you lose your job, not being able to get access to unemployment benefits can harm your ability to bounce back and get a new job or support your family in the meantime.

Occupational licensing is a notorious barrier to economic activity, making it more difficult for younger people and immigrants to break into an industry, especially if the licensing system is hard to navigate.

Cumbersome bureaucratic systems can be barriers to businesses trying to start new ventures and low-income households trying to get assistance to put food on the table.

Thomas’s plan is to build a structure run by the Ohio Department of Administrative Services to improve agency service delivery.

The Director of Administrative Services will appoint an executive to serve as a lead in improving service delivery, determine which services are “high-impact,” and prepare an annual report to the governor and legislative leaders on service delivery in Ohio.

This newly appointed lead would be in charge of developing service quality standards and collecting quantitative and qualitative data on service delivery.

Agencies would then each designate their own service delivery officials and develop implementation plans to meet the standards set by the service delivery lead.

On paper, this looks like a plan that could yield benefits for the state of Ohio.

The federal government passed a similar bill that was signed into law early last year, but it is still a bit too early to tell if this will end up yielding any service delivery benefits.

Some states have seen success with similar programs.

Utah’s “Citizen Feedback Program” was created in 2020. Recommendations that have come out of this program have shown that moving people from in-person, paper, and phone services to digital services can save the state tens of millions of dollars in administrative costs.

The New York Experience program launched by the State of New York reports its program has led to licensing wait times falling by 83%, its Division of Human Rights backlog declining by 44%, and its Higher Education Services Corporation eliminating its backlog of 8,000 unprocessed grants and scholarships for students in the state.

The Pennsylvania Governor’s Office reports its Commonwealth Office of Digital Experience has saved taxpayers $10 million by turning to digital services rather than vendors for service delivery.

Government efficiency will not solve all problems in the state. But promoting efficiency in service delivery is low-hanging fruit to help people in need, businesses, students, and workers get what they need from the state of Ohio without more friction and pain than is necessary.

A program like this has the potential for significant upside for the state of Ohio.

This commentary first appeared in the Ohio Capital Journal.

How did Ohio become a top 10 state for the price of gas?

Over the past several months, Americans across the country have been feeling the strain of rising gas prices. Living in Columbus, Ohio, I felt it firsthand last night when it cost me over $50 just to fill up my small sedan. With local prices sitting around $4.99 per gallon, this month is on track to be the second most expensive month for gas in Ohio history. The only other times we've seen prices get anywhere near this high were during the summer of 2022, where gas prices were priced similarly primarily due to Russia’s full scale invasion of Ukraine, and back during the 2008 recession. This raises the question– why are gas prices in Ohio starting to reach record high levels?

Why are gas prices rising?

Every year, gas prices tend to rise during the spring and early summer months. This is partially due to oil refineries switching from their winter-blend fuel to summer-blend fuel. Due to warmer weather, cars don’t need the fuel to evaporate as easily to start up. Instead, summer-blend fuel focuses on keeping emissions and smog low to meet various state and regional requirements. On top of that the demand for gas is higher during spring and early summer months, which can sometimes increase gas prices by 10 to 15 percent.

This spring, gas prices have been rising at unusually high rates. Over the past several weeks, the United States and Iran have been conducting naval blockades of the Strait of Hormuz related to their ongoing conflict. A quarter of the global seaborne oil supply passes through the strait, so blockades result in oil prices skyrocketing. Although the United States doesn’t import much oil from the Middle East, domestic prices for crude oil and gasoline are still reliant on global price trends since crude oil is traded at such high volumes in the global market. 

The conflict between the United States and Iran has now been happening for more than two months. Peace talks are underway, but it’s unclear whether or not the Strait of Hormuz opening back up this summer will significantly ease gas prices throughout the rest of the year.

How expensive are gas prices now?

As of May 3, 2026, the national average price for gas is about $4.45 per gallon. Average gas prices by state can be found in the table below.

Gas Prices by State
State	Gas Price
California	$6.10
Washington	$5.67
Hawaii	$5.63
Oregon	$5.25
Nevada	$5.17
Alaska	$5.04
Illinois	$4.93
Ohio	$4.89
Michigan	$4.87
Indiana	$4.83
Arizona	$4.74
Connecticut	$4.52
Pennsylvania	$4.52
District of Columbia	$4.48
Idaho	$4.46
New York	$4.45
Colorado	$4.44
New Jersey	$4.42
Vermont	$4.42
Maine	$4.40
Utah	$4.39
Rhode Island	$4.38
Wisconsin	$4.37
Florida	$4.34
New Hampshire	$4.34
Massachusetts	$4.34
Montana	$4.32
Wyoming	$4.30
West Virginia	$4.30
Maryland	$4.27
Kentucky	$4.22
Delaware	$4.21
Virginia	$4.17
New Mexico	$4.16
North Carolina	$4.08
South Dakota	$4.06
Minnesota	$4.05
South Carolina	$4.00
Tennessee	$3.99
North Dakota	$3.99
Missouri	$3.97
Kansas	$3.96
Alabama	$3.96
Nebraska	$3.96
Iowa	$3.95
Texas	$3.92
Louisiana	$3.90
Oklahoma	$3.89
Mississippi	$3.88
Arkansas	$3.88
Georgia	$3.85

Like always, gas prices are the highest on the West Coast, with California, Washington, Hawaii, Oregon, Nevada, and Alaska all above $5.00 per gallon. California tops this trend at a whopping $6.10 per gallon. Gas prices are often higher on the West Coast because states are farther away from suppliers. Additionally, California has especially strict regulations around the blend of gasoline permitted to be sold.

On the other hand, gas prices are currently lowest in the Deep South, with Georgia, Mississippi, and Arkansas having the three lowest prices per gallon. Southern states’ proximity to refineries along the Gulf Coast keep gas prices low alongside relatively lax state regulations around gasoline blend.

Normally, states in the Midwest face relatively low gas prices. However, following the top six most expensive states for gas which are all located in the West, Midwestern states fill the next four spots. Illinois, Ohio, Michigan, and Indiana all boast average gas prices upwards of $4.80 per gallon. On top of pre-existing global supply concerns for gasoline, Indiana and Missouri refineries are facing unexpected operational disruptions, which is driving midwest gas prices even higher.

How have gas prices changed?

Since January 20, the national average for gas prices has increased from $2.83 to $4.45 per gallon, a 57% increase. In the chart below, gas prices from January 20 until now are shown by state.

In January, 41 states had average gas prices below $2 per gallon. Now, just 13 states have average gas prices below $4 per gallon. Ohio has experienced the most dramatic increase in gas prices, a 79% increase from $2.74 per gallon in January to $4.89 per gallon now, while states like Hawaii which had already high gas prices are experiencing the lowest percent changes.

Across most states, gas prices were increasing steadily throughout February. In March, most states saw a huge jump, with gas prices leveling out the past couple weeks.

Ultimately, regional dynamics are the cause of Ohio’s gas price spike. This will likely lead to more pain for households, especially low-income and car-dependent households. This is an example of state economies being impacted by federal policy. Until the Strait of Hormuz is stabilized, states like Ohio will continue to suffer from high gas prices.

Survey: Economists agree that the costs of AI data centers exceed the benefits but don’t recommend a ban on construction

In a survey released this morning by Scioto Analysis, 10 of 14 economists agreed that tax incentives for data centers are not an efficient use of public funds to stimulate job growth in Ohio.

Petitioners in Ohio have started collecting signatures to get a proposed constitutional amendment to ban data centers on the November ballot. Ohio already has about 200 data centers, the fifth largest in the country. Proponents of data centers argue that they create jobs and stimulate the economy, while opponents argue they increase energy prices and use up otherwise valuable farmland.

Most respondents disagreed that tax incentives for data centers are an efficient use of funds, with 3 economists uncertain and 1 economist agreeing. Albert Summell of Youngstown State University explained “I can’t think of a worse use of public funds than to incentivize data centers. They are associated with very few permanent jobs and high external costs”. Other economists who were more uncertain expressed that whether or not tax incentives for data centers are an efficient use of funds depends on what economic activity occurs after construction commences.

8 of 14 economists disagreed that the economic benefits of new data centers in Ohio exceed the environmental and energy market externality costs associated with their construction. According to Charles Imboden of Bowling Green State University, “[Data centers] create very few jobs and destroy environmental conditions, for example by changing water temperatures [and] disrupting fish stocks”. Of the remaining economists, 2 agreed and 4 were uncertain. Among those who agreed, economists expressed that the environmental costs would be small, and the potential tax revenue could exceed such costs.

8 of 14 economists agreed that the economic costs of a statewide ban on new data centers in Ohio would outweigh the economic benefits. Michael Jones of the University of Cincinnati expressed, “It should be up to the market to pick winners and losers; and Ohio should not be targeting a particular industry. If there are concerns about energy use or land use, then data centers should internalize and pay the real costs of their deployment.” Of the remaining economists, 5 were uncertain and 2 disagreed. The economists who were uncertain recommended that data centers should be taxed according to their external costs or forced to cover the increased costs of electricity.

The Ohio Economic Experts Panel is a panel of over 30 Ohio Economists from over 30 Ohio higher educational institutions conducted by Scioto Analysis. The goal of the Ohio Economic Experts Panel is to promote better policy outcomes by providing policymakers, policy influencers, and the public with the informed opinions of Ohio’s leading economists. Individual responses to all surveys can be found here.

The coming Medicaid coverage cliff

In July 2025, President Trump signed the One Big Beautiful Bill Act into law. The legislation is a large budget reconciliation bill that mainly focuses on tax cuts and reduced social spending. One social program facing a substantial reduction in spending due to the bill is Medicaid, the largest single insurer in the United States.

There is a laundry list of changes coming to Medicaid in the next few years, but the ones affecting beneficiaries the most are new work requirements for Medicaid expansion coverage and more frequent eligibility checks.

New work requirements for Medicaid

By 2027, states must mandate that recipients engage in at least 80 hours per month of paid employment, job training, education, or community service to remain eligible for Medicaid coverage. Exceptions to this rule include parents with children ages 13 and younger and those who are medically frail. 

Currently, states are generally prohibited from making Medicaid eligibility contingent on work. During the first Trump presidency, 13 states received approval to implement work requirements through Section 1115 waivers, which allow states to experiment with Medicaid models that differ from federal statutes. All 13 of these states either had these waivers rescinded during the Biden presidency or withdrew them voluntarily. As of now, Georgia is the only state that maintains work requirements, also through a Section 1115 waiver.

Work requirements for Medicaid coverage are likely to result in fewer covered individuals due to procedural barriers such as submitting documentation to prove they have met the hourly quotas. This may disproportionately impact nontraditional workers such as those who rely on gig work. Recipients who meet an exception, such as those who are chronically ill, may also find it more challenging to navigate complex online portals or submit specific medical documentation.

More frequent eligibility checks for Medicaid

The One Big Beautiful Bill Act also requires states to check for eligibility for Medicaid more frequently. By 2028, states must verify whether Medicaid enrollees are still eligible for services at least every six months, with flexibility provided to states to check more often if they choose. Currently, states are only required to confirm Medicaid eligibility annually.

More frequent eligibility checks are expected to reduce Medicaid coverage due to procedural barriers such as address changes, missing notifications, and increased opportunities for administrative errors. It is also likely that more recipients will become temporarily disenrolled and then reenrolled, which only serves to increase the administrative burden for state and local governments.

Medicaid enrollment reductions due to the One Big Beautiful Bill Act

In total, between 4.9 and 10.1 million people will lose Medicaid coverage in 2028 due to work requirements and more frequent eligibility checks. Roughly 2 to 3.1 million of these recipients will lose coverage due to their eligibility being redetermined more frequently, and roughly 3 to 7 million will lose coverage specifically due to work requirements.

Because Medicaid is administered primarily at the state level, the impacts of these proposed changes will ripple through the states, with the individual effects varying widely by region. In the following table, we show the number of disenrollments expected from each state in 2028 based on analysis from the Robert Wood Johnson Foundation, ordered from highest to lowest percent change.

Medicaid Enrollment Reductions
State	Projected Coverage Loss	Percent Change
Massachusetts	−161,000	−54%
Connecticut	−155,000	−51%
Maryland	−172,000	−51%
Vermont	−20,000	−50%
Minnesota	−91,000	−49%
New York	−955,000	−48%
Virginia	−269,000	−47%
Missouri	−169,000	−47%
California	−1,995,000	−46%
Delaware	−28,000	−45%
New Jersey	−242,000	−44%
Arizona	−197,000	−44%
New Hampshire	−23,000	−44%
Illinois	−324,000	−44%
Rhode Island	−34,000	−43%
Colorado	−165,000	−43%
Hawaii	−57,000	−43%
Washington	−260,000	−43%
West Virginia	−61,000	−42%
Wisconsin	−70,000	−42%
Maine	−28,000	−41%
Kentucky	−166,000	−41%
Louisiana	−205,000	−41%
District of Columbia	−46,000	−41%
Ohio	−285,000	−40%
Iowa	−72,000	−40%
Michigan	−287,000	−40%
Utah	−33,000	−40%
Idaho	−30,000	−38%
Nevada	−113,000	−38%
Pennsylvania	−276,000	−37%
Oklahoma	−87,000	−37%
Montana	−28,000	−36%
Arkansas	−78,000	−36%
North Carolina	−249,000	−36%
Alaska	−23,000	−36%
New Mexico	−87,000	−36%
Nebraska	−25,000	−35%
Indiana	−201,000	−35%
Oregon	−185,000	−34%
South Dakota	−11,000	−34%
North Dakota	−8,000	−30%

Many of the states with the highest Medicaid enrollment rates are the states projected to be most affected by changes to Medicaid from the One Big Beautiful Bill Act, such as Massachusetts and Connecticut. Generally, states are expected to lose between 30% to 54% of their expansion populations due to eligibility changes.

How the One Big Beautiful Bill Act will change uninsured rates

While Medicaid is frequently considered a program intended solely to improve health outcomes, it effectively serves as a mechanism for fiscal relief for millions of American households. By ensuring access to low-cost health insurance, Medicaid frees up household budgets, providing recipients with more disposable income for necessities like housing and food, while reducing the likelihood of falling into medical debt. When people lose Medicaid coverage, especially lower-income populations, they face a tradeoff: pay out-of-pocket premiums for a private health insurance plan or forego coverage to save money for other immediate expenses.

To understand how changes to Medicaid from the One Big Beautiful Bill Act will affect uninsured populations, we compare current uninsured numbers to the potential increases expected from Medicaid recipients losing eligibility in 2028.

Impact on Uninsured Populations
State	Projected Coverage Loss	Current Uninsured	Projected Total Uninsured	Percent Change
New York	−955,000	973,715	1,928,715	98%
California	−1,995,000	2,314,464	4,309,464	86%
Oregon	−185,000	219,386	404,386	84%
Massachusetts	−161,000	198,589	359,589	81%
Connecticut	−155,000	211,726	366,726	73%
West Virginia	−61,000	100,543	161,543	61%
Louisiana	−205,000	348,045	553,045	59%
Michigan	−287,000	507,760	794,760	57%
Kentucky	−166,000	308,763	474,763	54%
Washington	−260,000	511,691	771,691	51%
Virginia	−269,000	595,595	864,595	45%
Maryland	−172,000	390,741	562,741	44%
Iowa	−72,000	174,113	246,113	41%
New Mexico	−87,000	211,289	298,289	41%
Indiana	−201,000	512,807	713,807	39%
Delaware	−28,000	71,608	99,608	39%
Illinois	−324,000	860,898	1,184,898	38%
Pennsylvania	−276,000	752,566	1,028,566	37%
Maine	−28,000	76,864	104,864	36%
Ohio	−285,000	782,626	1,067,626	36%
Missouri	−169,000	474,886	643,886	36%
Colorado	−165,000	463,722	628,722	36%
New Jersey	−242,000	727,278	969,278	33%
Minnesota	−91,000	290,828	381,828	31%
Nevada	−113,000	366,606	479,606	31%
Alaska	−23,000	77,532	100,532	30%
Montana	−28,000	98,102	126,102	29%
Arkansas	−78,000	284,915	362,915	27%
North Carolina	−249,000	927,893	1,176,893	27%
Arizona	−197,000	767,380	964,380	26%
Wisconsin	−70,000	310,536	380,536	23%
Oklahoma	−87,000	461,884	548,884	19%
Nebraska	−25,000	139,831	164,831	18%
Idaho	−30,000	181,552	211,552	17%
South Dakota	−11,000	73,403	84,403	15%
Utah	−33,000	288,681	321,681	11%

We project some of the most populated states to see the highest percent increases in the number of uninsured residents. We project New York, for instance, to see its uninsured population surge by over 98%, effectively doubling the number of uninsured residents. Similarly, California and Oregon face increases of 86% and 84% respectively, penalizing states with high populations and high Medicaid enrollment.

If those who lose Medicaid coverage remain uninsured, health systems in low-income communities which rely on Medicaid funds may become strained, worsening accessibility to medical facilities for low-income communities even more.

The Long-Term Outlook

The changes coming to Medicaid in the One Big Beautiful Bill Act will likely lead to millions of people losing coverage across the country. This change represents a shift in the priorities of Medicaid spending from promoting health insurance coverage for low-income households to reducing state and federal spending on Medicaid line items. While these changes may save taxpayers in the short run, they risk straining the administrative capacities of state and local governments and worsening healthcare options for low-income households across the nation.

Original Analysis: Oklahoma Wage Increase Would Lift 40,000 Oklahomans, including 16,000 Children, out of poverty

A new Scioto Analysis study examining the impact of Oklahoma’s upcoming minimum wage ballot measure estimates that raising the state’s minimum wage to $15 per hour will lift 40,000 residents, including 16,000 children, out of poverty. 

The report, written by Scioto Analysis on behalf of This Land Research and Communications Collaborative analyzes how increasing the minimum wage to $15 impacts poverty and the cost of living.

“Our analysis shows an increase in the minimum wage to $15 an hour will have a significant impact for Oklahoma families and the overall economy,” Rob Moore, Principal of Scioto Analysis and lead author of the report said, “Lifting 40,000 Oklahomans out of poverty, giving pay raises to the parents of more than 200,000 children will help more Oklahoma families keep up with rising costs and will make Oklahoma the most affordable state in the region for minimum wage workers.”

Oklahoma currently ranks as the eighth-poorest state in the nation, with one in seven residents living below the federal poverty line. The study found that rising costs following the COVID-19 pandemic have made Oklahoma increasingly expensive for working families.

In this study, we estimate a $15 minimum wage for the state would result in

• 40,000 fewer people in poverty

• 16,000 fewer children in poverty 

• ALICE “household survival budget” becoming affordable for single childless full time workers

 The research also examined the impact on working Oklahomans’ ability to afford basic living expenses. According to United Way estimates, a single adult in Oklahoma needs $2,315 per month to cover housing, food, transportation, healthcare, technology, and taxes. Under the current minimum wage, workers must work nearly 74 hours per week to afford these necessities. A $15 minimum wage would reduce that requirement to roughly 36 hours per week.

Additionally, the research suggests that a $15 minimum wage would make Oklahoma the most affordable state for minimum-wage earners in the region–improving the state’s competitiveness in attracting and retaining workers.

This study was the fifth in a series of Scioto Analysis studies on the minimum wage in Oklahoma. Past studies were on the minimum wage’s impact on housing affordability, public safety, health, and economic growth.

Can child care reforms help families overcome benefit cliffs?

Last week, Ohio House Representatives Desiree Tims and Crystal Lett introduced a bill to expand eligibility for publicly funded child care in the state of Ohio.

Ohio House Bill 827 would expand eligibility for the Publicly Funded Child Care program for families first enrolling in the program, and families staying on the program. In general, the bill would expand eligibility for child care for more low- and middle-income families that are above the federal poverty line.

Publicly funded child care is generally designed as a work support program. Much of the debate around how the program works in Ohio revolves around how it supports working families and how it impacts their ability to support themselves.

The topic has become a flashpoint in the debate around benefits cliffs. Many people worry about how benefit eligibility can create disincentives for workers to take raises, promotions, or otherwise advance in low-wage careers due to steep drop-offs in benefits eligibility.

Think of it this way: say you are working in a low-wage profession and you have an infant in a child care center who is covered by publicly funded child care. According to price research by Child Care Aware, this child care slot would cost nearly $14,000 on the private market.

Now say you get offered a $5 an hour raise. Sounds like a good deal, right? Well it is if you keep eligibility for your child care benefit. But $5 an hour only adds up to a little over $10,000 over the course of a year for a full-time worker. So taking the raise will actually end up putting you a few thousand dollars behind if you lose your child care benefit in the process.

Over the years, policymakers have been working to reduce these disincentives, making benefits taper off slowly as workers move from low to middle-income, rather than having strict income eligibility thresholds that make workers face these “cliffs.” H.B 827 aims to help with this by expanding eligibility for publicly funded child care for low- and middle-income families.

There is another justification for this reform: need. A large research project by the United Way has been arguing for years that the costs of a range of “basic” goods should lead policymakers to pay attention to low and middle-income families above the federal poverty threshold when designing policy. Elevated inflation rates over the past few years has made this pressure even more salient for families.

It’s worth noting, however, that this policy will primarily benefit households above the federal poverty line. This matters in a state where 1.5 million residents, including 400,000 children, are living on incomes below the federal poverty threshold. A reform like this could help some of these families by removing barriers to economic advancement.

This reform could also be a part of a continuing trend of shifting social spending from families that are in deep poverty to middle-income families. Large safety net programs like the Earned Income Tax Credit and the Child Tax Credit are designed for families that have higher incomes than the lowest-income families. They support families much more who are above the federal poverty threshold than who are below it.

In an ideal world, our safety net will help families who are in poverty while also supporting families to escape poverty. We still have a lot of work to do to realize this ideal.

This commentary first appeared in the Ohio Capital Journal.

What could state and local governments buy with the cost of the war in Iran?

As of the writing of this article, the United States has spent half a month in a ceasefire with Iran. According to the New York Times, the White House has not released any estimates of the cost of the war, but independent groups estimate it has cost between $28 and $35 billion since it began.

It can be hard to get our heads around what these tens of billions of dollars mean. The Census Bureau did recently give us one yardstick that we can use for some sort of comparison, though: a first look at the 2024 results of the Annual Survey of State and Local Government Finance.

The Annual Survey of State and Local Government Finance is a valuable data source for people like us who spend our time analyzing state and local budgets. This survey collects data from state and local governments across the country which the Census Bureau then uses to estimate what total spending looks like in state and local governments across the country.

The data released this month is just a “first look.” This means that they are releasing aggregate nationwide data–basically what state and local governments spent on a number of different categories taken as a whole. This does give us an interesting point of comparison for spending on the war in Iran. If this money was instead given as a transfer to the nation’s state and local governments, what could they finance with it?

State revenues that could be replaced by Iran War spending

First, let’s look at the revenue side of the equation. The way we could think of this is what revenue streams could be completely replaced if the federal government gave its Iran War money to states instead of using them to wage the war. Below are a few examples.

State property taxes: $23 billion

Coming in below the $28-35 billion estimated cost of the war in Iran are state property tax costs. Now most property tax is collected by local governments–the recent First Look estimate is that local governments collected about $700 billion in property taxes in 2024. But state governments collected $23 billion of their own property taxes. This matters because property taxes are regressive since low-income people spend a larger proportion of their income on housing than upper-income people, and renters pay the brunt of property taxes for their landlords in the form of higher rents. Giving a grant that would allow state governments to do away with their property taxes would put a lot of cash back in the pockets of low-income families.

Motor vehicle licenses: $34 billion

Yep, that’s right: we could make all registrations of cars free with the amount of money the federal government has spent on the war in Iran. This is another fee that often falls more heavily on low-income families since it is usually assessed as a flat fee that falls on each vehicle. Doing away with this fee would be very helpful for low-income households in parts of the country where a car is essential for work.

Local education charges: $25 billion

Local governments charge fees for education services they provide, like community colleges they run, school lunches they charge for, some tuitions they charge, and other charges. All of these could be made free for the cost of the war in Iran. I don’t want to gloss over this portion of it: local governments collected $4.4 billion in lunch fees in 2024. This means that dialing the war spending back by as little as 12% could have freed up enough funds to make school lunches free for the whole country.

State lotteries: $35 billion

State lotteries collected about $35 billion in funds, much of which went to education and funding other state programs. These lotteries could be done away with or just become free with the cost of the war in Iran. This could be a boon for addictive gamblers who lose money on the lottery and also could do away with a regressive institution which costs that fall much more heavily on low-income people than on upper-income people.  

State programs that could be financed by Iran War spending

Now let’s look at expenditures. These are categories of spending in state and local government that could be financed at the cost of the war in Iran.

State elementary and secondary education spending: $24 billion

While the bulk of elementary and secondary school spending comes from local government, states supported elementary and secondary schools to the tune of $24 billion in 2024. That means that a grant that financed all state contributions to elementary and secondary school spending could have been financed with the cost of the war in Iran.

Local library spending: $16 billion

This one is considerably less than the current estimates of the war in Iran, but I had to include it. Local governments across the country spent about $16 billion on libraries in 2024. That means that all the local libraries in the country could have been funded for a year and the federal government could have still had enough money left over to fund a small war in Iran.

State police spending: $24 billion

States have police forces like state patrols that are in charge of keeping highways safe and enforcing state laws. These could be funded across the country for a year for the cost of the war in Iran.

Local jails: $35 billion

Local jails across the country are used to hold people who have been convicted of minor crimes and to hold people before sentencing. The nation’s local jails could be financed for a year with the cost of the war in Iran.

State transit spending: $21 billion

States across the country spent about $21 billion on transit support in 2024. For the cost of the war in Iran, the United States could fund all the state support for transit agencies across the country for a year.

Spending has opportunity costs. The federal government could be making school lunches free, replacing state property taxes, or funding all the local libraries across the country. Instead, it is fighting a war in Iran. I am not an expert in foreign policy, but I can tell you that the opportunity costs for this spending are steep.

Which states have the most no-car households?

Last month, I attended the National Bike Summit, a conference hosted by the League of American Bicyclists. I did this because the executive director of the Iowa Bicycle Coalition was presenting the results of the economic impact analysis we had conducted on their behalf the previous year.

At the conference, I heard a range of different presentations. These ranged from a county commissioner from Houston speaking about the growth of bicycle infrastructure in his city to the editor-in-chief of the Cook Political report speaking on the federal prospect to the midterms to cycling economists from the Netherlands running a simulation on cycling reform at the local level. 

The final talk of the conference, though, was the most fiery. It was given by the hosts of a popular podcast called The War on Cars that is focused on pushing back against car culture in the United States.

Full disclosure: I am a bit more on the “ditch your car” side of the transportation spectrum myself. I never owned a car in high school or college and managed to live without one until an employer in Omaha required me to buy one as a condition of employment. Once I moved to California, I got rid of my car and was able to live mainly walking, bussing, and biking until my current fiancee moved in with me a couple of years ago. I am now the owner of 0.5 cars.

The message of the “War on Cars” is intentionally provocative. One of the hosts even went as far as to say that no one was going to listen to a podcast called “incremental change for win-win solutions.” But there are reasons to worry about reliance on cars.

In a 2019 policy brief I wrote–one of our first as a firm–I wrote about the opportunity for the automation of cars to open the door to vehicle miles traveled fees. In this brief, I went over the many costs of another car on the road.

One is congestion. While road usage can function like a public good under most circumstances, at the time that people want to use cars the most, space on roads becomes rivalrous and car speed slows. This leads to higher commute and travel times for drivers, which is time people do not get back. Fewer cars on the roads means less congestion, which means more time for people.

A second cost of cars is crashes. Tens of thousands of Americans lose their lives to car crashes every year, and many others lose their cars or sustain injuries due to them. Fewer cars on the roads means lower chances of sustaining injury or risking death due to being in a car.

Cars also emit pollution into the atmosphere. Local emissions like particulate matter and nitrous oxide clog lungs and lead to cardiovascular disease and death. Carbon emissions hasten climate change. The fewer cars are on the road, the fewer emissions are impacting human health and the long-term sustainability of the earth.

A final impact of cars is infrastructure degradation. Every time a car drives on the road, it slowly wears down the road and degrades its quality. More degradation of quality can lead to more dangerous roads which can cause damage to cars or even lead to more crashes. If roads degrade too much, they will become inoperable. More cars on the roads means more spending on maintenance of roads. Fewer cars on the road increase their lifespan.

The socially optimal number of cars on the road is a number determined by the marginal social cost of an extra car on the road equalling the marginal social benefit of an extra car on the road. This could be different in different states since different states have different topography and economies. That being said, understanding how many households do not have cars gives us some idea of how reliant a given state is on cars and how much that state has been able to diversify its transportation system. It also could give a snapshot of deprivation. In many parts of the country, it is difficult to participate in the economy without a car. Seeing what percentage of people do not have cars gives us a view of the percentage of people who are not able to participate in the economy in a certain way.

So here it is. In the table below, you can see what percentage of households do not have a car in each of the 50 states.

Households Without a Vehicle

From this list, I have noticed a few things.

There is a large concentration of states in the northeast that have high levels of no-car households. Nearly one in three New York households do not have a car, likely due to its inclusion of the largest city in the United States, which has a strong multimodal transportation network. Massachusetts, New Jersey, Pennsylvania, Rhode Island, Maryland, and Connecticut are all within a state or two of New York and also in the top 10 states for no-car households.

Many states in the Midwest are in the top half of the list of no-car households: Illinois (3), Ohio (12), Minnesota (18), Michigan (19), Missouri (20), North Dakota (21), Wisconsin (22), and Indiana (25). A random Ohio household is less likely to own a car than a random California household.

The states with the highest levels of car ownership are Western states. Idaho, Wyoming, Utah, and Montana are the top 4 states for car ownership, all with over 95% of households owning cars. The only other state to meet that threshold is South Dakota (95.2% car ownership).

There is one strange outlier in this list: Alaska. The state of Alaska has over 9% of households without a car. This could be for a combination of reasons: spread out infrastructure that makes cars less viable as a form of transportation, higher costs of car ownership in Alaska than in the “lower 48,” or high levels of poverty in Anchorage. Whatever reason, Alaska is a strange inclusion in the top 10 least car-dependent states.

Prevalence of no-car households is a little bit of a chicken-and-egg problem. Do these places have fewer cars because there are more alternatives or do more alternatives exist because there are fewer cars? It is likely a combination of the two. The benefit they get, though, is fewer costs associated with having too many cars on the road.

Market failure: Tragedy of the commons

In this post, I am going to explain the basics behind another common market failure, the tragedy of the commons. If you would like a more broad overview of what a market failure is, I have a previous blog post on that topic. If you want more deep dives on market failures, check out my posts on externalities and natural monopolies. Additionally, I won’t be going into any of the math behind this concept. Instead, this will be a more intuitive discussion of how the tragedy of the commons works and what its impact on markets is.

What is a “common good?”

Common goods are sometimes confused with public goods because they are both non-excludable and the public sector ends up intervening in these markets. The key difference between these two is that common goods are rivalrous, meaning that one person’s consumption of the good does prevent others from consuming it as well. A common example is a lake that people commonly use for fishing. It is largely impractical to exclude people from fishing on the lake, but if too many people fish they will overfish the lake and there will be no fish left in the future. 

Why the tragedy of the commons happens

The “tragedy” in the tragedy of the commons comes from a mismatch between individual incentives and collective outcomes. Each individual user of a common good has an incentive to use as much of the resource as they reasonably can. If I am fishing in a shared lake, I benefit directly from catching one more fish. However, the cost of that extra fish (slightly reducing the fish population) is spread out across everyone who uses the lake now and in the future.

Because each person only experiences a small fraction of the total cost, it becomes rational for individuals to keep using the resource heavily, even when it harms the group as a whole. If everyone behaves this way, the resource eventually becomes depleted or degraded. In the fishing example, this could mean smaller catches over time, collapsing fish populations, or eventually a lake that can no longer support fishing at all.

Why common goods are market failures

Common goods lead to market failure because private markets alone often struggle to manage them efficiently. Since these goods are non-excludable, it is difficult to assign clear property rights or charge people directly for their usage. A competitive market would establish an equilibrium price where the consumers of the good are directly bearing the costs of consumption.

This leads to overuse, underinvestment in maintenance, and long-term damage to the resource. The total value society gets from the resource declines because there is no built-in mechanism to protect it from overuse.

How policymakers respond to the tragedy of the commons

Because common goods are vulnerable to overuse, public policy often plays an important role in managing them. One common solution is to create rules that limit how much individuals can use the resource. Fishing quotas, hunting seasons, and permits for backcountry campsites are examples of this approach. By restricting total usage, policymakers can help ensure that the resource remains available over time.

Another approach is to introduce forms of exclusion where they were previously difficult. For example, governments may issue licenses or permits that limit the number of users who can access a resource. In some cases, resources are assigned property rights, allowing individuals or groups to take responsibility for managing them. When users have a stake in the long-term health of the resource, they often have stronger incentives to conserve it. This has been a successful strategy for conservation of forest lands used for logging. There are also hybrid approaches that rely on community management. In some areas, local users collectively develop rules for sharing resources in sustainable ways. 

With thoughtful rules, incentives, and oversight, common goods can be managed in ways that balance individual use with long-term sustainability. When done well, these solutions help preserve valuable shared resources while still allowing people to benefit from them.