Marginal Utility

by Tom Bozzo

Commenter "Bratfest" (*) pointed out that the corporatist Wisconsin State Journal editorial page lined up with the progressive Cap Times against overturning the Plan Commission. Their preference is for the developer to negotiate project parameters that would pass the Plan Commission. The upshot:

So now it's the Cap Times AND the State Journal; Soglin AND Konkel pushing "no." Where does that put you on the local political spectrum?

Economists do, on some matters, end up on an axis that's orthogonal to the usual political spectrum. Bratfest also asks:

Assume that WF would locate at the same spot with the structured parking and multi-story plan the Plan Commission wants. Assume that Freed works hard to lease the rest of the structure, a risk they have taken with the rest of the development. Then what's your opinion?

Since I'm an economist, but not insane (**), this would of course be fine with me. My concern is that it assumes away the problem. The additional urban amenities are desirable to the city and its residents, but costly. Depending on Whole Foods unknown willingness to pay more for the Hilldale location (assuming its rent is unsubsidized), the amenities' costs may induce them to find an alternative site, probably outside the city — there obviously are not limitless locations for a 50,000 square foot building and its parking within the city limits that wouldn't lead to the same concerns from the Plan Commission. (Unless they could manage to take over the Copps structure in the Shorewood shopping center. That would be cool if improbable.) If the city insists on amenities and Whole Foods moves elsewhere as a result, the costs are those associated with the promotion of sprawl, etc.

At this point, I'd say that some gruesome details of my thinking are below the fold, but I haven't implemented the feature of hiding such things in the Marginal Utility template. So while the bulk of the argument is above, a bit more of my thinking is below. You are warned that it is a partly mathematical summary of some mathematical thinking.

Bratfest's assumption is an outcome to which I'd assign some probability, call it P(Hilldale|Bratfest), that Whole Foods will move to the Hilldale site under the given scenario. (In probability theory, the "|" means "conditional on," with technical implications, but I'm using it a bit more informally to mean "in the scenario preferred by.") Then there's P(Hilldale|WSJ), the probability that there's some intermediate design that can satisfy all parties on the site. P(Hilldale|Bozzo) is the probability that the plan that flunked the Plan Commission is the only one (apart from small modifications) that will keep Whole Foods at Hilldale — so if the Council says no, Whole Foods walks.

With some fiddling of the definitions, those can be made to cover the set of outcomes that end up with Whole Foods at Hilldale, which everyone in Madison seems to want (or at least not oppose, for those who couldn't care less) at least to some extent. The uncertainty here arises from our outsider ignorance of the actual decision parameters for Whole Foods and the developer.

My position is based on two assumptions and a feature of my preferences.

One assumption is that the probability P(Hilldale|Bozzo) — the probability Whole Foods ends up at Hilldale if the existing proposal is admitted basically "as is" — is 1. If the council gives its OK, there's no doubt that Whole Foods will move to Hilldale and thus stay in the relatively near West Side. Moreover, that's large relative to P(Hilldale|Bratfest) and P(Hilldale|WSJ), and possibly also large relative to the probability that either alternative scenario leads to Whole Foods at Hilldale; P(Hilldale|Bozzo) = 1 ≥ P(Hilldale|WSJ) > P(Hilldale | Bratfest). (Strictly speaking, the negotiations favored by the WSJ could lead to revelation of the information that the current proposal is basically the best offer.) That implies that P(Not Hilldale|Bratfest) and P(Not Hilldale|WSJ) are relatively "large," whereas P(Not Hildale|Bozzo) is zero — the last, again, just saying that the developer will implement its proposal if approved. "Not Hilldale" probably means a move to a Fitchburg or Middleton development where the "big box" concerns will be attenuated. I assume those because if Whole Foods was willing to pay a lot more to be on University, the developer should have returned to the Plan Commission with an alternative design more appealing to the Commission's no voters.

The preference features are that I'm loss-averse, and consider the gains from the plan features desired by the Plan Commission's naysayers to be small relative to the losses to the city from having Whole Foods decamp. So the gains from the additional amenities can't compensate me for the losses associated with the probability that the development will just move elsewhere if forced to provide them; it would be the equivalent of playing "chicken" and losing. (A notable difference between this scenario and "chicken" is that Whole Foods doesn't necessarily incur a large loss from the "collision," given that there's a close alternative site from its perspective; the developer, stuck with the vacant office buildings, has to go back to square one and is worse off.) I shouldn't be overdramatic: Madison would survive. The benefits to that outcome, however, would be substantially limited to the plan opponents' self-satisfaction and the convenience of some suburbanites.

(5/1/06: Edited in probably vain attempt to convert the original post into something approximating English in response to "Bratfest's" comment.)