Euvoluntary Exchange

Deutchland unter keines

2012-02-29T13:32:00.000-05:00

Al Roth brings to our attention an interesting example of the doctrine of unintended consequences. The pith of the story is that two government policies have intersected to produce unseemly results.

1) Germany has recently legalized trade in prostitution.
2) Unemployment benefits are forfeit if a job-seeker declines a position.

When offered a perfectly legal job at a brothel, "A 25-year-old waitress who turned down a job providing 'sexual services'' at a brothel in Berlin faces possible cuts to her unemployment benefit under laws introduced this year."

I may be wrong, but this looks like an example of coercion by human agency. The threat of withholding an expected benefit is intended to reduce or prevent free-riding (though see the motion picture Trainspotting and Spud's magnificent performance at a job interview for an example of how to game this particular regulation), but this is predicated on the assumption that any job is both privately and socially preferred to no job at all. Clearly, this is not the case with this story.

In a counterfactual world without publicly-supplied unemployment insurance and without Germany's extensive labor market interventions, there would be no EE violation here. The young lady would simply tell the madam where to gently place her offer of employment and continue onward in the search for work.

Also, I beg you pardon my off-color pun. I assure you it was completely unintentional.
Also also, I speak next to no German, so if I botched the title, please let me know so I can edit it.

My Fair Lady

2012-02-28T07:55:00.000-05:00

"Unfairness" can be a powerful word upon the lips of the powerful. A new Interagency Trade Enforcement Center is set to correct for the injustices of "unfair trade practices"--a phrase I confess to not fully comprehending.

Is there something non-euvoluntary about trade with foreign businesses? If the issue is on uncompensated externalities, why does China form a special class? Why not also assign this new agency the power to prosecute technological improvements as well? After all, improvements to production processes shift patterns of production and trade as surely as exchanging goods manufactured abroad.

I'm also sort of interested in the statutory authority of this agency. Unless I'm badly mistaken, tariffs and import duties and the like are controlled by Congress. The AP report is light on specifics. As soon as I get a look at the agency's charter, I will post follow-up commentary.

Ticket Scalping: How Widespread?

2012-02-21T23:11:00.000-05:00

Got to talking, at lunch: Just how many states have anti-scalping laws?

Here's the answer, as of 2006. Interesting.

Now, WHY do states have anti-scalping laws?

1. Voters don't like high prices.
2. "ReSelling" tickets is mean; you should only buy tickets if you want to go to the show. If scalping is legal, speculators will buy up all the tickets.
3. Performers want the "real fans" to be at the show/concert/game, not just a bunch of rich folks.

Are these good reasons?

Feel Good, Lincorporated

2012-02-21T17:54:00.001-05:00

Madison Square Garden bumped their prices by a Benjamin (or more) a seat all thanks to a newly popular NBA player. When hardware stores or gas stations try to pull these shenanigans, concerned citizens call the police. In this case, the police may not be up to the task. We may have to call the Ghostbusters.

Glove Slap, Baby

2012-02-21T16:32:00.000-05:00

Article 114 of the Uniform Code of Military Justice:

“Any person subject to this chapter who fights or promotes, or is concerned in or connives at fighting a duel, or who, having knowledge of a challenge sent or about to be sent, fails to report the fact promptly to the proper authority, shall be punished as a court-martial may direct.”

Whatever else one might believe about the US military, force leadership is not especially well known for retaining systematically dysfunctional rules. Tales of intractable ego on the battlefield or career-aggrandizing myopia at headquarters can only be appropriately interpreted in context: the military is well-staffed with multiple claimants over constituencies perched atop beds of quicksilver. Strategic and (especially) tactical decisions made in the fog of war are subject to the same sorts of calculus constraints present in routine economic decisions, though often fraught with more dire opportunity costs than the decision whether or not to open a new distribution center in Sheboygan. Higher-level meta rules such as those found in the UCMJ tend to hew closer to Hayek's vision of law as the set of rules, norms and behavioral constraints that allow for smooth and efficient operation of an organization or society. Very little of the language in the UCMJ strikes me as top-down meddling with military order to suit the peccadilloes of a social tinker.

Now, perhaps the proscription against dueling is an exception to this general observation. Perhaps some general somewhere simply thought it would be funny to abrogate Soldiers' implicit right to attempt to kill each other over matters of honor. Perhaps penning Article 114 was a pointless flourish, a ban on an antiquated practice on par with applying a cease-and-desist order to foot-binding in the ranks. I do not believe this to be the case.

A brief defense of duels, as she were fought.

In the absence of formal institutions to redress the loss of reputational capital brought on by gossip, slander or libel, the institution of dueling serves as a brake against spreading lies. Ex ante, if I knew that I might expect a thrown gauntlet in response to my rumor-mongering (apologies to the legitimate mancgeres out there), I might be more recalcitrant. In a pre-impersonal-exchange setting where reputational capital represents a large share of one's ability to conduct business, dueling may very well have been the lowest-cost mechanism to preserve that capital. Now, as a truth-seeking mechanism, there must be a few additional rules, but I propose we shelve a detailed subgame equilibrium analysis to concentrate on the evolution of the institution of dueling past its useful life.

Consideration the first: the emergence of the open-access order. At the risk of simplifying North, Wallis and Weingast, an open-access order implies that elites are visible, identifiable and accountable. In an open-access order, rents from reputational capital dwindle: value is chiefly created by positive-sum competition rather than the generation and maintenance of appropriable rents or quasi-rents. That's fancy economist jargon for saying that the distinguishing feature of the modern secular West is the focus on the customer rather than the landed gentry. In other words, reputation is less important to folks' livelihood now than it once was.

Consideration the second: judicial capture. Credit where credit is due, the English judicial system did a pretty fair job of eating private dispute resolution mechanisms' lunches. In the circles I frequent, the Law Merchant is widely touted as a dandy-fine example of an emergent order. No state official, no noble, no single authority drafted the language of the Law Merchant, it was rather the product of a whole lot of trial and error and a set of best-fit rules for contracture. A fair hunk of it still survives to this day: in America we call it the Uniform Commercial Code and we owe stuff like the Implied Warranty of Merchantability to its wide adoption. Since English judges earned their living on commission, it was in their interest to 1) assert jurisdiction over commercial law and 2) refrain from altering the rules of the game unduly (lest litigants just take their business abroad). So as the scope of court authority expanded, judges gobbled up the underlying functions of dispute resolution institutions, including dueling. I encourage interested readers to peruse the fascinating history of defamation law in anglophone countries, particularly the considerably differing burden of proof between, say, the US and Great Britain.

Consideration the third: rifling. Duels fought using rifled barrels are necessarily more predictably fatal than using black powder cap and ball or flintlock weapons. Part of what makes dueling a credible truth-seeking institution is the moderated, yet non-negligible threat of death: it's lethal enough that people have an incentive to avoid being challenged, but not so lethal that any challenger can also expect to kick the bucket with anything resembling great regularity. That is to say that the risk of fatality is high enough to act as a check on defamation, but not so high as to generate a chilling effect on challenges. Note also that the credibility of the institution of dueling depends critically on sending a very strong signal of opprobrium: if I challenge the GTM to a duel and specify that we fight with a tube sock filled with marbles, that's a much different signal than letting him pick his weapon and offering him a comprehensive selection of scoped match grade modern sidearms equipped with laser sights. To send a credible signal, thereby ensuring others don't smear my good name, I need to offer serious terms. Serious, but not preposterous. I have my doubts that anyone ever fought a duel using cannon (though that would probably make for a pretty sweet scene in a historical drama). In terms of lethality, today's sidearms more closely resemble a pear gun than the harquebus which is its natural forebear.

This triple salvo of institutional, legal and technological change all but rendered dueling redundant. Without knowing more about the details of the timing of the explicit ban, I would hesitate to claim which factor proved pivotal, but it is plausible that all three at least contributed to dueling's demise. The interesting questions are, therefore, was dueling euvoluntary in its historical context and is it euvoluntary today?

As a first stab (no pun intended) at an answer, I would say that time has transformed the BATNA to defamation cases by a whole lot. On the one hand, the cost of letting a challenge to one's honor pass has fallen considerably with the shift to open-access orders. On the other hand, redress has been formalized, thanks to the expansion of civil law. On the other other hand, the direct costs of participating in a duel have grown thanks to far deadlier military technology. In 1612 or in 2012, the decision calculus would have to address the following questions: a) what is the present discounted value of ignoring defamation b) what is my next available alternative to restore my honor and c) what risk-adjusted costs must I bear to cross sabers with this cad? I argue that for the 17th Century gentleman, the answer was a) high b) not a whole lot that isn't costly on its own terms and c) eh, I can live with those odds. The 21st Century bloke answers differently: a) piddling b) sue him for libel c) are you kidding me--I'm not going to let this maniac point a gun at me?

So back to Article 114. Keeping this statue on the books struck me as silly when I read it for the first time in Boot Camp--who the modern world would think an offer to participate in a duel is anything but utterly ridiculous (and yes, I know The Simpsons did it first, people)? Why not just strike it from the books? Of course, why bother? It's an uncontested issue and the very act of striking it would draw attention to it: imagine the headlines... TEN PACES AT DAWN: MILITARY TO PERMIT GENTLEMEN'S DUELS. This probably isn't the kind of press the DoD is looking for.

I suppose the last puzzle remaining is why bother keeping the ban on the books in wider society. Do we imagine that if the ban on duels were lifted, we'd see a rash of elegantly-mustachioed, waistcoated rakes flinging gloves about higgledy-piggledy?

Alternatively, what if the drive-by shooting is a substitute for the formal duel and with its re-institution, we might observe a reduction in collateral damage? This last question is not entirely rhetorical: I'm not at all sure I know its answer. The analysis might very well be quite different once we partition by social class and income. Interesting.

I will alwaaaaaaaaaaaays looooooove yoooooooou

2012-02-15T09:37:00.002-05:00

Sony bumped up the price of Whitney Houston MP3 files following the singer's death.

Price gouging claims are usually facepalm-worthy (see the GTM's ice truck story in main paper found in the sidebar). Prices induce a supply side response. In the case of MP3 files, what sort of supply side response is needed?

I can understand a price hike for physical media: the factory needs to press more copies, the copies need to be shipped to retailers and stock personnel need to put the product on shelves (which implies that scarce shelf space is allocated away from competing products). I don't think I know enough about bandwidth limitations to say much about pricing MP3 downloads. My intuition tells me that there is no ex ante allocation justification for an unexpected price hike, but I'm more than willing to be proven wrong. Please let me know in the comments if there is a cost-based economic justification for raising the price of an MP3 download following an (un)expected spike in demand.

Heirs Eat Oats and Does Eat Oats

2012-02-10T08:56:00.000-05:00

Professor of Economics and Political Science & GorterFamily Professor of Islamic Studies at Duke University Timur Kuran is visitingGMU this week thanks to the generosity of the Mercatus Center. He's sharing apaper on the institutional underpinnings of wealth outcome differences betweenIndian Muslims and Hindus (gated version here, ungated here). I urge interestedreaders to take a look. At the risk of oversimplifying the thesis, Kuran andSingh’s claim is that Hindu customs of business formation and inheritanceproved more adaptable than Muslim to technological and organizational innovationsbrought by British rule.

Inheritance law (and I use the term “law” here in theBoudreauvian, Hayekian sense) is an evocative topic. Introspection tells methat its consideration pits notions of individual desert against the notion offamily as a durable organizational unit. Setting aside Sharia Law and Hindutradition for the moment, I think about the sorts of arguments I’ve heard overthe years concerning the justice of inheritance. Two arguments sort of stickout: one utilitarian, one based on merit. The utilitarian argument is similarto other arguments for redistribution. Poor people have higher marginal utilityfor cash than already-wealthy heirs and heiresses. Steven Landsburg busts thisargument nicely here:

Really, Landsburg's argument is all you need to explain whyconfiscating heritable wealth is destructive. I would only add that the bigeffects are in all the foregone human capital. My point isn’t to pick boneswith Landsburg of course, but to mention that careful, reasonable explanationslike this don’t directly address the moral outrage some people have aboutinsolent teenagers who never worked a day in their life only to inherit ahuge pile of cash when other folks are out working their fingers to the bone,just barely scraping by with enough to feed their kids. I believe this is thesentiment that swims closest to the euvoluntary shoals and the one I’d like totry to address today.

The first question to ask is, “is inheritance exchange?” To aneconomist, the answer should be knee-jerkingly obvious: yes, of course it is.There is a clear exchange of value. The parent gives up current consumption inexchange for the satisfaction that the children will enjoy more materialcomfort. To the non-economist, I think this argument floats like Jimmy Page, RobertPlant, John Paul Jones and John Bonham. Regular folk would scoff (try it for yourself and see what you get). Conventional trade would mean that thechild would have to work, to produce something of value to earn that boodle. Soright off the bat, right with condition 2 of EE, we have our violation and ourmoral outrage, and the larger the inheritance, the larger the outrage. Lavishinheritances are not euvoluntary. In this instance I think the pedestrian understanding is gravely mistaken, but it is what it is, people. The median voter has never taken Intermediate Microeconomics.

But as Kuran and Landsburg note, the cure is far, far worsethan the disease. Muslims end up falling behind Hindus and corporate fatcatsbuy more Gulfstreams and Azimuts. Furthermore, it is probably wise to remindour friends that there is no such thing as idle wealth. Savings are not stuffedunder mattresses and there is no Scrooge McDuck swimming around in a pool ofgold coins (not that taking specie out of circulation is a social bad, ofcourse). Importantly, even bratty, bored trust-fund heirs with penthouseapartments in Manhattan have an incentive to maintain their stock of wealth.This necessarily implies active management, meaning that liquidity is availableto new companies just starting up and so on and so forth. It might be that thevisible part of the snotty rich kid is what we see on TV from time to time, butthere also exist hard-working venture capitalists and loan officers behind thatpile of underserved riches making sure that deserving entrepreneurs with goodideas have access to loanable funds so that they can perhaps set enough asidethat their own kids don’t ever have to go hungry.

Or perhaps there’s something about venture capitalism thatisn’t euvoluntary. Hm--eek. Looks like I’ve got some thinking to do.

Is It Voluntary?

2012-02-07T11:01:00.003-05:00

Paul Bou-Habib sends this quote from Hume, one I had never noticed before, from A Treatise of Human Nature, Book III, Part II, Sec. V:

“…A man, dangerously wounded, who promises a competent sum to a surgeon to cure him, wou’d certainly be bound to performance; tho’ the case be not so much different from that of one, who promises a sum to a robber….”

Now, isn't that interesting? The quote addresses the nature of promises, but implicitly the problem is the nature of promises made under duress.

Is the doctor obliged to perform the surgery if for some reason the man could not pay, and assuming the doctor is not bankrupted himself by performing the surgery?

If you answer yes, why is the wounded man obliged to pay, just because he happens to have money? If the provision of medical care is an obligation imposed on trained medical personnel simply because someone needs the care, why would some people be forced, at gunpoint in effect, when others are not obliged to pay?

Things that are painless (and bring on many changes)

2012-02-06T19:32:00.001-05:00

Flare-ups over the contraception coverage portion of the Affordable Care Act and its intersection with the beliefs, doctrines and practices of the Catholic Church are back in the news. Gripes on all fronts of late have gotten me to think more about a rather grim subject close to my research interests: suicide. Specifically, physician-assisted suicide.

Going back as far as Hamermesh and Soss in 1974, economists have a peculiar habit of modeling suicide as a rational act. Nobel Laureate Gary Becker claimed to have identified a relevant margin between murder and suicide and much of the recent literature draws on the same sort of analysis that lets folks price call options. In my own work, I like to use a Bayesian equilibrium with a touch of systematically biased beliefs, but then again, I don't deal with end-of-life cases, and if memory serves, much of the economics of suicide literature assumes that there's not all that much interesting to say about assisted suicide except to say that the market for this particular transaction is thin and often incomplete. It would not be much of a stretch to note the inefficiency of bans on assisted suicide: otherwise clear-headed and rational people (outside of Washington, Oregon and Montana) are being denied a medical option that people find, for lack of a better term, gruesome.

And to be sure, there is a gruesome aspect to it. The decision to end one's own life is... well, I hope it's one my readers never have to endure. The only thing I would consider worse is the alternative driving the decision.

Mrs verpetas worked briefly at a nursing home upon our return to the United States following my year of exile and she made me promise her that if she ever ended up in a situation like the residents of C Wing (the psych ward) that I would take every effort to obtain the euthanasia option. I didn't want to agree at first until I learned some of the details of terminal care. I now have a living will of my own specifying no extreme measures. My resolve has only been bolstered by yet more horrifying tales of pale existence at the mercy of machines and uncaring hospital staff. Despite this, in the Commonwealth of Virginia, I cannot freely contract with a physician to help me take my own life*. Why not?

Well, once again, I look to EE for answers. I have sort of a suspicion that there is some sort of compromised ability to contract for impaired individuals (whether this is actually true or not is debatable, of course). One might also forward an externality argument, perhaps, but that would be an externality largely imposed on the family, hardly cause for concern of a legislative body, right? Right?

The absence of regret criterion is one that occurs to me might hold a little water, at least under the assumption that there are homogeneous components to suicide including severe depression (which has a notable impact on time preferences [aw yeah, cited Heller, baby]). This implies that under normal discounting rates, the value of staying alive rises. The counterfactual is one where the patient survives and is glad she didn't kill herself. Well, I would argue that the people seeking assisted suicide are terminal patients, and the regret criterion is pretty much covered. I also tend to think that the heuristic of the down-in-the-dumps, hard-on-his-luck sad sack taking his life at home is emphatically the wrong template for euthanasia. The decision calculus for terminal patients is wholly different.

I am willing to consider self-interest on the part of families: grandpa can't be dissuaded and it just makes it easier to petition for a ban and so on and so forth, but the question I put to my readers is something like this: is physician-assisted suicide euvoluntary? If not, why not, and if so, why the rather widespread ban? Also, if you really feel like casting a pall over whatever cocktail party you happen to be at, ask the other guests if there is a difference between one the one hand a physician simply providing the materials and machinery to commit suicide and on the other hand actually activating the machinery. The courts sure thought so. Kevorkian did 8 years of a 10-25 stint before he died in 2011.

Anyway, this subject is kind of well-trodden, but the EE aspect of it might be a good way to give it a little spit-shine. Try it out and let me know. Be sure to really stress the unpleasant aspects of the BATNA.

*Note here that this would occur in the event of unexpected accident or disease. I otherwise plan to freeze my brain to be transplanted into a robot body when technology has advanced sufficiently.

Jews Don't Make Anything, So Create No Value?

2012-02-06T10:25:00.005-05:00

EE fan (and author of SMBC!) Zach Weiner sends this snippet, for our consideration:

"The Jews were unpopular, partly because of this narrowness already noted in the Roman world, partly perhaps because they had already fallen into that habit of merely handling things for exchange instead of working to make them with their hands." Chesterton's "The Everlasting Man" chapter 4.

Okay, let's ignore the stupid anti-Semitism. Evil, common, but not very creative or interesting.

Let's ignore the fact that even the factual premise is absurd: many Jews were in fact artisans, very skilled artisans, because human capital (jewelry maker, blacksmith, carpenter) was portable. The reason is that you could never tell if some jack-leg king-o-the-month needed a scapegoat and decided it was time for a random Jew-fry, and the people had to skedaddle. This part is just dumb, and wrong: Jews have been brilliant at making things with their hands, for 3,000 years.

The interesting thing about this quote is that it more or less takes it for granted that anyone who just "handles things for exchange" is not creating any value. The Mancgere, then, could be an honorary Jew, in terms of the opprobrium and scorn focused on someone who just trades but does not produce.

Thanks, Zach. Well quoted. I had not seen that one.

NYTimes on R. Grant's "Strings Attached"

2012-02-05T12:30:00.000-05:00

I have expressed admiration before for Ruth Grant's Strings Attached. You should read it, if you have not.

This week brings a review in the New York Times. Hardly a rave review, but very solidly appreciative of the book's contribution. Again, congrats to Ruth. Well done, ma'am.

Death Buy Lemonade

2012-02-03T08:13:00.000-05:00

One of the problems with the whole idea of always selling, rather than giving, in an emergency, is the lifeboat problem. In a lifeboat, with no supply side response possible if you offer life-and-death necessities for sale instead of sharing, the argument for using market allocations is much weaker, and may not be sustainable at all.

Consider this at first funny, and then disturbing, video sent by fan Mary Hatson:

Tune in, Turn on, Drop out

2012-02-02T14:24:00.002-05:00

By my reckoning, I'm a little late to the party of criticizing the latest State of the Union address. Among the other... let's call them "bold"... policy suggestions forwarded by the President, the one that caught my attention concerned mandatory schooling.

To paraphrase, the POTUS suggested it might be wise for states to raise the minimum dropout age to 18, thereby increasing education rates. Much of the discussion on this point (at least on those blogs I follow) concern classroom externalities, the nature of the assumed linear relationship to formal education and earnings, or to this or that signaling model. These and points like them are very interesting and contain valid criticism, but when I see popular policy nostrums, I fancy that I've trained myself well enough to ask which euvoluntary principles are being violated by the status quo. I confess that I have yet to rest on any particular answer.

With that in mind, let's take them one by one and see what floats.
1) Conventional ownership: the common law readily identifies that minors emphatically do not have sovereignty over the disposal of their time. Schools have long acted in loco parentis, emphasis on "loco", suggesting that children are not, to pilfer M. Friedman's line, free to choose. This hints at de jure authority for policymakers to do as they will in the child's interest. I would further argue that many people see this argument res ipsa loquitur (I only added that last bit to complete the Triforce of Legal Latin).

2) Conventional capacity to buy or sell: here, we're investigating whether or not a) minors have the conventional right to trade their labor (hint, we have a pile of legislation on the books ensuring they're stripped of these rights) and b) whether or not educational organizations have the capacity to foist their products on the unwilling (please feel free to argue the validity of a comparison to health provision mandates in the comments). The question I ask myself on this issue is something like: "are minors at liberty to agree to labor contracts and at what point do schools lose the authority to sell their product against the will of their customers?" I agree that this is an odd way to frame the question, but I am an odd man. I am thinking of getting a tattoo that reads (2n-1).

3) Absence of regret: I think this is the key issue here. Most of the fodder trotted out to support mandatory education consists of tales of woe sung by regretful middle aged lower-income folks who realized only too late that they should have stayed in school. Policy therefore suggests wiser heads make their decisions for them. This is as close to a classic case of paternalism as it gets, perhaps even more literal than smoking restrictions or what have you. This is tantamount to the State acting as a disciplinary agent, a disapproving father who demands his wayward brat keep his butt in class. Again, it is not my intent to argue for or against the validity of this claim, but I do forward the proposition that this is something akin to the moral intuition at play.

4) No uncompensated externalities: this one is a little trickier. I find myself in the camp that there are positive externalities to basic literacy and numeracy (and basic economics, but that's probably just my bias speaking), so I think there is a case to be made for some level of universal education (empirical results may vary, consult your family physician before consuming any products), but it strikes me as reasonable to say that most of the benefit of completion of high school accrues to the individual. As long as the net productivity of the individual is above zero (not a particularly difficult pond to cross) then there is no externality. We might also argue about where exactly the margins lie, but again, I think much of the other blog commentary has done a pretty good job of addressing this point. I do want to simply point out the moral intuition, and I believe that intuition that gestures at externalities is mistaken.

5) No coercion by human agency: well, the decision to drop out is seldom done at gun- or knife-point, so I don't think anyone is making the claim that in America at least, parents are dragging their kids out of school to work the farm anymore. I might be wrong about that, so I'm open to counter-examples, but I'll shy away from dwelling on this point too much.

6) No coercion by circumstance: this is probably the big one, the one that gets hearts racing and blood a-pumping. Look, sometimes the reason people drop out is because, well, school is a terrible experience. I'd wager a non-modest sum that at least one reader of this blog knows at least one person who describes it as torture. For those people, moral intuition leads itself to little in the way of pity. Contrast this with the poor kid who has to get a job to feed her little brother once her mom got laid off and her dad is doing a nickel in San Quentin for simple possession. Here we have an actual tragic story, one that really does happen. Do we want to deny someone in an awful situation to a life without a proper education?

Now, I suspect that because at least one, perhaps more of the conditions of EE are violated with regards to the dropping out of the high schoolings, the median voter will feel at least a little justified in supporting at least some stricter dropout rules. It might be tedious to remind you at this point that exchange (or lack thereof), euvoluntary or not, is just, but something tells me that it might be worth mentioning yet again.

At any rate, if you believe that there is value in dissecting policy (or proposed policy) using this sort of moral intuition-checking, I encourage you to try it more regularly. I suspect that this sort of exercise can help isolate (and possibly provide counterarguments for) the underlying moral principles behind attempts to meddle.

Is education voluntary?
Is education euvoluntary?
What are the implications?

Steiner on Exploitation

2012-02-02T13:59:00.002-05:00

Hillel Steiner, lauded here before, has an interesting podcast on "Philosophy Bites." It's on exploitation.

Very cool, very challenging.

(Nod to Autodidakto)

In Morocco, Government Jobs are Allocated By....You Won't Believe It!

2012-02-01T11:26:00.001-05:00

EE friend JR sends this email:

Talk about moral hazards - this NPR piece on government jobs in Morocco shows how students are rewarded for protesting by getting government jobs. They keep score and whoever does the most - extra points for clashes with the police - gets you hired by the government! They even have teams--and the gov hires people from the teams with the most points.

You can't make this stuff up...

Excerpt:

"I have a degree, a master's degree in English, and I'm here ... idle without a job, without dignity, without anything," protester Abdul Rahim Momneh says.

During the Arab uprisings over the past year, political grievances have received much of the attention. But youth unemployment is also a crisis for every Arab government. In Morocco, the jobless rate is more than 30 percent for young people.

Last week, five jobless college graduates set themselves on fire to protest unemployment. One has since been reported dead. Self-immolation has become something of a trend in the region ever since a young Tunisian street vendor set himself alight in December 2010, an event that sparked the uprising there and served as a catalyst for other revolts.

Government employment is hardly a solution for joblessness, say the movement's critics. Morocco's bureaucracy is already bloated and unproductive; the huge government payroll is a financial drain, they argue.

Yet, under pressure from these protests, officials often give in, adding a few more positions. Organizers hand the government a list of the most dedicated activists to choose from.
***********************
Now, is this a euvoluntary employment arrangement? The government hires the people who are most likely to hurt themselves most seriously. But to prove you are going to hurt yourself a lot, you actually have to do it.

It's not euvoluntary if I hold a gun to YOUR head. But is it euvoluntary if I hold a gun to MY head?

Show Me the Daylight 'twixt Sanction and Tariff

2012-01-26T06:43:00.000-05:00

Sorry about the double post, people. It's just that something's been bothering me the last couple of days.

See, the United States government has been tightening economic sanctions against Iran for typical saber-rattling reasons: they pose a threat to global peace, they have a nuclear program, et al. (I will dutifully refrain from snark here), but what do "economic sanctions" entail? Blocking foreign trade. A trade embargo forces the embargoed nation into autarky. As economic theory predicts, this makes the citizens of the affected nation poorer.

Yet at other times, perhaps when accusing Chinese monetary authorities of currency manipulation (and no, I don't have an economics-based definition of currency manipulation standing by), the political response is to impose similar sanctions on the home country.

I think I have a blind spot here. When country X imposes an embargo on country Y, this is regarded as an act of war. When country X imposes an embargo on itself, this is ennobling trade protection. In both circumstances, the citizens of the affected country are unable to freely conduct trade for mutual advantage.

If I had to hazard a guess, and I'm not sure I really want to, I think that the trade protection racket grazes the boundaries of euvoluntary exchange. If we set aside anti-foreign bias for the moment, we might imagine that the claim is somehow about externalities: trade with foreign businesses imposes costs upon domestic businesses who have to reduce prices (and wages) to compete. This occurs through no fault of the domestic business, therefore the political process must mitigate or eliminate the untoward competition. Furthermore, it's critical that this be done from the home country; if someone does it for us, that's cause to declare war (viz. United States and Japan ca. 1939) or worse.

Neil Gaiman is one of my favorite authors and I seem to retain many of the bon mots he sprinkled liberally through The Sandman comics. One that seems apropos in this case goes something like this: "a chicken with its head cut off is different than a chicken with its neck wrung, but it doesn't matter to the chicken." If government exists to serve the interests of the people, well, they sure have a funny way of showing it.

The San Francisco Treat

2012-01-26T06:17:00.000-05:00

Ed.: I originally wrote this prior to my first post here, so please don't be thrown by the concluding paragraph.

The standard trolley problem goes something like this: youfind yourself inexplicably drinking a soymilk latte in the Mission District afew blocks up from the The Embarcadero when out of nowhere a runaway trolleycomes rumbling down yonder boulevard. Alack! The trolley is laden withpassengers and if not stopped, ‘twill surely crash into the Bay, killing alland sundry aboard. Luckily for the people aboard, a portly gentleman out forhis morning constitutional has lost his footing and fallen on the tracks and ifno action is taken by you, the trolley will come to rest against his meatyflanks, the passengers shaken but otherwise unharmed. The man, naturally, ashappens when struck by a runaway trolley will surely perish. The question then is,do you roll him out of the way? If you do, he lives and the people on thetrolley die. Spoiler: most people will not respond that they roll him out ofthe way. Smugly perhaps, the person posing the scenario then alters it ever soslightly—instead of the fat guy having already fallen on the tracks, yourchoice is now to push him on the tracks or do nothing. Spoiler the second: mostpeople again elect to do nothing (a close second is to look pained for amoment, then reluctantly admit that they’d push him, but only with muchregret). Economists, heartless vermin they are, sacrifice the few for the manywithout batting an eye, and I suspect they do so without even so much as afleeting thought to Spock’s ad hoc repair of the Enterprise inside the MutaraNebula. To the economist or the (suppress your shudders, please) utilitarian,the two variants are perfectly identical, except for a few extra calories burned…fat guys dies so that 20 strangers may live.

Other folks tend to disagree.

Contrary to appearances, trolley problems do not existsolely to exasperate the significant others of over-bearded humanitiesstudents. As the GTM and the late Mel Hinich point out in Analytical Politics,"to 'analyze' means to break down into components and understand." Webowtied tweed enrobeurs aren't just smirking into our dusty lapels when askingyou if you'd condemn a score of men, women, children, their pets and walkin'-aroundpossessions to a violent, shrieking death merely so you'd avoid activelymurdering (or failing to save, or whatever other flavor is up for proposal) a(possibly) innocent bystander. The purpose of these thought exercises is to getat justice or fairness heuristics.

Economics is very interested in efficiency. We see prices asThe Agent of Justice. Prices tell us what and how much to produce and what andhow much to consume. Indeed, one of the strongest claims (and one pretty wellestablished by a pile of Big Names in economics) is that planning can’t beatmarkets. The First Welfare Theorem states, in no uncertain terms, that acompetitive equilibrium is Pareto efficient. That’s sort of a fancy way ofsaying that parties external to a trade cannot make one party better offwithout making the other worse off. What’s more, this theorem relies on very few assumptions. This is whyeconomists read something like “Euvoluntary or not, Exchange is Just”, shrug,stick out their tongues and say “duuuuh”. But then again, economists wouldn’tthink twice about throwing you under the bus.

So where am I going with all this? These trolley problemshelp us tickle out moral intuition. The theme of EE is that some trades don’tviolate most folks’ moral intuition, but some do. Economists then claim thatpeople’s moral intuitions are misleading. It’s perfectly fine to charge amillion dollars for a glass of water in the desert (or eight bucks a gallon forgas after an earthquake), but it’s abhorrent to prevent foreign butter fromcrossing the Norwegian border during an acute shortage. We claim that moralintuitions are wrong, but I’m not convinced we have a decent understanding ofwhat those moral intuitions are. I have a suspicion that terms like“exploitation” or “fairness” meet criteria similar to “pornography”: peoplehave a hard time defining them, but they know it when they see it.

To this end, I propose a periodic series of trolley-typethought experiments you can try at home with your (soon-to-be ex-) friends andrelatives. Each variant is meant to isolate a particular component: be itinitial endowments, relative power in exchange, the Hobbesian dilemma, the roleof pure luck or ex ante vs ex post distributions. By the time we’ve wrapped, Ihope that we will be able to pin down why exactly it is people are willing, nayeager to chuck the First Welfare Theorem out the window and go merrily aboutinterfering in other peoples’ business. If it turns out to be something more orless benign, then perhaps we’ve got evidence that with better PR, we can changehearts and minds. Barring that, at least we can have more ammunition to makeour loved ones more uncomfortable at cocktail parties.

Because that’s clearly something economists need to bebetter at, right? Our failing is that we’re too popular.

At any rate, the GTM has generously extended an invitationto me and my colleague and friend Jeff Horn that we might share some of theflavors of these problems we find interesting and describe their relevance toEuvoluntary Exchange. Please enjoy your delicious dilemmas in moderation. Fortrouble with philosophical conundrums (conundra as the plural form is juststupid, people), please contact the director of your nearest PPE workshop(unless you’re at GMU, in which case the Mighty Pete Boettke has no time for your juvenilenonsense).

Ownership and Excludability

2012-01-17T22:35:00.001-05:00

The Stop Online Piracy Act (SOPA; HR 3261) has prompted many to takeup the discussion of property in general and intellectual property(IP) in particular. This sort of public debate is usually entertainingand sometimes illuminating. It is my wish that the presentcontribution to the discussion be both.

A mere three minutes before our own Sam Wilson posted his inaugural contribution to the Euvoluntary Exchange blog, Megan McArdle of The Atlantic discussed whether file-sharing resembles stealing. I'llventure a guess that Sam doesn't share Tyler Cowen's ability to digestand create information (McArdle's post weighed in at six printedpages), so I'll comment on how the issues McArdle raises are importantto the concept of euvoluntary exchange and how you might introduce thediscussion to your classroom.

McArdle's main points for our discussion are the arbitrary nature ofproperty and the uselessness of rivalry in determining what sort ofmoral class to place file-sharing into.

The arbitrary nature of property recommends the legal interpretationof property embodied in the first two conditions for euvoluntaryexchange: (1) conventional ownership and (2) the conventional capacityto trade. The second two conditions pertain more to the binding natureof contracts than to establishing what it means to "own"something. Here and elsewhere I might refer to the second condition as"the right to alienate" a piece of property from yourself. I thinkthis is the most crucial element in the definition of "owning"something, since it will be hard to build a case that you have rightsover a thing if you lack the ability to alienate it, or relieve itfrom your possession.

Using "conventional" definitions in law allows us to import all thenuance associated with a concept's case history without fencingourselves in. Law, after all, is a process, and like the intellectualproperty you might be discussing in class, it can be discovered. Oneof my favorite anecdotes concerning property is the example of horsemanure at the turn of the century. Suppose I drive my taxi around towneach weekday. My horse eats quite a bit, and naturally, his waste endsup in the street. An enterprising young lad notices this, and sincehis uncle is a farmer in the countryside, he decides to walk along mytaxi routes collecting dung into sacks, which he hauls to his uncle onthe weekend. The lad gets paid by his uncle and the townsfolk aretreated to noticeably crisper air.

I'm not having it. I paid for the oats that my horse ate andfurthermore I paid for the horse itself. I'm entitled to the profitsfrom my horse's byproducts, aren't I? I sue the boy, and to myconsternation I find that the law views his input of labor, in theform of collecting the manure for sale, as establishing the boys'right to the profits from its sale. It turns out, the law views a bagof crap as a fundamentally different product from crap sansbag. Property rights are arbitrary.

Property rights create something economists call "excludability". Aproduct is excludable if I can prevent you from usingit. Excludability is important to our notion of responsiblestewardship. The tragedy of the commons occurs when resources held incommon, which aren't very excludable, are over-utilized, possibly tothe detriment of future use if the resource is renewable. Open-waterfishing is a leading example of a non-excludable resource, withoverfishing gaining media attention from time to time as consumersbecome more or less enamored with seafood.

Rivalry is a related concept, but instead of being a quality derivedfrom the property rights (or lack thereof) assigned to a resource, itis a quality derived from physical attributes of a resource and how itis used. A rivalrous good is a good where my consumption of the goodreduces your ability to consume the good. Music at a party isnon-rival, but a candy bar is rival. McArdle builds a strong argumentfor throwing rivalry out of our consideration of the morality ofInternet piracy.

Excludability, on the other hand, is rather important, since itderives from the property rights inhered in the resources underconsideration. Imagine Sam's world of fruitcakes, again. Before theinvention of the cake cloner, bakers sell a fruitcake built from arecipe that is excludable. So long as they don't share recipes, eachbaker is free to pursue building a massive cake empire based on tasteand branding, an empire large enough to make Coca-Cola envious.

After the invention of the cake-cloner, the recipe is largely out ofthe bag. Even if no one knows the recipes, the machine can figure itout to a sufficient degree to reproduce an exact replica. If we were aclever consumer of fruitcakes, we might claim that since recipes areno longer excludable, eating a bootleg cake isn't theft. To myknowledge, no one makes these sort of arguments regarding copiedmusic, and in any case, doing so would be begging the question. Theabsence of excludability is a symptom of missing property rights, notevidence that something isn't property and therefore cannot be stolen.

I suggest asking a series of questions in class to pique yourstudents' interest in these concepts. If all goes well, they'll end uplearning something without intending to!

Ask your students to define property. Ask them to identify problems with their own and their peers' definitions.
Modify our fruitcake economy by adding a second good. Discuss the difference between transfers resulting from the creation of the fruitcake cloner and allocative inefficiencies resulting from its invention.
Rivalry, and to a lesser extent, excludability, are usually introduced in the context of public goods. In a world of cheap, perfectly copied fruitcakes, how are fruitcakes similar to and different from conventional examples of public goods?

Conventional Ownership and File Sharing

2012-01-11T14:05:00.000-05:00

House Resolution 3261, aka SOPA, the Stop Online Piracy Act presents us with a fine opportunity to don our Smithian spectacles. Consider what Smith had to say in The Theory of Moral Sentiments about the exercise of sympathy:

As we have no immediate experience of what other men feel, we can form no idea of the manner in which they are affected, but by conceiving what we ourselves should feel in the like situation. Though our brother is upon the rack, as long as we ourselves are at our ease, our senses will never inform us of what he suffers. They never did, and never can, carry us beyond our own person, and it is by the imagination only that we can form any conception of what are his sensations. Neither can that faculty help us to this any other way, than by representing to us what would be our own, if we were in his case. It is the impressions of our own senses only, not those of his, which our imaginations copy. By the imagination we place ourselves in his situation, we conceive ourselves enduring all the same torments, we enter as it were into his body, and become in some measure the same person with him, and thence form some idea of his sensations, and even feel something which, though weaker in degree, is not altogether unlike them. His agonies, when they are thus brought home to ourselves, when we have thus adopted and made them our own, begin at last to affect us, and we then tremble and shudder at the thought of what he feels. For as to be in pain or distress of any kind excites the most excessive sorrow, so to conceive or to imagine that we are in it, excites some degree of the same emotion, in proportion to the vivacity or dulness of the conception. (Context)

Disputes over what does and does not constitute the first condition of euvoluntary exchange (conventional ownership) benefit from conceiving what we ourselves should feel in the like situation. Towards this end, I offer the following as my inaugural contribution to Euvoluntary Exchange (below the fold).

Imagine a world that consists of two types of people: producers (P) and consumers (C). The only commodity being traded in this world is fruitcake, the enjoyment of which occupies the otherwise meager existence of our world's inhabitants. It is the sole purpose of the P folks to develop and sell new fruitcakes baked from new recipes (or slight variants on old yet beloved recipes). The C types have traditionally been able to share their fruitcake with their friends and neighbors, but they invariably return to the P types day after day, year after year for new, delicious fruitcake.

One day, a C-type invents a machine that allows her to copy and widely share existing fruitcakes at nearly no cost. Before you know it, everyone has this machine and fruitcakes are whizzing all over the world, allowing anyone, anywhere to enjoy a wide variety of fruitcakes very cheaply. C-types rejoice in their newfound wealth. P-types are less thrilled: much of their livelihood has been stolen. The P-types gang up on the C-types and imprison and fine the C-types who distribute fruitcake without paying the P-types royalties, threatening violence to those who don't comply (I will leave it as an exercise for the reader to imagine what the prisons of a fruitcake-only world might resemble). Note here that the EE violation centers on criterion (4): uncompensated externalities. C-types have unintentionally imposed a hardship on Type P people.

What went wrong? How did this otherwise peaceful world descend into monstrous chaos and violence? Though it may be easy enough to point to the machine and claim that it reduced the opportunity cost of sharing, that doesn't quite get at the extent of what's going on. Dropping the fruitcake analogy for a bit, consider whether it's odd that it seems to be a particular class of media that ends up being shared over the Web. Though I have little in the way of empirical investigation to back this claim up, I'd reckon that if you go the top five most popular Internet piracy sites, you'll find few academic articles or recently published books available on torrent. Additionally, fine artists don't seem to get especially bent out of shape when images of their work end up on popular websites. If the only thing that was going on was ownership rights or incentives to produce, we'd have something of a conundrum on our hands here.

I think I can resolve this with a reference to Daniel Kahneman's work. To get a quick grasp on how we use mental shortcuts to generate easy answers to complex questions, Bryan Caplan wrote an excellent summary here. When it comes to music and film, perhaps even video games, consumers are well-inured to sharing these freely with close associates. the shortcut question is something like, "is it cool for me to play this song for my bff?" You invite friends over to watch (some) movies. A party without background music is no party at all. Not so with reading books to the same degree. Since the written word is excludable, it just doesn't occur to anyone to decompile the .pdf source code and post the latest Stephanie Meyer gem to The Pirate Bay. Ditto for a Rembrandt. Go ahead and slap up digital versions of famous paintings to your heart's content... they're just copies anyway. Who cares?

Returning to Fruitcake Land, we might suppose that the machine merely enabled on a large scale what was already a well-established cultural norm: the sharing of fruitcake with friends and neighbors (much like our own world). The difference is that after the invention of the machine, the circle of relevant friends and relatives has increased rapidly. The C-types saw this new technology and said, "holy fruitcakes! Now we can do this thing we like to do so much with a whole lot more people than we were once able to. If sharing fruitcake with just a few people was good, sharing fruitcake with hundreds of millions of people must be pure heaven baked straight into this here fruitcake." They simply lifted their beliefs over the standard ownership of fruitcake in the absence of the machine (I own this fruitcake and am at liberty to share it with whom I please) and applied it to the state of the world that has the machine in it. In slightly more technical parlance, it is the cross product of technology and ownership heuristics that lead to thorny disputes that end in legislation like HR 3261.

On the reverse side, consider that the P-type people are actually bundling two products together: they sell real property (fruitcakes) and intangible products (fruitcake recipes). Before the advent of the machines, these were naturally wedded. The machine broke this relationship: the physical fruitcakes can be produced at far lower cost than is economical for the P-types. That whole (very large) chunk of their revenue has been steadily vanishing over time.

Dropping the fruitcake for good this time, we should be able to see that from the point of view of the artists and the record companies, liberal file sharing means that there are fewer retained earnings to plow back into recruiting new talent, fewer incentives for bands to record new studio releases, fewer box office receipts for Paramount to make Indiana Jones and the Kingdom of the Crystal Skull Redux: The Crystal Skullening...In Outer Space. Entertainment producers quite correctly see their traditional role as owners of intellectual property as threatened by file sharing. Note that fine artists who don't mind .jpg files of their art shared support my thesis here. Both producers and consumers of fine art have similar expectations of the consumption experience, similar to a commons problem where the problem has already been solved. Art is enjoyed in quasi-public spaces with original pieces purchased by a patron who then earns credibility by donating the piece to a museum or what-have-you. This arrangement is in no way threatened by Internet bootlegging.

So the lingering question is whether or not SOPA or SOPA-like legislation is an appropriate response to this conflict. It attempts to regulate or modify one input factor, leaving the ownership heuristic intact (on both sides!). Perhaps a more thorough approach would attempt to re-imagine the entertainment delivery vehicle entirely. Note also that it's impossible to bootleg an experience. Yes, you can record a concert on a video device, but by no means is a YouTube video of a concert equivalent to being there. At any rate, I hope that the exercise of taking the point of view of the relevant parties can help demonstrate how there can be legitimate disagreements about the scope of exchange. Remedies for this disagreement may make for interesting classroom or dinner party conversation.

Angus on the "Human Zoo"

2012-01-11T11:36:00.002-05:00

Angus notes that packaged "culture" in less developed countries ("Let's go see the monkeys, and the lions, and then the humans dressed in colorful costumes!") is demeaning.

Interesting problem. Actually three problems.

1. Yes, it's likely demeaning to perform (possibly fake) native dances for leering white people.
2. Yes, those folks likely do need the money. They would be even worse off if they did not have this opportunity.
3. Yes, Angus does that right to say, "I don't enjoy this!" and go do something else.

The problem is that the BATNA of the "native dancers" is so abject, so destitute, that it seems exploitative. Is it?

I would add one thing: consider this "aboriginal dance," in Oz. Just who is laughing at whom? This is VERY uncomfortable, and I would have left this "performance." But it is by no means clear that the performers are not mocking the audience.

Solve the Mystery! Why is There an Aspriin Shortage in Greece?

2012-01-11T08:28:00.000-05:00

Market fails, government must act! Desperate citizens wander the streets holding their heads!

All because there is no aspirin. Me? I'd blame "speculators."

Look:

1. Aspirin is a homogeneous good. Aspirin is aspirin. There are slight differences in brand name, based perhaps on purity and how quickly it dissolves, that sort of thing. But aspirin is aspirin.

2. There is a world price for aspirin. People use aspirin.

3. Aspirin stores well, and is easily transported.

4. If the government sets the domestic price for aspirin below the world price for aspirin, there will be a "shortage." The reason is that I can sell it for $5 a bottle in Turkey, or $1.75 at the government-mandated price in Greece. I ship the stuff to Turkey. That's not speculation. That's a sure thing. And the only greed at work here is the greed of the idiots who blame speculators, so they can gain electoral advantage from abusing the Greek citizens who need aspirin but can't get it.

5. The shortage in Greece is not the result of scarcity. The shortage is the result of an explicit, simple government policy that is having the effect that any sophomore economics student could predict.

Greece may have the worst combination of stupidity and misplaced indignation of any state apparatus in the world.

Surge Pricing

2012-01-05T09:51:00.000-05:00

Remarkable post by R. Salam, on surge pricing.

He's right, of course. It's exactly the same issue as for "gouging."

Either you use surge pricing or you simply tell customers that cars are not available even at a high price that at least some of them are willing to pay, which is really strange. (Uber's explanation...)

Might not even be profit maximizing. What this does is ensure that there is a car available, in an emergency.

Very cool.

Competition and Virtue

2011-12-23T12:23:00.000-05:00

Michael Walzer in a very interesting short essay.

Does competition corrupt us? Do markets thwart virtue?

Where's the Harm?

2011-12-20T13:56:00.004-05:00

Swedish butter thugs ship in contraband butter.

Heroic Norwegian police spend hundreds of thousands of dollars on patrols to insure that no butter is brought into Norway. Oh, and the cops are going to destroy the butter, presumably by rubbing it on themselves, and each other, in the sauna. ("WHEEEEE!")

The problem: Norway has a butter shortage. Not because of a hurricane, or a natural disaster, but because... the Norwegian police have laid siege to the country.

A video from Norway, "explaining." Wow. Not sure how could someone could be this confused. (Yes, probably a goof. But gotta give credit. A brilliant goof.)

If a foreign army had surrounded Norway (okay, you'd need a navy, too, but pay attention!), and prevented products from being shipped in, that would be an act of war, right?

But if Norway does it TO ITSELF, it's called "protection."

My question: given that the EU price of butter is , what in the world are the Norwegians doing? Let's put it this way: would you rather be a poor Swede munching down delicious butter cookies, or a rich Norge who can't afford butter? The point of an economy is to get STUFF, not MONEY. Midas died of starvation. Merry Christmas, Norway, enjoy all the money you can't spend on the stuff you need.

Voluntary Coercion: Is It Really Voluntary? Is It Really Coercion?

2011-12-18T20:54:00.001-05:00

Have trouble getting up in the morning? Perhaps the negative consequences aren't big enough.

You can make the consequences as big as you want, though, by using this super keen money destroying alarm clock!

Couldn't be simpler. You just have to decide how big a prospective loss will be big enough to motivate you to get out of bed, and then put that amount of cash in the shredder hopper. Then, when the alarm goes off, you have one minute to get up and turn off the money killer. If you don't, it starts LOUDLY shredding your cash.

Since it goes one bill at a time, you might put a $1, a $5, a $10, a $20, a $50, and then some $100s. If it shreds slowly but loudly, say one bill every 30 second, you can "buy" an extra minute of nappy-nap for $6. But then the price goes up rapidly.

Now, I never have trouble getting up, and usually wake before the alarm. So stuff like this makes no sense to me. But it does raise some interesting questions.

1. The remorseless, mechanical money muncher is an effective commitment device. YOU put the money in, and you set the time you want it to start munching. So is it voluntary, or coercive, or both?

2. The advantage of the thing is the knowledge that it cannot be stopped, or argued with, or reasoned with. It will destroy unless you act the way you want to act, at the time you sign the "contract." But you do NOT want to get up, when the alarm actually goes off. (If you are the sort of person who might need this clock, that is.) Isn't this a pretty good description of the state? We agree to be coerced, if we disobey. And the state has no discretion, because it punishes all transgressions equally.

3. Should the thing be legal? After all, destruction of money is a federal crime. Of course, the point of the clock is that you will NOT destroy the money; that's why you put the money in a place where it COULD be destroyed.

UPDATE: Chris Conover comments, on Facebook: It's a great idea that technically, the state deems illegal. That, in a nutshell, describes too much of what the state does these days: prohibiting voluntary (read: mutually beneficial) acts between consenting adults. In this case, if the state were to enforce its ban on destroying currency, it would be prohibiting a consenting act between one's present and future self.

Markets in Body Parts: Podcast

2011-12-16T16:00:00.000-05:00

In this Kosmos Podcast, the controversial Dr. James Stacey Taylor, author of Stakes and Kidneys: Why Markets in Human Body Parts Are Morally Imperative, dives into the philosophical and moral details of the recent court decision legalizing compensation for bone marrow donations. Dr. Taylor (shockingly) thinks this is a good result for everyone involved, and provides an outlook for markets in organs in the near future.

Stimulus "Recovery Act" and Kidney Transplants

2011-12-15T08:35:00.003-05:00

Not making this up. Actual problem of rationing kidneys by region (article here), causing large differences in access across the nation.

Excerpt:

During his most recent hospital stay, Reginald Baker received bad news from his doctor. Over many years, his kidneys had gradually lost their ability to function, and now he would need a transplant. Reginald’s doctor said he would be added to a transplant list, but the waiting period for a kidney could be years. Reginald would be joining the approximately 80,000 people who are awaiting a kidney, while the annual number of transplants peaks at only about 17,000.

Reginald was especially surprised to learn that one of the factors adding the most time to his wait for a new kidney wasn’t his blood type or the severity of his disease but, rather, his geographical location. The closest transplant center to where Reginald lived served the large metropolitan region of the San Francisco Bay Area. His doctor explained that the area faced a particularly severe organ shortage due to the number of residents in need of transplants. Smaller towns in the Midwest, for example, have less competition for organs and are better supplied with kidneys for transplantation.

Reginald didn’t have the resources or the health to relocate himself and his family or to travel far from his home and his hospital to try to improve his chances of getting a kidney. He would just have to wait and hope.

ARRA May Help Improve Organ Allocation
Dr. Krista Lentine, associate professor of medicine at Saint Louis University, is addressing the plight of the thousands of Americans awaiting life-saving organs, particularly kidney and liver transplantations. With support from NIH and the American Recovery and Reinvestment Act (ARRA), Lentine and her team are highlighting geographical disparities and working to develop improved systems to ensure fairness in organ allocation.

Lentine’s motivation stems from her observation that patients with similar illness severity experience different waiting times due to imbalances in geographical supply and demand. For example, the average waiting time for a blood group O kidney varies from 2.8 years in a well-supplied Midwest region to more than 6 years in a West Coast region.

The United States currently is divided into 11 geographic organ-sharing regions that direct organ distribution. Operating within this geographical system are nationally agreed-upon rules that define priority among transplant candidates. For liver transplants, priority is determined based on illness severity using a scoring system that predicts the patient’s risk of death without a transplant. For those awaiting kidney transplants, however, priority is mostly determined by how long the patients have been waiting.

“These regions were not developed by any scientific method, but the intent was to divide the country in a way that would place organs quickly and encourage local donation,” said Lentine. “However, the current regions are heterogeneous in size and population, leading to mismatching in available organs with waiting candidates.”

(Nod to Michael Hartwell)

"Altruistic" Donations: In Fact, Payments are Allowed for Kidneys

2011-12-11T11:20:00.002-05:00

Perhaps the most controversial kind of organ donation is the live donation, where the organ is harvested from a healthy human and given to someone whose organ has failed, or is about to. Obviously, live donations of a heart is impossible (I did once get back a referee report on a paper where the anonymous reviewer suggested I must have been the first successful live brain donor...). But other kinds of live donation, either a kidney or a portion of a liver, lung, or pancreas, are possible and relatively safe.

The problem is that the person who wants to donate is very unlikely to be a match for the person who needs it. You need a kidney, I want to donate mine, but you can't accept mine. And so we need to build a chain. But the chain is composed of people who, after the first altruistic donor, are all compensated in the sense that they are giving a resource to a family member. As this news story notes, it's actually a "swap," not a voluntary donation. Some background....

This video is quite good. It illustrates the importance of the payments implicit in the chain system, and also the naive insistence that there are no payments.

This letter from the Durham Herald Sun (Dec 10) is quite insightful:

***********
In your editorial "Gift of Life, no death required" (December 6) you appropriately celebrate the rare willingness to be an altruistic kidney donor. You then say that more like the first recipient's daughter "help because someone they love was helped."

A very substantive issue is overlooked in both the editorial and the news stories covering this remarkable event, an event I, as a practicing nephrologist, also celebrate. The Duke transplant of two kidneys is often called "chain donation" and has been as many as 14 donor / recipient transplants of kidneys in other centers. This has become a popular but difficult method of improving the important opportunity to transfer patients away from dialysis to a better life.

But note that both the government and most ethicists have expressed deep concerns about payment to donors, a concern that I think needs reexamination. In these "chains," only the first donor is "altruistic." The others are "bridge donors." These are people who have made a contract to benefit a friend or family member...Clearly this is also a form of payment...I hope that experts will [analyze] the very thin line between this form of payment [and monetary compensation] and perhaps open the possibility of early transplantation for the tens of thousands of dialysis patients currently waiting years.

I am aware of the concern that poor people will be made "vulnerable" by the promise of money, but I also believe that safety and protection could be built into such a system.

Robert Gutman, Durham
***********

A perfect illustation of the problem of euvoluntary exchange. Poor people are made "vulnerable," in point of fact, by being POOR. Selling a kidney would be a way to be less poor. But the medical establishment considers all incentives to be coercive. Poor people must be forced to remain poor, in a kind of human museum of poverty and misery. So they die with healthy kidneys. And wealthy people who would gladly pay hundreds of thousands of dollars for a healthy kidney and a better life must be doomed to live miserably and die young

All so doctors can feel good about themselves as being "ethical?" I just don't get it. Literally no one is benefitted by this system except the consciences of doctors who themselves make huge salaries, but dictate that no one else can get paid because incentives and medicine don't mix.

My good friend Virginia Postrel pretty much nails it here.

Michael Sandel on Exchange

2011-12-09T10:23:00.002-05:00

Okay, so I'm a little embarrassed. I clearly should have cited this before.

But better late than never. Michael Sandel makes an argument about when exchanges are not really voluntary:

The first objection [to the claim that exchange is voluntary] is an argument from coercion. It points to the injustice that can arise when people buy and sell things under conditions of severe inequality or dire economic necessity. According to this objection, market exchanges are not necessarily as voluntary as market enthusiasts suggest. A peasant may agree to sell his kidney or cornea in order to feed his starving family, but his agreement is not truly voluntary. He is coerced, in effect, by the necessities of his situation.

Wow. "Coerced by the necessities of his situation" sounds a lot like condition #6 here at the top right column of this blog, doesn't it. Awkward... Still, I'd like to think that the "disparities in BATNAs" definition gives it a bit more precision.

The second objection is to "corruption," where buying and selling changes human relationships in bad ways. (If you tell your spouse, "Hey, honey, you were great in bed last night! Here's an extra $20!" then that is not really good for the relationship.) (An extra $200,000, instead of $20, might create considerable enthusiasm, but it would not be authentic and would still corrupt the underlying relationship.) Some things can be commodoties and others cannot.

ATSRTWT, by all means.

More Tales From the Front: Duke Still Angry Students MAY Have Used Side Payments

2011-12-07T11:05:00.003-05:00

This is almost too perfect. You can't get a better lesson in the basic problems of property rights and exchange than by looking at what the admins at Duke are doing. Do NOT try this at home, kids, because it is not the right way to do this.

This blog covered, in a previous post, the basics of the Duke House System, where groups were assigned space and then "allowed" to exchange. (Question: students are paying, and admins are paid out of that tuition money. Why when it comes to housing do the students work for the admins, rather than vice versa? If the students want to trade, and no one else is involved, why the firetruck do the admins get to veto it?)

Anyway, more kerfuffle about alleged (GASP!) payments. Excerpt:

After the housing lottery, some selective living groups were in the market for better housing.

InCube, JAM!, Chi Psi fraternity and Delta Sigma Phi fraternity have all engaged in successful section swaps. In the two weeks following the Oct. 25 housing lottery for next year, Housing, Dining and Residence Life allowed groups seeking a different section to exchange with another group as long as the trade was mutual, said Joe Gonzalez, associate dean for residence life. All of the exchanges had to be approved by HDRL.

After swapping with Jam!, InCube—assigned 1915 Yearby Ave. on Central Campus in the lottery—will instead retain its current section at 205 Alexander Ave. under the house model next Fall.

InCube was unhappy with its original housing assignment because it recently invested about $25,000 in its current common room on Alexander Avenue. JAM! was assigned this location in the October lottery, so InCube entered trading negotiations with them immediately after the housing lottery.

“There were no problems at all,” said JAM! President Elizabeth Clark, a junior. “Everyone at InCube was hoping that we’d switch with [JAM!], and when I brought the idea back to JAM!, everyone was really enthusiastic about it.”

HDRL approved the second housing trade with similar success.

After the lottery, Chi Psi fraternity approached Delta Sigma Phi fraternity and showed an interest in trading sections, said Delta Sigma Phi President Zach Sperling, a junior. Delta Sigma Phi was originally assigned to Edens Quadrangle 3B, and Chi Psi was assigned to Craven Quadrangle B.

“While [Edens] is a great place to live, it is somewhat removed from the rest of campus,” Sperling wrote in an email Thursday. “We were quite pleased with where [Chi Psi] section was. It was a mutually beneficial trade.”

Chi Psi President Matt Straus, a senior, declined to comment.

“Overall, [trading] was a smooth process,” Sperling said. “[Gonzalez and Donna Lisker, associate dean of undergraduate education and co-chair of the House Model committee,] were very accommodating and put a lot of time into making sure trades went smoothly after housing was chosen”.

The swapping process was not without controversy, however, as rumors of groups offering bribes for a new section circulated.

"Bribes?" Payments are only bribes if they are illegal. Payments should only be illegal if there is some abuse of power. If a student group paid an admin for a better housing draw, THAT would be a bribe. No one has alleged anything like that. Instead, what is being whispered is that some euvoluntary exchanges may have taken place.

How can a payment from a group that really values a space, to a group that doesn't value the space much, count as a bribe? That would be "compensation," for those of you keeping score at home.

Look at the property rights problem here: Duke has turned the dorm space into a common pool resource. No one has incentives to improve the space, because if they improve it they may not get the same draw next year. And the improved value of the space would make the lucky group that DOES get the space want to hold onto it.

If you are going to randomize ownership rights, returning us to a Hobbesian anarchy, at least you should allow side payments so groups have some hope of trading to get their space back. If you spend $25,000 improving the property, you would like to have use of the property. Conversely, if you can't get secure rights to the property, you won't invest in it. Not because you don't want to, but because it will be stolen by lawless lottery bandits.

The "no bribes" (sic) policy is not just dumb. It's dumb on big tall clown stilts, with a red rubber ball nose.

What Can Society Force Women to do, or NOT do, with Their Bodies?

2011-12-07T10:15:00.000-05:00

Yesterday was the first post in this two-part discussion. Here is the second.

Let's review the laws that tell adult women what they can do with their bodies:

1. Casual sex with strangers: no problem
2. Casual sex with strangers where he pays for airfare, hotel in the Bahamas, jewelry, dinner, new clothes: no problem
3. Casual sex with strangers where he pays the woman for her time: illegal in most of US, though legal in much of the world. (on this map, red is no, green is yes).
4. Causal, though athletic, sex with strangers on film, to make pornography, where filmmaker pays the woman: generally no problem
5. Donation of eggs to fertility clinic: no problem
6. Sale of eggs to fertility clinic: iffy. Amazing story here: "If you pay something, you get lots of girls."
7. Intentional abortion of 10 week old fetus: in most states, no problem.
8. Donation of baby to anonymous guardian chosen by adoption agency: no problem
9. Donation of baby to well-qualified guardian selected by mother: no problem
10. Sale of baby to well-qualified guardian selected by mother: clearly illegal, and most people would probably say a grotesque ethical violation.

Here's my question: is the difference between 10 (terrible) and 8 or 9 (admirable) really that big? And is our admiration of 8 or 9 conditioned by the idea that 7 (abortion) is really, actually, deep down ethically repulsive?

And, as always on this blog, I ask the exchange question: if donating a baby to someone you select is okay, why is selling the baby NOT okay? The problem is NOT transferring ownership of the baby. The problem is compensating a desperately poor woman who really needs the money. Are you sure that's the right policy? Why does everyone hate poor people?

NYT: Why Kidney Sales Should Be Legal

2011-12-07T00:46:00.000-05:00

Guest op-ed by Excerpt:

On Thursday, I will donate one of my kidneys to someone I’ve never met. Most people think this sounds like an over-the-top personal sacrifice. But the procedure is safe and relatively painless. I will spend three days in the hospital and return to work within a month. I am 21, but even for someone decades older, the risk of death during surgery is about 1 in 3,000. My remaining kidney will grow to take up the slack of the one that has been removed, so I’ll be able do everything I can do now. And I’ll have given someone, on average, 10 more years of life, years free of the painful and debilitating burden of dialysis.

If kidney donation is this easy, why do the stereotypes about heroic sacrifice persist? Part of the problem is history: before modern medical advances, organ donation used to be quite painful and dangerous. But organ donation advocates also deserve some of the blame. In a misguided attempt to make the families of brain-dead patients consent to the posthumous donation of their organs, advocates treat donors like saints. But deifying donors only serves to make not donating seem normal. When I first told some friends and family that I wanted to donate a kidney, they assumed I’d gone off my rocker. They saw it as a crazy act of self-sacrifice, rather than what it is — one of the many ways a reasonably altruistic person can help others.

This is a serious problem, because there aren’t nearly enough saints in the country to tackle the growing waiting list for a kidney. More than 34,000 people joined the waiting list in 2010; fewer than 17,000 received one. Thousands of people die waiting each year.

This is a tragedy, but it doesn’t have to be this way. The people waiting for kidneys aren’t dying because of kidney failure; they’re dying because of our failure — without Congress’s misguided effort to ban organ sales, they would have been able to get the kidneys they desperately needed.

It has been illegal to compensate kidney donors in any way since 1984. The fear behind the law — that a rich tycoon could take advantage of someone desperately poor and persuade that person to sell an organ for a pittance — is understandable. But the truth is that the victims of the current ban are disproportionately African-American and poor. When wealthy white people find their way onto the kidney waiting list, they are much more likely to get off it early by finding a donor among their friends and family (or, as Steve Jobs did for a liver transplant in 2009, by traveling to a region with a shorter list). Worst of all, the ban encourages an international black market, where desperate people do end up selling their organs, without protection, fair compensation or proper medical care.

A well-regulated legal market for kidneys would not have any of these problems. It could ensure that donors were compensated fairly — most experts say somewhere in the ballpark of $50,000 would make sense. Only the government or a chosen nonprofit would be allowed to purchase the kidneys, and they would allocate them on the basis of need rather than wealth, the same way that posthumously donated organs are currently distributed. The kidneys would be paid for by whoever covers the patient, whether that is their insurance company or Medicare. Ideally, so many donors would come forward that no patient would be left on the waiting list.

What Can You Sell?

2011-12-06T09:27:00.000-05:00

If there is complete self-ownership, why should selling babies be illegal?

Suppose you think there should be a market in organs. Suppose you think prostitution should be legal.

Then why would adoption be allowed only as a donation? Why not pay women to have babies so other people can adopt them? We DO allow surrogate motherhood. In fact, you can pay a surrogate mother a lot.

Where is the line between surrogate motherhood and payment for adopting a baby? Is the fact that there was a prior agreement really that much of a difference, ethically? If a mother can sell an unborn baby, on a future contract, why can't she sell a baby at 1 month old? A year old? Fifteen years old? What is the principle that guides us here?

The LMM wants to know... Because a mother in Miami was just arrested for trying to sell her baby.

(Part Two, with some larger questions, tomorrow!)

New Conditions on Organ Donations

2011-12-06T08:52:00.001-05:00

what is the ethical trade-off in ensuring the safety of donated organs? What probability is "acceptable," since zero risk is unachievable? Well, there are new rules: you can't have had more than two sexual partners in the past year. Excerpt:

“With the new guidelines, every college student in America will be high risk,” said Dr. Harry Dorn-Arias, a transplant surgeon at the University of Virginia. “Right now, it's probably a prostitute or a guy with a needle in his arm. Next time, it will be just a young guy."

Under the new policy proposed this fall by the Centers for Disease Control and Prevention, deceased and living donors who were not monogamous in the previous 12 months would be considered at increased risk of transmitting HIV, hepatitis B and hepatitis C -- even if they had no other risk factors

CDC officials say the proposed guidelines are aimed at making the organ supply safer and preventing accidental transmission of life-threatening infections. The policies wouldn’t absolutely ban anyone from donating, especially in an exceptional or life-saving situation, but they would call for more scrutiny and testing.

Prostitution

2011-12-05T08:49:00.000-05:00

Should prostitution be legal? An interesting perspective on recent developments in Ontario, Canada.

A bit more about the 2010 decision in Ontario Superior Court.

A copy of the decision itself.

A blog written by one of the plaintiffs, with lots of updates on current events. (Appears to be SFW, but a blog entitled "Thoughts of a Dominatrix on Trial".... well, be careful out there.)

FT Caldwell Article on Colleague Ruth Grant's Book

2011-12-03T09:56:00.000-05:00

Prof. Ruth Grant has a terrific new book, "Strings Attached."

Christopher Caldwell of FT writes a nice extended review and commentary. Here is an excerpt:

In Ruth Grant’s latest book, Strings Attached: Untangling the Ethics of Incentives, the professor of political philosophy at Duke University gives one the sense that day-to-day rules of American life are being set in a crooked fashion. Police officers hand out traffic tickets according to a daily quota. A South Carolina legislator proposes reducing prison sentences for inmates who donate their organs. The federal government collects billions in taxes for state road building projects, but will release the money only if states surrender their constitutional right to set the legal drinking age.

These stories all involve government incentives. The policy bestseller Nudge by Richard Thaler and Cass Sunstein has lately brought a similar approach into vogue. Nudge suggests displaying vegetables more prominently than desserts in school cafeterias and automatically enrolling company employees in retirement plans unless they protest. Prof Grant identifies the Thaler-Sunstein approach as “choice architecture”, a slightly different programme than the “incentivisation” she assails. But both offer politicians a way to herd citizens like cattle, while purporting to set them free.

There are two basic ways to get people to do something: coercion and persuasion. Both have their problems. Coercion is cruel. Persuasion doesn’t always convince. That is where incentives come in – you can offer someone something to do something he would not do otherwise. It is a trade. But it is also an exercise of power. These incentives are employed to counteract people’s natural motivations.
That is the way people understood the word “incentive” when it entered public-policy discussions a century ago. It was part of the American world view of the Progressive Era, a strange combination of utopianism and two-dimensional, “let’s get down to brass tacks”, “every man has his price” cynicism. This was the world of Taylorism and Charlie Chaplin’s Modern Times and social engineering proposed without embarrassment.

Incentivising is not only the market’s alternative to coercion. It is also powerful people’s alternative to persuasion. It can render governing classes unaccountable. Rulers get the outcome they desire, while the masses on whom it was imposed get the responsibility for having chosen it. An incentive is not a reward, something that can be fair or unfair. It is just a hedonic incitement. Prof Grant notes that the controversial bonuses paid to AIG employees after the insurer’s $180bn bail-out were revolting to those who think of bonuses as wages but acceptable to those who think of bonuses as incentives.

Dubious incentivisation is the hallmark of much of the US public sector.

ATSRTWT! And congrats to Ruth, a really good job on the book. It is an important achievement.

Bone Marrow Transplants: $$ is okay because....what?

2011-12-02T11:38:00.000-05:00

A-Tab deals. I have nothing to add.

ATSRTWT.

Nice Teaching Resources

2011-12-02T07:17:00.000-05:00

Nice summaries from Thomas Nadelhoffer's "Ethics" blog, Phil 112 class

Rawls on Justice as Fairness

Nozick on Entitlement and Justice

Interesting Book

2011-12-01T13:01:00.000-05:00

An interesting book that is more obscure than it should be.

Consent, coercion, and limit: the medieval origins of parliamentary democracy, By Arthur P. Monahan. McGill-Queens Press. 1987.

First page of a review...

(Click to embiggen)

Selling spots in line

2011-12-01T11:20:00.000-05:00

Yesterday, I went to the DMV. At the one I went to, you go in, get a numbered ticket, and sit in a tiny, miserable room. They process around 6 people per hour, except when one of the three employees is on lunch (from 11-2).

I arrived when they were on ticket number 115 and got ticket 126. For the nearly two hours I sat there, I saw at least twenty people come in, despair, and leave.

As my time finally neared, I (being an irrepressible entrepreneur) thought to myself: how much is this ticket worth? How much would people be willing to pay to avoid 2 hours in the DMV?

A lot, I'd bet! Probably more than I could make at McDonald's, and for much easier work. So why doesn't anyone do it?

In some countries, something like this happens outside of embassies: there exists a small group of professional "queue-rs" who wake up at dawn to get a spot in line outside of the embassy, knowing that they can sell their spot to someone whose time is more valuable later that day.

I suspect that, were I to try to sell my ticket at the DMV, I would be met with harsh criticism from people claiming it was unfair. Is it unfair? Is it euvoluntary? Might it be one without the other?

And for the record, Americans do tolerate (or even celebrate) this behavior for consumer goods. Is there something special about government services?

Magnus Jiborn

2011-11-29T11:46:00.000-05:00

The internet is really something.

Found two works by Magnus Jiborn. Here is a book, his dissertation. And then an article.

I found the book particularly interesting. Coercion need not be involuntary. A group of coolees pulling a boat might hire someone to whip laggards. In fact, this theory of the firm has some merit: firms coordinate monitoring team production and enforcement of sanctions, ensuring that in equilibrium there are few violations. See, for example, Steven NS Cheung, THE CONTRACTUAL NATURE OF THE FIRM, JLE, 1983.

It is not far from there to Thomas Hobbes and social contract. The prisoners can get out of their dilemma if they hire a guy with a big sword to punish violations.

Steiner's "Liberal Theory of Exploitation"

2011-11-27T10:34:00.000-05:00

People ask if it is just obvious if ALL truly voluntary exchange is non-exploitative.

Some would argue that Hillel Steiner's "A Liberal Theory of Exploitation," Ethics, Vol. 94, No. 2 (Jan., 1984), pp. 225-241 is one place to look. (If you are on a university IP address, you can just go to the JSTOR stable URL to get the pdf.

For those who don't have a free JSTOR connection, let me quote the summary from S. Walts's "Comment" on Steiner. ("Comment on Steiner's Liberal Theory of Exploitation," Ethics, Vol. 94, No. 2 (Jan., 1984), pp. 242-247 http://www.jstor.org/stable/2380514 )

Whatever else it involves, exploitation involves taking unfair advantage of someone or some group. Theories of exploitation are theories which explicate the notion of taking unfair advantage. In "A Liberal Theory of Exploitation,"' Steiner presents a novel and recognizably liberal theory of exploitation. Its novelty is that exploitation is defined in terms which make reference to the interference with the opportunities of a third party to bid for the exploited party's goods or services. That the theory is liberal is apparent in its reliance on a stark budget of individual rights and choices...

On Steiner's definition, exploitation results from a rights violation. Rights are, for Steiner, title based; they are property rights. Steiner also adds the independent claim that any title to objects which either is or is the causal consequence of a violation of a property right is invalid. He says: "All valid rights are so inasmuch as they derive from exercises of (previously) valid rights. And, correspondingly, any right is invalid which derives from actions interfering with exercises of valid rights" (p. 230). Now most if not all titles have a far from "clean" causal ancestry. (Marx's statement that "in actual history it is notorious that conquest, enslavement, robbery, murder, briefly force, play the great part" is one of the few statements in pt. 8 of Capital that have not come in for criticism.) Hence if a title to objects resulting from a rights violation is invalid and exploitation involves a rights violation, then it follows that most if not all unequal bilateral exchanges are cases of exploitation.

But this is implausible. The presence of exploitation is unquestionable. Its omnipresence is questionable. Suppose Blue invents a machine on which he places little value and offers to sell it to Red for an outrageous sum. Red accepts. This exchange might result from a rights violation. But even if it does, the question of when the rights violation occurred is relevant in identifying the exchange as exploitative. White's rights, for example, may have been violated before Blue was born. In the absence of those rights violations, White would have invented the machine and offered it to Red for a more reasonable sum. Blue and Red's exchange may still be unequal. But it does not seem exploitative. For nothing that Blue does over and above making the exchange with Red makes it so. Ex hypothesi neither Blue nor anyone authorized by Blue violated White's rights. Hence, if the presence of a rights violation is a condition of exploitation, the proximity of a rights violation to an exchange is relevant to identifying it as exploitative. Not so according to Steiner. That a right of some third party was violated at some node in the sequence leading to the unequal and unnecessary exchange is sufficient for its being exploitative.

Now, the useful thing for this blog is the point that Steiner makes about three ways of transferring a right to own, or at least the use of, a thing. Steiner says:

Interpersonal transfers are generally thought to be of three broad types: donation, exchange, and theft. Of these, donation and theft consist in a unilateral transfer, while exchange consists in bilateral transfer. It is true, of course, that in donation the donor may receive something in return for his gift, such as gratitude. Thus we are able to distinguish donations from exchanges because we believe that there is some shared scale of value on which what the donor receives is rated at zero, whereas what his beneficiary receives is rated at greater than zero. However, the fact that this can equally be said in respect of thieves and their victims is important inasmuch as it implies that more is needed, by way of differentiating characterization, to distinguish these two types of transfer.

To discover what that 'more' is, let us first set out the three types of transfer on a continuum. In each case, the parties to the transfer are two persons (or groups) named Red and Blue.

This is fairly trivial. But it is a useful way of displaying the possibility of types of transfer which are intermediate between pairs of the three broad types. Now the difference between a donation and a theft is simply that, in the first case, the initial possessor of the item to be transferred transfers it voluntarily, whereas in the second case it is transferred involuntarily.

It turns out that much of Steiner's argument comes down to whether the thing, or the things that go into the making of the thing, were ever transferred involuntarily. If all exchanges, back through time, were euvoluntary than there would be no exploitation.

Airline Travel: Putting Seat Back

2011-11-26T12:09:00.000-05:00

Putting the seat back can be pretty bad for the person behind you. Is there a negotiated solution?

Coase might say, "Yes."

But would side payments be okay? Could I offer to give you $20 not to put your seat back? Could you refuse, but then when I get made offer ME $20 to be allowed to put your seat back?

Who "owns" the rights? I think most people say if you sit in a seat, you can put the seat back. Here is a poll: In a recent USA TODAY/TripAdvisor survey that drew more than 6,500 responses, travelers were conflicted: Asked "what's your position on reclining plane seats?" 27% answered, "I have the right to recline," while another 27% said "all seats should be non-reclining." Bringing up the rear: "It's rude to recline" (17%), "I only recline when sleeping" (15%), and "It depends who's behind me" (13%).

But what about mealtime? Should you ask? Should you go slowly?

Three short videos on etiquette. The LMM really hates seat back grabbers.

Thanks to the LMM!

Is a Wad of $20s Coercion, Tipping, or Euvoluntary Exchange?

2011-11-24T18:22:00.000-05:00

Ward Boss sends this link.

Question: Is it unethical to make side payments? Are tips unethical? Since the answer is NOT always "yes," when does a tip become unethical?

And the guy who "bought" a seat on 1st Class...how interesting. There, I can the problem the airline has. If I have Gold Medallion status, or take Fundman (who has "Colossus Bestride the World" status, and the issue is "can you sell your seat?" We have made it so you can scalp seats at a concert. How about on a plane? The problem is not just the security issues (which are pretty dumb, if we are both going to be on the plane anyway). The problem is that the airline is trying to segment the market so they can price discriminate. Reselling ruptures the market segmentation necessary for that to work.

So, you can GIVE me your seat in the bulkhead, or even in first class. But you can't SELL it to me.

Side payments can, under some viewpoints, make a choice voluntary. My Duke colleague Jonathan Weiner has done some good work (Wiener 1999, Global Environmental Regulation: Instrument Choice in Legal Context, Yale Law Journal, Vol. 108, January 1999, SSRN Link) on this question. He looks at "beneficiaries pay" rather than "polluters pay" problems in the environment.

Other people would say that side payments are NOT voluntary, and in fact are coercive. Because they would define anything that "makes" me do something I would not otherwise do as coercive. This perspective is discussed (though not explcitly advocated) by another Duke colleague, Ruth Grant (Strings Attached: Untangling the Ethics of Incentives, Princeton U Press, November 2011)

Airline Travel: If the person beside you is "A Passenger of Size," you have to stand?

2011-11-24T12:36:00.000-05:00

Should a truly obese person be REQUIRED to buy two seats?

Should the fat person have to sit like the picture above? That's not safe, or comfortable.

This story raises a lot of questions. (I had a similar experience, but since I am a wide-bottom myself the situation spilled over onto the person on my left, also).

Some excerpts from the US Air story:

Liz Landau, a spokesperson for US Airways, confirmed that Berkowitz was inconvenienced by a passenger of size and told msnbc.com “it was his choice to stand.”

“His seatmate had the same right to his seat as Mr. Berkowitz did to his. So here’s where the diplomacy and cooperation of all passengers comes into play,” the airline said in a statement.

Berkowitz was unhappy with the $200 voucher the airline offered him for his experience, at which point he contacted (consumer advocate) Elliott. (NOTE: TICKET WAS $800)

"We have attempted to address this customer’s service concerns,” the airline statement said, “but offering increasing amounts of compensation based on a threat of a safety violation isn’t really fair — especially when the passenger himself said he didn’t follow crew members’ instructions and fasten his seatbelt.

“The way to ensure you have space available next to you — whether you are a person of size, or you would simply like to ensure you have more personal space to relax on a long flight — is to purchase that additional seat, or First Class, in advance.”

This is remarkable, even for the putzes who run US Airways. Each passenger has the same rights to his/her seat.... unless the person is fat, and then they get 1.5 seats or more. If you can't buckle your seatbelt, because El Gordo is flowing over onto your seat, then you are refusing to "follow crew members' instructions."

Finally, and most remarkably, the displaced man was at fault. US Airways suggests that HE should have purchased two seats, if he wanted "more personal space to relax."

Three parties here. Who is obliged to make accomodations? The jumbo? The displaced passenger? Or the airline?

And then what about tall people? If the guy behind me is very tall, does that mean that I can't put my seat back? Comments here, on same story and also tall issue, are interesting.

Can reputation solve this problem? For me it does. I would prefer either to drive, or just not go, if the only option is the pirates at US Airways. But US Airways is not bankrupt, so clearly this aggressive indifference to customer safety and comfort is not a threat. The airline can get away with imposing all the costs on the customers, because the customers are too sheeplike to fight back.

But clearly this was not a euvoluntary exchange, where the passenger agreed to give up his seat. His only choices were to stand up, or forfeit his $800 ticket completely.

The solution: one of those box things they use to check carry ons (only they don't, really).

But you could have a seat, with the armrests bolted down. If you don't fit in that seat, you have to buy two.

(nod to Mark Steckbeck)

Richard Thaler: Outrage over non-euvoluntary exchange

2011-11-22T15:55:00.000-05:00

The good Thaler doesn't put it that way, exactly. But he is clearly talking about non-euvoluntary exchange and unexpected outrage from consumers. Unexpected by business, that is.

Excerpt:
For hints about how to avoid the consumer backlash, the bank’s executives might have consulted a paper I wrote in 1986 with the psychologist Daniel Kahneman and the economist Jack Knetsch. The central question was this: What actions by companies do people consider “unfair”?

Our method was to ask randomly selected people some simple questions by telephone. Here is an example:

“A hardware store has been selling snow shovels for $15. The morning after a large snowstorm, the store raises the price to $20. Please rate this action as: completely fair, acceptable, unfair, very unfair.” Some 82 percent of the participants called it either unfair or very unfair.

To be sure, we weren’t trying to figure out what is fair. That task is best left to philosophers. We were trying only to determine what actions customers perceive as unfair. As the responses illustrate, most people don’t view a spike in demand as an acceptable excuse to raise prices.

The answer on THIS blog, of course, is that consumers will object when they think the exchange is not euvoluntary. Thaler is right, tho: very cool paper.

Nod to Neanderbill

Kidney Sales: A Moral Case

2011-11-21T16:03:00.001-05:00

A moral case for allowing kidney sales...

(Nod to IHS for sponsorship...)

Tales From the Front: Exchange is Immoral!

2011-11-18T14:30:00.000-05:00

Step 1: Duke kids are smart, and care about their living arrangements.
Step 2: Duke administrators care about a concept that they made up, though it has no actual meaning. And that concept is "fairness."
Step 3: Duke administrators keep making up new rules and than are appalled, aghast, agonized (and other words starting with letters of the alphabet) Duke students will try to game the system to compete for better room arrangements.
Step 4: Duke administrators then try to change the rules, punish those who follow the rules, etc. If "fair" has ANY meaning, it must surely be "do not constantly change the rules" and "do not punish people who follow the rules, just because you don't like the outcome."

Now, Duke is going to change the rules, to make things more fair. Really.

Some background. Some more background. For years, Duke has allowed groups or blocks to have priority in room selection. The reason is that it is easier to fit in small groups and individuals once the larger groups have been placed. This year the admins decided that it would be better to make it effectively impossible for any except large groups to have any choice whatsoever in room selection. And they wanted to limit the choice even the big groups got, so they instituted a lottery.

One of the features of a lottery, of course, is that the assignment of a group to a space allocation has zero, zilch, bagel, nada to do with how much that group VALUES that location. And since a number of the groups are more or less the same size (and since size is variable, and growth or shrinkage might change allocations in the future), some groups thought about what we economists call "side payments."

For example, suppose one group, an ad hoc group based on some shared interest or goal (the "Baseball Stats Study Group") gets assigned prime dorm space on the main quad on west campus. This is pretty noisy space for an intellectual group, but would be perfect for a group that is a frat.

And suppose a frat, Iota Tappa Kegga, about the same size, gets assigned a space way off the main quad, in a queit corner of the dorms.

Now, the BSSG likes the main quad space, because it is convenient for classes. But it is noisy, and the BSSG-ers value the space only slightly. But the ITKs really value that spot. The ITKs take up a collection, and are willing to offer a payment of $5,000 to make the change.

The result is that BSSG gets the $5,000, which they value much more than the space. The ITKs get the prime space, which they value much more than $5,000. And no one else is harmed, or even effected. (If anything, the noise externality is reduced, since moving ITK to the main quad means nobody will notice their noise over the bedlam already there, whereas if ITK had stayed in the back corner their noise would have bothered the neighbors.)

Here's the cool part. When the crack Duke admins learned of the plans to exchange, that was fine. No objection, the rules allowed for groups to trade, all it took was a majority of each group.

But THEN the staff learned of the plans to offer side payments! Outrage! The Dukites were immediately ill-tempered, impassioned, incensed, indignant, inflamed, infuriated, irascible, irate, ireful, irritable, irritated (and other words starting with letters of the alphabet). This email was sent out (I am totally NOT making this up):

Oct 28, 2011
Hello,

Unfortunately, some behaviors have been brought to our attention that are deeply disturbing. Apparently some groups, very few I am convinced, have included offers of rather large sums of funds to encourage another group to trade houses with them.

To be clear, any exchange of houses found to have involved money as part of the agreement will not be approved. If approval is granted and the exchange of funding comes to light at some point in the future, the approval will be rescinded. Other referrals deemed appropriate for this behavior will be made.

This behavior contradicts the intent and spirit of the opportunity the Duke Houses committee offered groups at this point of the process, an opportunity only considered because several student voices advocated for this chance. Eliminating the opportunity for a trade was considered, but we hate to punish all involved for the actions of a very few. This may change however if this behavior does not cease immediately.

I have head from a number of groups already and there is such excitement out there for what lies ahead in fall, 2012. Let us make that the defining theme of what is happening right now, and not these other actions.

Sincerely, XXX YYYYYYYYYY
Associate Dean for Residence Life
Co-Chair, Duke Houses

There is just so much to like here. "Behaviors"? You mean like making offers that make two parties better, and no one worse, off? "Referrals"? To the police? To Santa Claus? To the kids' priest/rabbi/vicar/imam/sociology professor (depending on their religion)? "Eliminating the opportunity for a trade was considered..." Wow! Trade is fine. Exchange is illegal. (The actual max offered, btw? $15,000!) These Jesuitical distinctions would have had ol' Thomas A himself scratching his Aristotelian head and thinking, "WTF? I mean, WTFingF?"

*****************
UPDATE: I am SO happy. This is exactly the sort of thing I had hoped this blog would encourage. Well done, lad. A good analysis, and good questions.

UPDATE 2: Another student works on the problem. This is what the blog is for, folks!

On the Common Law Conditions for Contract

2011-11-18T13:52:00.000-05:00

I consciously tried to model the conditions for "euvoluntary exchange" after the conditions for a binding, enforceable contract in common law.

Frequent reader (and ex student) Alex Konik writes:

Hi professor munger, I am not sure how much you have looked to contract law for insight on limits to euvolunatry exchange. I am going through my first contracts class here and thought that some common law elements would be interesting, if you have not seen them already. There are fraud and misrepresentation concerns which are clearly not euvoluntary or voluntary. Same with duress, pretty self-evident.

Unconscionability - this is the big fuzzy one and probably most relevant to euvoluntary exchange. The link is good, unfortunately missing a few of the comments, but the main points are there. It can be procedurally void, or the terms themselves can be so one-sided as to make the contract void. This is also relatively new in the common law and pretty uncertain compared to most doctrines. So, (1) the terms were hidden in a maze of language and he probably didnt read/understand them, or (2) he did understand them, but they are just unconscionable.

There are some other interesting ways to avoid enforcement of contracts:
duress by threat

undue influence ("unfair persuasion of a party who [...] by virtue of relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare") - so contracting with someone you have have reason to trust (177)

various public policy concerns, like if enforcement of terms would violate legislation (no contracts to kill) (178-182)
restraints on trade competition, especially non-compete agreements, unless they are "needed to protect a legitimate interest" (186-188)

I couldnt find a better free version of the restatement online. Anyway, I thought this may be of interest to you. cheers, alex

Just the sort of thing John D Already Mentioned

2011-11-13T14:55:00.000-05:00

In comments to an earlier post, commenters "John D." and "Anonymous" had an exchange about whether legalizing organ sales would increase illegal kidnapping and theft of kidneys.

It is likely an empirical question, I suppose, but here is a story of such theft, not hypothetical but real.

I think both sides have a point here. First, it is quite true that in societies with poorly developed property rights and government protection, making organ sales illegal won't protect anyone. If you can get away with kidnapping, you can get away with a lot of things.

But John D. has a point also. Kidneys don't come with bar codes identifying their source. If the trade is international, it is quite possible that legalizing the purchase of kidneys by a first world buyer will result in more kidnapping in third world countries. One cannot assume that the act of legalizing sale will also create effective police protection and other civil institutions.

I don't think this is a good argument against legalizing kidney sales WITHIN the US (i.e., US donor, signs consent, euvoluntary exchange). But it is pretty good argument against legalizing purchase by Americans of kidneys "harvested" in the third world.

Avner Greif and "Coercion-constraining Institutions"

2011-11-10T15:26:00.000-05:00

Interesting paper by the always interesting Avner Greif: Coercion and Exchange: How Did Markets Evolve?

Abstract: What causes distinct trajectories of market development? Why did the modern market economy, characterized by impersonal exchange, first emerge in the West? This paper presents a theory of market development and evaluates it based on the histories of England, China, and Japan. The analysis focuses on how distinct coercion-constraining institutions that secure property rights differentially interact with contract enforcement institutions. Although different combinations of coercion-constraining and contract-enforcement institutions can support markets, only some coercion-constraining institutions and institutions enforcing impersonal exchange can be an equilibrium. Among the analysis’ insights are the relations between the internal organization of the state and legal development, and why impersonal exchange and political representation historically co-emerged.

Interesting source piece: Kent Greenwalt

2011-11-07T18:48:00.000-05:00

Kent Greenwalt wrote "Legal Enforcement of Morality," in A Companion to Philosophy of Law and Legal Theory, edited by Dennis Patterson,Wiley-Backwell, 2010.

Several interesting points about the role of information and an action being really voluntary....or not. He says (p. 473):

One might even argue that choice in ignorance or under conditions when rational assessment is difficult is not really voluntary. I shall not explore the problem of voluntariness further, but the more robust one conceives the conditions of voluntariness to be, the more one will accept state restrictions as countering undesirable choices that are not sufficiently voluntary. (Emphasis in original; clearly he was looking for the concept of "euvoluntary.")

As usual, the conditions under which exchange is euvoluntary match quite closely the conditions economists assume for perfect competition. Which is why perfect competition is a question-begging assumption. On the other hand, the idea that the government has the correct information, and the incentives and capacity to make use of it, is no less question-begging.

Selling Kidneys: A Sting Operation

2011-11-06T20:46:00.000-05:00

Ilya Somin is very sure of himself here. And everywhere else, also.

While I agree with him for the most part, I no longer believe the issues are quite so clear cut. If someone sells an organ because s/he is desperate, that's something we should worry about.

But in any case Levy Itzhak Rosenbaum has been convicted of brokering organ sales, for profit.

Ilya Somin's strongest point, of course is this: Where's the harm? Compare the two states of the world, one where sales are allowed and the other where they are prohibited. Who is better off under prohibition? To favor prohibition you have to answer "the society," since no individual is better off.

Eusocial: Voluntary?

2011-11-04T14:49:00.000-04:00

The idea of "eusocial" species is what got me thinking about "euvoluntary" exchange in the first place.

Is eusociality adaptive? It is clearly adaptive for the hive, or the nest. But can we reconcile eusocial species with evolution?

Or would it be some kind of "choice," a collective decision to avoid competition among individuals in favor of competition among the equivalent of clans or bands?

(Thanks to Prof. Ward)

Coercive Incentives?

2011-11-02T13:22:00.001-04:00

When are incentives coercive, in medical research?

Is the answer just whenever the incentive induces someone to do something that otherwise they would not?

Ruth Grant and Jeremy Sugarman, 2004, JOURNAL OF MEDICINE AND PHILOSOPHY

Carrotmobs and the "race to the top"

2011-11-01T19:01:00.000-04:00

Carrotmobs are the newest thing in consumer organization. Though the practice has thus far been used to advance a "green" agenda, the fundamental practice of carrotmobbing has been used by small groups trying to raise money for a long time.

In a carrotmob, the "mob" decides which business to all frequent on a set date. They pick one by soliciting bids to see who will dedicate the largest percentage of their revenues that day to making their stores more eco-friendly.

This practice works by reversing the incentive structure companies usually face when making decisions about eco-friendliness. Instead of making money by cutting costs, they stand to make more money by spending more to be the greenest; instead of a race to the bottom, it's a race to the top.

Carrotmobs are almost certainly flawed--unless they somehow increase overall demand, they cut into business profitability with unknown long-term effects--but they do seem like a good way to make consumer's pocketbook-votes heard more clearly.

A comparison to Groupon is inevitable, but I think that carrotmobs avoid a lot of the problems that Groupon seems to be having.

(Thanks to Peter Jaworski)

Re-examining los repartimientos

2011-10-31T14:38:00.000-04:00

The historiography of the repartimiento system in 18th-century Oaxaca has been controversial. The interpretation of its significance is ripe for the ideologically-inclined, but the debate would be made clearer with a clearer definition in terms.

Briefly, the repartimiento system saw the Spanish crown sending elites to their colonial territory of Oaxaca to govern the native populations there, without any more extensive imperial presence. These elites wanted to make a little on the side, and the local populations (poor by European standards to begin with, and significantly impoverished since the arrival of those Europeans) were desperate for credit. The Spanish elites fronted them cash or expensive livestock at high interest rates; these debts were to be repaid with cash crops that the elites could take back to Spain for large profits.

The dominant view is that this enterprise was coercive, and in the context of overall Spanish-Indian interaction, it strikes me as naive to assume that the repartimiento system was not characterized by racism, violence and underhanded dealings. Jeremy Baskes, though, emphasizes that the reach of the Spanish Crown was not very strong in this region, and that the individual Spanish elites would have been best served through market exchange, since they didn't have the force to fully dominate the population.

The final sentence of the piece: "Indians accepted repartimientos voluntarily."

Now, it clearly wasn't a euvoluntary exchange. The elites had the power to imprison debtors at will and the Indians were much, much poorer. Given those constraints, though, the Indians weren't actively coerced/enslaved, and were in many cases made better off through access to this foreign capital.

Richard Epstein on Inequality

2011-10-31T09:27:00.000-04:00

Is inequality unjust? Does it matter how the inequality came about, or is it prima facie unjust? And does it matter if the least well off are benefited by the exchanges that lead to the inequality? Richard Epstein ably makes the argument for why Rawlsians should be pro-market, and accept more inequality than they commonly countenance...

Watch Does U.S. Economic Inequality Have a Good Side? on PBS. See more from PBS NewsHour.

(nod to Tim Doran for the link)

The Philosophical Problem of "Voluntary" Exchange

2011-10-31T09:02:00.000-04:00

A brief and rather hostile (though fair) assessment of the idea that exchange could ever be "truly" voluntary. Or, in my terms, euvoluntary.

Both posts, the one I linked and the sequel, are worth reading. The RYC's bit on coercion is also useful.

Cohen does, as the author notes, raise a serious challenge. (If you want to read and see why, here...)

Swapping couches

2011-10-27T14:30:00.000-04:00

Whether or not the internet marks the end of selfishness (see below), it certainly does allow for new kinds of exchange.

For example, Couch Surfing, where people opt into a global network and agree to let strangers sleep on their couch for a night in exchange for the right to sleep on other strangers' couches all over the world.

Some might look at this as a better use of available resources, but I think that misses the point a bit. It seems unlikely that a website that allowed people to rent out their couches for $5 a night would be far less popular.

Like organ donations and amateur athletics, hospitality is a sphere in which people feel uncomfortable involving money, even if exchanges involving money would improve overall welfare. Because couch surfing is potentially quite dangerous, though, this anti-money impluse might make a lot of sense; people are more willing to trust a stranger who is willing to trust strangers than a stranger with $5.

Charity as a substitute for reputation: evidence from an online marketplace, Daniel W. Elfenbien, Ray Fisman, Brian McManus, Review of Economic Studies, forthcoming.

Consumers respond positively to products tied to charity, particularly from sellers that

are relatively new and hence have limited alternative means for assuring quality. We

establish this result using data from a diverse group of eBay sellers who “experiment”

with charity by varying the presence of a donation in a set of otherwise matched product

listings. Most of charity’s benefits accrue to sellers without extensive eBay histories.

Consistent with charity serving as a quality signal, we find fewer customer complaints

among charity-intensive sellers.

(Thanks to Peter Jaworski for couch surfing)

The End of Selfishness

2011-10-27T08:47:00.000-04:00

If people work for reasons other than self-interest, are they doing it voluntarily?

Will the internet be the "end of selfishness," or it finest flowering?

The article does pose an interesting "third way" question:

If neither the command-control systems dictated by the Leviathan nor the Invisible Hand of the free market can effectively govern society, where shall we turn?

Nod to Jay Larson

Corporate Wellness

2011-10-26T21:22:00.001-04:00

Are corporate "wellness" programs coercive?

A view, with some background.

You can give sex, but you can't sell it....

2011-10-22T09:45:00.000-04:00

Steven Levitt on prostitution. Illegal prostitutes are better off with a pimp. But are we better off because prostitution is illegal?

Stealing sex is rape, clearly involuntary. But is all "free" sex voluntary? Is all paid sex involuntary?

Is It Ethical to Give It Away?

2011-10-21T10:32:00.000-04:00

This seems nice, heartwarming, helpful, etc.

But when Chinese manufacturers sell socks, clothing, toys, and other things that poor people in the U.S. really need for ALMOST nothing, we get angry at them. Exploiters! What is up with that?

(Nod to Ihatepeacocks for the photo, and to slammin' Sam Wilson for noticing the connection.

Some Love From Okapian

2011-10-21T09:50:00.000-04:00

Interesting blog, often writes on incentives / ethics / liberty problems.

Ruth Grant's Book

2011-10-21T09:46:00.000-04:00

For a very interesting background on the perceptions of the use of "voluntary" incentives, check out a book by my Duke colleague, Ruth Grant. The book is "Strings Attached: Untangling the Ethics of Incentives," from Princeton U Press.

Grant offers a history of the growth of incentives in early twentieth-century America, identifies standards for judging incentives, and examines incentives in four areas--plea bargaining, recruiting medical research subjects, International Monetary Fund loan conditions, and motivating students. In every case, the analysis of incentives in terms of power yields strikingly different and more complex judgments than an analysis that views incentives as trades, in which the desired behavior is freely exchanged for the incentives offered.

Are Bioethicists Horrible People?

2011-10-20T18:22:00.000-04:00

Is it horrible to advocate for incentives for organ donations? Is it horrible to block incentives for organ donation? Interesting questions, and some actual evidence on what countries do.

Being Nice and Having Good Manners

2011-10-20T09:14:00.000-04:00

Apologies as Signals: With Evidence from a Trust Game, Benjamin Ho, Management Science, forthcoming

Abstract: Apologies are part of a social institution designed to restore frayed relationships not only in daily life but also in the domains of corporate governance, medical malpractice litigation, political reputation, organizational culture, etc. The theory shows that in a general class of moral hazard games with imperfect information about agents with two-dimensional type, apologies exhibit regular properties — e.g., apologies are more frequent in long relationships, early in relationships, and between better-matched partners. A variant of the trust game demonstrates that communication matters in a manner consistent with economic theory; specifically, the words “I am sorry” appear to select equilibrium behavior consistent with the theory's main predictions.

----------------------

Does Social Capital Promote Safety on the Roads?, Matthew Nagler, Economic Inquiry, forthcoming

Abstract: I present evidence that social capital reduces traffic accidents and related death and injury, using data from a 10-year panel of 48 U.S. states. The econometric challenge is to distinguish the causal effects of social capital from bias resulting from its correlation with unobservable characteristics by state that influence road risks. I accomplish this by employing snow depth as an instrument, and by restricting attention to summertime accidents. My results show that social capital has a statistically significant and sizable negative effect on crashes, traffic fatalities, serious traffic injuries, and pedestrian fatalities that holds up across a range of specifications.

(Nod to Kevin Lewis)

Organ Sales: Clearly Wrong for Something So Right

2011-10-19T09:47:00.000-04:00

Nice summary of the issues in organ sales, ranging from live donors to deceased, and ranging from payments to donations for funeral expenses.

Reihan Salam: En Fuego

2011-10-18T23:15:00.001-04:00

Wow. Mr. Salam is doing some pretty cool stuff here. I'll just give the link, because he is dealing with some heavy problems, in a very interesting way.

Was the $5 Million Coercive?

2011-10-17T21:36:00.000-04:00

Dan Wheldon, by all accounts a really good guy, was killed in an extremely violent accident at a Las Vegas speedway.

This was the story, before the race. It's all about the $5 million, split with a fan, as a marketing tool. That is big money for one race, perhaps causing what the Independent called "increased pressure," which sounds close to coercion.

It seems the track was not all that safe, and people knew it before the race. Yes, even before the race. But they raced anyway, because of the $5 million.

Was the $5 million coercive? Was the prize too BIG to be fair? Some folks seem to think so. It certainly was sad. Was it voluntary?

Reihan Salam on Euvoluntary Exchange

2011-10-17T16:18:00.000-04:00

Interesting NRO piece by Reihan Salam on Euvoluntary Exchange. Nice examples. And the question at the end is the right one. I just don't know the answer.

What are the sources of the disparities we care, or rather that we should care, about?

The Heinz Dilemma

2011-10-17T09:45:00.000-04:00

The Heinz dilemma

"A woman was near death from a special kind of cancer. There was one drug that the doctors thought might save her. It was a form of radium that a druggist in the same town had recently discovered. The drug was expensive to make, but the druggist was charging ten times what the drug cost him to produce. He paid $200 for the radium and charged $2,000 for a small dose of the drug. The sick woman's husband, Heinz, went to everyone he knew to borrow the money, but he could only get together about $1,000 which is half of what it cost. He told the druggist that his wife was dying and asked him to sell it cheaper or let him pay later. But the druggist said: "No, I discovered the drug and I'm going to make money from it." So Heinz got desperate and broke into the man's store to steal the drug for his wife.

Should Heinz have broken into the store to steal the drug for his wife? Why or why not?"

Kohlberg, Lawrence (1981). Essays on Moral Development, Vol. I: The Philosophy of Moral Development. San Francisco, CA: Harper & Row (For the "Stages of Moral Development, see here)

If you say that the theft is legitimate, it must be because you believe the transaction the druggist proposed was NOT euvoluntary.

Bribery, or Blackmail

2011-10-16T12:39:00.001-04:00

Bribery seems much more "voluntary" than blackmail.

Bribery is corrupt, of course, and involves selling the power of public office.

It seems to me the ONLY difference between bribery and blackmail is whether the payment from the "buyer" is voluntary. Right?

Here's an example. The difference is subtle.

Blackmail

2011-10-11T19:43:00.000-04:00

Suppose Adam sees Bob commit an act of infidelity. If Bob's spouse Cathy were told about this act, Cathy would be very upset and would likely divorce Bob, causing him pain and also economic damage from the divorce settlement.

Adam resolves to tell Cathy about Bob's philandering. But Bob learns of Adam's plan, and intercepts him. One of six things happens....

a. Bob tells Adam this was the first time, it was a mistake, the fling means nothing to him. Adam thinks it over, but decides it is not fair to keep this information from Cathy, so he tells her though Adam begs him not to tell.

b. Bob tells Adam this was the first time, it was a mistake, the fling means nothing to him. Adam thinks it over, is persuaded of Bob's truthfulness and genuine contrition, and decides not to tell Cathy after all.

c. Bob tells Adam this was the first time, it was a mistake, and Bob volunteers, without any mention from Adam, to contribute $10,000 to Adam's favorite charity, a homeless kitchen that is short of cash now because of the recession. Adam thinks it over and decides not to tell Cathy after all. Bob pays the money to the charity.

d. Bob tells Adam this was the first time, it was a mistake. Adam says, "You know, I have some friends at a homeless kitchen that really need money. If you contribute $10,000 to the homeless kitchen, I agree not to tell Cathy." Bob pays the money to the charity.

e. Bob tells Adam this was the first time, it was a mistake, and Bob will deposit $10,000 in Adam's bank account. Adam thinks it over and decides not to tell Cathy after all. Bob pays the money to Adam.

f. Bob tells Adam this was the first time, it was a mistake. Adam says, "You know, I could really some extra money; I'm a little short this month. If you $10,000 in my bank account, I agree not to tell Cathy." Bob pays the money to Adam's bank account.

*************************************
In all these examples, Bob is trying to obtain a service from Adam. Most people would say that either action A or action B are acceptable, because Adam has to use his judgment. There is nothing illegal about telling, or about not telling, Cathy.

Is C okay? After all, Bob is proposing to pay for a legal service from Adam; the only thing that is illegal is (perhaps) the act of paying, since the "not telling" is clearly legal.

But if C is okay, why isn't D okay also? In most negotiations, it is not immoral to make a counteroffer, so long as the other party is not coerced to accept it.

What about D and E? Does it matter that Adam, rather than a charity, is to receive the money in exchange for providing a legal service?

Some background....
"Blackmail as a Victimless Crime," by Walter Block and Robert W. McGee. 1999. Bracton Law Journal, Vol. 31, pp. 24-48. PDF file.
"The Logic of the Argument in Behalf of Legalizing Blackmail," by Walter Block. 2001. Bracton Law Journal, Vol. 33, pp. 56-80. PDF file.
"Externalities, Extortion, and Efficiency," by George Daly and J. Fred Giertz. American Economic Review, Dec. 1975.

On the "No Regret" Condition: Movies? Really?

2011-10-11T10:29:00.000-04:00

One of the key preconditions for an exchange to be euvoluntary is "no regret." That is, the buyer must actually get something like what (s)he expects, and must actually want it.

A story about a law suit, called to our attention by alert reader Benjamin C., goes like this:

A Michigan resident is suing FilmDistrict because their newly released film "Drive" was not enough like "The Fast and The Furious." From the class-action lawsuit, the plaintiff hopes both to get back the $10 she spent on her movie ticket and to legally put "an end to misleading movie trailers." The article, which can be accessed here, asks whether "the advertising has been so deceiving as to be illegal."

Benjamin asks whether "we might also consider whether or not government has any business saying that a movie about driving can't be advertised with footage of a man driving."

Or, more technically, even if we agree that the exchange is not euvoluntary, the state should still allow the transaction. The young woman wanted to see a kind of "The Fast and the Furious" remixed, and actually thought that is what she was buying a ticket for. But the harm of regret has to be balanced against the harm of preventing advertising a movie about driving using (as Benjamin notes) "footage of a man driving."

UPDATE: Patrick at PopeHat has a nice analysis, and more background.

When Are Incentives Okay?

2011-10-10T11:21:00.000-04:00

The NFL and the NEA have very different compensation schemes.

Are the differences appropriate for the differences in context? Or would it be better if football players were paid based on seniority? Or would it be better if teachers got paid based on performance?

Problem: It is possible (mostly) to measure performance in football. In teaching.... ??

(Nod to Jay Larson)

Nic Kristoff on Sweatshops: Exploit Me! Exploit Me!

2011-10-10T07:56:00.000-04:00

Nicholas Kristof on sweatshops....from 2009 NYT.

Excerpt:

Mr. Obama and the Democrats who favor labor standards in trade agreements mean well, for they intend to fight back at oppressive sweatshops abroad. But while it shocks Americans to hear it, the central challenge in the poorest countries is not that sweatshops exploit too many people, but that they don’t exploit enough.

Wages are Oppression?

2011-10-08T21:50:00.000-04:00

An excellent, though admittedly offensive, installment of "Kids in the Hall."

Nod to Michael

Hospitals Bleeding People Dry?

2011-10-08T15:11:00.000-04:00

The disparity in BATNAs is a problem....should hospitals charge poor people ANYTHING?

Commentary on Euvoluntary Exchange

2011-10-08T09:46:00.000-04:00

Samuel Wilson does an analysis of "euvolunteerism." Interesting.

Need Bone Marrow, But Can't BUY Bone Marrow

2011-10-08T09:37:00.000-04:00

Twitter campaign to find a bone marrow match for Amit Gupta.
********************************
Tweet by Cameron Moll: Seth Godin: "If you're a match for @superamit, I'll send a check for $10,000 for you or the charity of your choice." — http://t.co/0QdZ4tDs

by Cameron Moll at 10/7/11 4:19 PM
********************************
So, the above is a retweet of an attempt by Seth Godin to find bone marrow, essentially an organ, for his friend Amit Gupta.

Seth Godin says:
********************************
How about if we gamify it? Here's the deal: if you are a match for Amit and the marrow donation happens, I'll profile you or the project of your choice on the blog and send you a check for $10,000 for you or the charity of your choice. Winner take all, no purchase necessary, void where prohibited... (Even if you don't win, if you swab we all win). [Updated to reflect a statute I was unaware of: You win the prize if you're the first certified match, but donating is completely up to you. It takes a year for records to be released, but I'm good for it. If this still doesn't pass muster, the prize goes to charity. And of course, this is an offer from me, not endorsed by any agency or organization, etc.]

If I can be so bold as to suggest a hashtag: #IswabbedforAmit
********************************
Interesting that he had to update to "reflect a statute." The point is that people won't do it for free, but they might do it for a 1 in 100,000 shot at $10,000 for a charity. (assuming the "lottery" is the chance you will be a donor match on the cheek swab). Note, however, that that is only an expected donation of a dime, $0.10. Better to send your favorite charity a dollar, and save the postage

But then wouldn't it be better still if Amit Gupta's friends could contribute to a fund that would be used to PAY FOR THE BONE MARROW? I mean, we are talking about a tiny amount of money here. Why not let people take up donations to pay? That is quite different from saying that rich people get the bone marrow. This is a charity drive. But even a charity drive has to "reflect a statute." Oh, and here is a description of the statute in question...

(Thanks to Michael Tofias for the tip)

Exchange: A Nice Analysis in an Unexpected Context

2011-10-07T13:56:00.000-04:00

YH&C has a very cool post on Gears of War 3.

Excerpt:

Gears of War 3 is an Xbox game that retails for $60. In some online multiplayer, there are some purely aesthetic customizations one can make to their character, the relevant one here being "weapon skins," where the guns players uses can have different paint jobs or animated graphics to make their pretend guns dazzle. Some of these weapon skins are unlocked by completing specific tasks in the game, but a set of 22 was made that players have to pay real money to use.

For $3, you can unlock a static paint scheme like tiger stripes or a flower pattern for all five starting weapons. For $4, you get an animated graphic, like an ocean ripple, for all five. For $15, you can unlock all 22 skins for one of the five weapons, and for a poorly-spent $45 you can unlock each and every one of them.

Predictably, there has been a lot of complaints on the Internet, most of it whiny. The best articulated criticism I have seen is from a level-headed competitive player named K.L. who made a very reasonable video saying this isn't the end of the world, but he doesn't like the policy of incorporating money-making tactics normally reserved for freemium games into a retail game. He hit all the normal points, such as making people pay to use content on the disc, something I don't have a problem with.

Let me start by saying K.L., or "arCtyC" as he likes to be called, has hit upon a gut feeling I share. There is something disappointing about having to pay to use these fun weapon skins. He also does a good job of stressing that this is an entirely voluntary transaction.

Paying to make your pretend guns prettier goes beyond voluntary and satisfies all of the criteria of Michael Munger's "euvoluntary" or "truly voluntary" criteria. Epic Games created the skins, has the legal right to sell them and customers know what they're getting. The weapons skins have no impact on weapon performance, and there are still zero-dollar unlockable weapon skins, so players are not punished for failing to buy them. There is no coercion vaguely associated with this transaction.

So that leaves one criteria to be considered euvolunary. How terrible is the Best Alternative To A Negotiated Agreement, or BATNA? If not buying a product will result in the death of a consumer, the BATNA differential is said to be very large.

I have trouble imaging a smaller BATNA than not being able to use a pretty pretend gun without paying $3. Sure, it's foolish for most people to pay $45, and I imagine most people chose not it, but a lot of people paid an extra $90 to have their copy of the game bundled with a cheap desk statue, a few trinkets, fake documents and a few different weapon skins and aesthetic downloads. For some reason, offering special editions of games and movies to consumers doesn't draw the same complaints, but the same elements are all there.

Very interesting, and an application I would not have thought of. GoodONya, Michael.

Chinese Boy Sells Kidney

2011-10-07T10:06:00.001-04:00

Count the ways that this exchange is NOT euvoluntary. I think I can get up to six separate reasons it is not.

The above is BBC. Here is the Reuters version of the same story.http://www.blogger.com/img/blank.gif

Cap Khoury and Closer to Fine

2011-10-07T09:35:00.001-04:00

Euvoluntary exchange and the "closer to perfection" fallacy.

Why is it that some types of voluntary transactions are seen as repugnant and made illegal, even though all parties to the transaction are made better off and enter into the transaction voluntarily? The question (a special case, at least) is also asked another way: Why does it happen that it is legal to provide certain goods or services, but not to charge what they are worth? Examples include organ sales, blackmail, “price-gouging”, and various aspects of low-cost labor. (I should point out that Prof. Munger does not claim here to establish what the laws “should be”, just to better understand the reasons for some laws and social norms that seem counterproductive from an economist’s standpoint, and why they persist despite undesirable unintended consequences.)

Arnold Kling on Euvoluntary Exchange

2011-10-07T09:30:00.001-04:00

My friend Arnold describes the problem.

Employment at one cent a year is not euvoluntary, because it takes advantage of the fact that someone has no good alternative. (Yes, I know that people could get more than one cent's worth out of a year's home gardening and cooking, but that only changes the numbers, not the basic principle.)

We do not want to see people forced to take jobs at low wages for lack of an alternative. Hence, the minimum wage. Hence, unemployment benefits. The economist has a good argument for why the minimum wage is counterproductive. The economist might come up with a better design for unemployment benefits, in order to maintain the household's living standards without taking away as much of the incentive to work. But many non-economists (and, indeed, many economists) would rather see people not work than see them work at very low wages.

Students "Get" It

2011-10-07T09:19:00.000-04:00

A friend who has been teaching about "euvoluntary exchange" got this from a student.

When he first explained the concept of BATNA and the situations in which BATNA is too low, I was all for changing those situations. However, we need to remember that if we're going to take away somebody's best option (even if it is a crappy one) then we're also going to have to give them a better alternative.

Egg Donations: Euvoluntary?

2011-10-07T09:11:00.001-04:00

A nice example from reader Matt M from Fairfax. Here is the link...

Money quote: "The main concern is that when you put money on the table, women will not make a fully voluntary choice….it undermines people's voluntary choice…"

Welcome!

2011-10-07T09:05:00.000-04:00

I will use this blog to record examples of people or events that clarify, or question, the idea of "euvoluntary exchange."