Friday, June 24, 2011

A Study in Incentives - The Del Taco Debate

A Study in Incentives – St. Louis Aldermen

One of the key topics in marketing is understanding your customer – why do they buy, why don’t they buy, and what incentives can we, as marketers, use to influence these decisions. In urban circles, too much seems to focus things that need to be done because urbanists think it’s a good idea – not on what incentives the “customer” has to make a decision. Urbanism would be a lot more successful if we spent more time asking the fundamental question, “What’s in it for me?” and less time proselytizing about what we think the right decisions are.

One recent situation in St. Louis has sparked my interest as a study in incentives for a St. Louis Alderwoman. A developer wants to tear down a mid-century modern building and replace it with new, more pedestrian focused retail:


Of course, it’s not so simple. This building is in a historic preservation district, so in theory it needs to be reviewed and approved for demolition. There is a way around this – the Alderwoman for the area, Marlene Davis, has proposed an ordinance blighting the building and approving for demolition, along with another that would create a special tax district for the new development.

Rather than decry the nearly inevitable demolition of this building, let’s look at the incentives for the parties involved:

The Developer: Gets to tear down a building that doesn’t produce much income (and has a bankrupt tenant), and replace it with more and more modern space that will likely drive higher rents. On top of that, the taxpayers will help tear it down and finance the replacement. It’s a win, win, win situation for the developer. Of course, we’re all paying for something he’d like to do anyway. Even if the building is approved for demolition, this plot in the middle of a major university campus does not need tax financing to help pay for it.

Marlene Davis, Ward Alderwoman: Gets to point to “progress” in her ward. Likely promises of jobs created in the area (no matter that it’s retail and likely low paying). Keeps a wealthy constituent happy, producing potential reelection income in the future. The incentive for every alderman is to keep wealthy people who can make campaign contributions happy, no matter what the detriment to the city. The developers promise jobs and "the future," most of their voters simply don't care, and the rest of the city has no say in their continuing employment as an alderman.

There’s no real downside to a single alderman supporting demolition of anything in their ward - other than thousands of people in other wards getting upset at the demolition of this structure – people who don’t vote for them anyway. If I were an alderman in the current setup, and someone wanted to tear down a building in my ward, all my incentives are to allow it - if not provide assistance to help them do it.

The rest of the Board of Aldermen: Here’s my main point. 27 other people have absolutely no skin in the game, except maintaining the status quo. The reason “aldermanic courtesy” exists is that the incentive for all of them is to allow each of the other 27 to make their own decisions in their own wards, and to support their activities. Stand out against someone, and risk your own bills being debated. Defer to courtesy, and everyone gets their way. 28 cute little fiefdoms, all working on their own, with a few occasional larger issues that require some debate.

As is, the incentives for the members of the Board of Aldermen are to let each of their colleagues make their own decision, without any real debate or analysis of the impact on the city as a whole. There’s nothing in it for them if they oppose a “local” choice in another ward, so they don’t do it. They defer, over and over again. That’s no way to run a ward, and certainly no way to run a city. 

By operating as independent fiefdoms, beholden to ~500 votes and the money it takes to garner those votes, the Board of Aldermen is completely broken. The incentives of each of the aldermen are not in line with those of the city, and certainly not in line with the majority of the city's population. Reduce the number of aldermen, make them accountable to larger, more diverse groups, and align their incentives with the overall performance of St. Louis, instead of a few deep-pocketed developers and well-connected interest groups.  

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