Just the Tip

Quoth @interfluidity: "perhaps there are some domains where payment itself is a consumption good."

Context here.

Would you tip an android? How about a perfectly convincing one? Why do you tip?

Unless, of course, you don't tip.

Some possibilities:

1. You appreciate good service and wish to encourage more.
2. It's expected. The costs of being a Mr. Pink are greater than the value of the money you'd pony up.
3. You are genuinely magnanimous. You wish to redistribute your wealth to the relatively poor service workers you encounter.
4. You've worked service jobs in the past and you know how difficult they can be compared to the scale pay.
5. You want to flirt with the waitress (if this has ever worked for you, let me know in the comments, as I'm still trying to prove to Meat Mountain Mungowitz that unicorns do exist).
6. You want to signal to other diners your fitness as a potential mate and to reduce the relative status of less-generous tippers.

There are many ways to play status games. Conspicuous tipping is one. Does that mean it is euvoluntary? For Buscemi up there, he endured the scorn of his fellows for being a cheapskate (and I suspect that #2 is one of the reasons why the practice is so durable). And #4 suggests that the institutional equilibrium for tip recipients isn't euvoluntary (tbf, several states have converted server positions to regular-scale jobs subject to ordinary minimum wage requirements, though that doesn't seem to have done much to dent the practice of tipping in those states, afaik).

When robots take over service jobs, how quickly will the practice of tipping disappear? What mix of #1-6 will result in waifu-style animatronic servants, and which will result in hyper-efficient flying spider-appendage machines? Which sort of world do you wish to live in?

When the robots do start to take over, it's hard to tell from afar if folks will be interested in putting lots of resources into tip-generating features. And it's also hard to tell if that would be a bad thing. Prices convey information after all, and if people are willing to throw a few extra bucks at Boob-bot 5000 while leaving the Mantisblimp's jar empty, that suggests that form matters in a very real economic sense.

I don't know about you guys, but I can't wait to see what happens.

Black List Down

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Twenty-nine states have enacted statutes against blacklisting. Each and every one of them restrains employers from preventing former employees from being hired elsewhere. Each and every one of them owes its pedigree to anti-conspiracy jurisprudence. The economics are easy enough to understand: blacklists destroy the implicit wealth of targeted individuals, obliging them to accept lower wages at no substantial cost to the conspirators. If you're a regular reader, you should instantly pick up on the BATNA disparity tucked neatly away there. If you're an employer, workers are easy enough to replace (or so goes the legislative intuition), but if you're a worker, you could be completely barred from your profession. Yikes!

As you know, the Supreme Court has roundly rejected prior restraint.

These 29 legislatures, in an uncommon fit of forward induction, have therefore been sharp enough to limit blacklisting bans to actual employers, and not to private citizens. Walter Sobchak is still at liberty to carefully write down the names of everyone who's offended him and publish it in the local paper. He might still be liable under defamation statutes, depending on what else he writes, but unless he's an employer, he won't trigger blacklist statutes.

The question I found myself asking yesterday after Popehat patiently and carefully explained all this to a #GamerGate activist is whether or not the moral intuition, if not the actual jurisprudence underpinning anti-blacklist statutes applies to privately-maintained lists. If I, a private citizen, create a public list of people who are heretical in mine eyes, and this list becomes extremely popular, perhaps even gaining a universal following among leaders of the industry I work in, isn't the effect to the people on the list exactly the same as if an employer had done it? Wouldn't I be just as complicit in ruining the career prospects of the people who've offended me?

A few possible differences:

1. Employers can maintain hidden blacklists, and there's no way to tell for sure whether or not the names on it constitute a protected class. Publicly visible blacklists kept by ordinary citizens are open to review and scrutiny.
2. Corporate blacklists can be used to sustain anti-competitive collusion. One of the solutions to a repeated PD game (at least on the margin) is to have a coordination mechanism. A blacklist can serve precisely this function. Put a name or two on there strategically to punish conspiracy defectors, and you raise the ex ante probability of sustainable cartel behavior. Private individuals have no incentive to dally in boardroom shenanigans.
3. My list is entirely opt-in. It's merely an offer. Acceptance of its elements must necessarily be voluntary. I am unable to withhold significant future commerce in the event that an employer crosses the picket line so to speak. I have precious little market power, in other words.

Perhaps you might add to this list. Perhaps not. Perhaps you'd quibble with the logic of the items in this list. I know I would. I'm not all that fond of the idea of protected classes, for example. Still, I am at no more liberty to influence the public jurisprudence than I am to influence the public taste for television programming. What I can do is attempt to parse the prevailing sentiment in an effort to predict what sort of legislative tomfoolery we might see rollin' down the pike.

On the one hand, social media does seem to be increasingly salient in employment selection/termination practices (Pax Dickinson, eg). On the other hand, it's dang hard to muster much public sympathy for the low-caste males that end up on mass Twitter block lists. What legislator would go to the mat for some douche cannon who takes preternatural glee in leveling vague (or sometimes very clear and targeted) rape and murder threats at women? My best guess? Privately-maintained block lists aren't likely to be non-euvoluntary enough to incite legislation unless and until someone starts a practically effective one (i.e. one that employers begin to honor) that actually targets people who are in an honest-to-Jim protected class.

No one would be stupid enough to do that though, right? 

Right?

h/t K.W. (Patrick maybe? Naw, Ken for sure. Like 90% sure it's Ken.) and Randi Harper.

Old and Busted: Tacocopter. New Hotness: 420drone

If the FAA comes through on strict measures to prevent commercial unmanned airborne air transport for small packages, we may have an opportunity to see the Allen-Alchian theorem in action.

The A-A theorem is one of those great blackboard theories in economics that tends to have contestable empirical support. It's pretty simple though: if you add a fixed cost (in this case, the cost of a criminal violation) to differently-priced substitutes, you tilt the relative prices in favor of the higher-priced good. In their textbook examples, that's why you should expect to see the best lobsters exported from Maine, the best apples exported from Washington, etc. Of course, this is holding everything else equal, which is really not the case in produce exporting, so that's why it's hard to find lots of evidence in support of the theorem.

But here, we've got a pair of well-timed exogenous treatment effects. Amazon and Taco Bell would (presumably) like to be able to deliver piping hot books and burritos straight to your door without all the tedious mucking about with roads and the like. But so would your neighborhood drug dealer. The difference is, Amazon and Taco Bell are already mostly compliant with statute law and the relevant regulations of their industries. The drug dealer is already in violation of a number of trafficking statutes, so one additional charge is far less likely to change their decision calculus. If a commercial drone can improve customer service or otherwise improve productivity, it is more likely that they will adopt the technology.

And for those property owners that wish to be unmolested by flyovers, there's much less legal recourse against smugglers than against above-the-board business owners.

The conclusion is clear. If we wish commercial drone operations to be legal and properly regulated in the US (whatever path to regulation is chosen, via tort search or FAA prior restraint), we absolutely must end the coercive, unjust war on drugs.

Tip of the hat to Eli Dourado and Ilya Somin for the idea.

The IPO is not Dead Yet: a Rejoinder

Via TC, Timothy B. Lee (@binarybits on le Twitter) interviews Marc Andreessen (@pmarca). ATSRTWT.

I don't mean this to sound as obnoxious as I know it will, but it's hard to find an economically literate venture capitalist. Let me explain.

Economic literacy is not the same thing as financial literacy, not by a long shot. Economists pierce the illusion of money to study the underlying phenomenon of the exchange of value. If you've taken a graduate course in microeconomics or game theory, you'll recognize this habit in all those equations that use derived utility in lieu of cash. Even in undergraduate courses, you'll very often hear philosophical musings on what money is, how money differs from currency, how income differs from wealth, and even more fundamentally, that the beans you use to reckon accounts are nothing more than social agreements: implicit claims on one half of a (eu)voluntary exchange. Economics is a philosophical discipline. Yes, it's more practical than metaphysics, more earthy than epistemology, more stubborn and piggish than aesthetics. Despite that, it's still devoted chiefly to answering not-obvious questions about the hidden treasures of human existence.

Financial literacy, contrarily, is a matter of arithmetic. The two are related in that the topic of study is relative prices, institutions, and exchange, but finance studies the metrics exclusively, without fussing about with all the underlying utility arguments. And well that it doesn't. The philosophical underpinnings of trade, how true (not merely measured by bank account balances) wealth is generated, and how it is that people can be richer (happier, more fulfilled if you prefer) merely by reshuffling ownership over an existing stock of physical stuff—distracts the financier from the important business of probabilistic bean counting (the important difference between accounting and finance is timing: accounting is what you do after the fact, finance is what you do before the fact). Venture capitalists have an advantage in thinking carefully about the details of their business, the regulatory landscape, and the sorts of stuff people are likely to want to buy in the near future. However, they earn no beta, no additional returns, for thinking like a philosopher or an economist (and thank goodness for that).

So bear in mind that when Andreessen kvetches about Sarbanes-Oxley, the practical outcomes he identifies are financially literate. The econo-philosophical side would be keen to point out that stock market investment at its finest is democracy in action, where anyone with a little gumption and a few bucks in their pocket can signal that they believe in a firm's ability and willingness to serve customers. Investment is a way for anyone (of sound mind and majority age) to participate in the grand ballet of mutual benefit and service. Andreessen's worries about business volatility, quick-cycle rumor mongering, and dogfights between short and long sellers are symptoms of interference, but the cause is ultimately ideological and cultural. Constituents have ceded their sovereignty over trade in financial instruments to what Adam Smith called "men of system." The stock market is scary, so the median voter is comforted by the phantasm of stability brought on by the SEC, FTC, BCP, etc, etc. Lee extracts from Andreessen Bastiat's knell: the unseen results of this severe meddling is wretched de-democratization of the process of supporting new ventures.

On the bright side, Kickstarter and similar services have re-introduced little-d democracy back into the world of innovation. One of the great things that's happened in my lifetime is that creative people now have the ability to directly petition fans and potential customers for support. To me, that's precisely what the old-timey clickety-clack stock market is for. The noticeable difference is that instead of full-page IPO spreads in the WSJ, kids with cool ideas now make heartfelt (if formulaic) videos and publish to the Web. This I like. A lot. It's the new IPO.

Heh. The IPO is dying. Long live the IPO.

If there Was a Grand Canyon, She Could Fill it up with the Lies He's Told Her

Following up on Arizona's SB 1062, George Takei writes an open letter to the people of Arizona. In it, he pledges to boycott the entire state.

If your Governor Jan Brewer signs this repugnant bill into law, make no mistake. We will not come. We will not spend. And we will urge everyone we know–from large corporations to small families on vacation–to boycott. Because you don’t deserve our dollars. Not one red cent.

Having studied public choice economics, I'm perhaps over-sensitive to methodological individualism. I have an appreciation for the nature of coalition politics and how it can be that no one's first choice for either policy or representative could (under certain circumstances) end up on the ballot. Indeed, since I understand all this in my bones, I am deeply puzzled by Takei's pledge. It strikes me as a missed opportunity.

As I noted a couple of posts back, the struggle for equality is one waged in the moral sensibilities of the constituency. If I were an avid gay rights champion, I would take this as an opportunity to visit Arizona and reward gay-friendly businesses, perhaps picketing bigoted firms while I was in town.

The thing I find remarkable is that Takei and his family were subjected to Executive Order 9066, one of America's greatest 20th Century moral embarrassments. Roosevelt's WWII internment of Americans with Japanese ancestry assumed guilt by association. Though different in scope and application (especially since it was conducted by force rather than with voluntary withdrawal), the logical error was still the same: [Japanese implies traitor] <==> [Arizona business owner implies bigot].

But that's not the EE point. What I strive to do here is to understand moral intuitions. In Arnold Kling's terms, this issue is spoken of using the language of oppression. The oppressed have few tools available to them to signal displeasure, among them are economic sanctions. This issue falls flat to libertarians, since explicit coercion is actually decreasing in Arizona. And for conservatives, it allows ordinary citizens to fight back against encroaching barbarism. Of the three moral dimensions, I think I side with the progressive sentiments the strongest. The systematic oppression of LGBT citizens is an affront to common decency. However, I also find myself predisposed to the notion that the heavy lifting of changing minds is a task for rhetoric, not for mulish legislation. Plugging your ears and turning your back punishes the innocent along with the guilty and risks further alienating friends and allies.

There's nothing euvoluntary about refusing ordinary arms-length commerce because of taste-based discrimination. Why work to make the world of peaceful exchange even smaller by withholding your business from folks who would never consider such offensive behavior?

Boycotts are a heuristic. Examine your impulses.

Policy Volatility as a Transitional Gains Trap

A transitional gains trap is easy enough to define analytically: government programs intended to benefit particular constituents tend to become capitalized, and when the program is ended, these capitalized rents are destroyed. Here's Tullock's abstract to the '75 Bell Journal of Econ paper:

Many government programs which appear to be designed to help some particular industry or group do not seem to be succeeding. The explanation offered here is that the program, when inaugurated, generated transitional gains for the individuals or companies in the industry, but that these have been fully capitalized, with the result that the people in the industry now are doing no better than normal. On the other hand, the termination of the particular scheme would, in general, lead to large losses for the entrenched interests.

The standard example is the NYC taxi medallion. For the privilege of operating a yellow cab in NYC, aspiring drivers shell out over a million dollars. No word yet on how many Bitcoins are needed for an Uber listing. This conforms perfectly to Tullock's argument: the medallions don't ensure a better product, and if done away with sans compensation, the 13,347 current medallion holders will each face the destruction of a million bucks off their balance sheets. Okay, okay, that's not right. $1M is the marginal price; we don't know what the average price is. You got me. Still, 'tis a mighty loss of "value" nonetheless.

Does the analysis of Big Apple livery apply to the political class themselves?

A stable rule of law easily understood by ordinary citizens is a terrible way for a bureaucrat to tenderly massage a sinecure. A managed regulatory state, however? Well, that's another kettle of fish entirely. Does a regulatory apparatus create capitalized human rents? Regime stability threatens not just the obvious rents of bureaucracy, but all the time, treasure, and effort expended by people competing to obtain positions within bureaucratic hierarchies.

Tullock's pithy advice about transitional gains traps: don't create them in the first place. My pal Nate's advice for what to do if they're already here? Altruism. I do not advise my readers to hold their breath waiting for career bureaucrats to exhibit sudden, systematic bursts of altruism.

On the one hand, it's not as bad as all that. Human capital is easily retooled. A taxi medallion without fiat protection is an inert slab of tin. A bureaucrat without a bureau is just another person looking for a productive job. On the other hand, a taxi medallion is incapable of mischief and suasion by its lonesome. "Eliminate the FTC? Who would protect us from monopolies?!" .

It might be worth considering that not just the volume, but the volatility of regulation is endogenous to the regime. That what's bad for the broad constituency is very good indeed for the collusion of the second and third estates. Yikes!

EE Goes to the Movies Ep. 1: Empire of the Sun

One of the legendary classic papers in economics is R.A. Radford's 1945 Economica piece "The Economic Organisation of a P.O.W. Camp" available here. As an object lesson in the value generated simply by trading an initial endowment, this piece is at once brilliant in its simplicity and delightful in its replicability. Some of the more engaging Principles of Economics professors out there should cop to a simple little classroom experiment where you randomly distribute randomly selected tchotchkes (double the randomness, double the fun!) to a classroom full of students. Have them subjectively rate their endowment on a scale of 1-10, tally the scores, then give them 15 minutes to trade (there are little flourishes you can do to this depending on what you want to emphasize) and repeat the assessment phase. In almost every attempt, the post-trading pseudo-GCP (gross classroom product) will be higher after the trading session.

Now, I don't know how many econ courses Spielberg slogged through at California State, but it seems at least a little bit unlikely that he's sat down with Radford for a cozy evening of comparative economic history.

Then again, the paper was based on what Raford himself actually witnessed in a prisoner camp, and spontaneous market formation is hardly rare. Be it marbles, Pogs, Pokemon, Barbie accessories, CIA terrorist playing cards, or thermal exhaust schematics for the Death Star, people require little prompting to begin trading when it's to their advantage.

Regrettably, I can't find a quickly available clip, but this tendency was nicely presented in Spielberg's 1987 film Empire of the Sun. A young Batman, before he even donned a Gatsby (yes, that's the proper term for a Newsboy Cap) and began prancing around the Disney lot singing about the exploitation of child labor, found himself a young ward in the custody of Japanese jailers in wartime China. While there, he busied himself as a gofer for the camp's mancgere, shuttling a little of this, a little of that, buying cheap and selling dear.

Here's the question (and I again apologize for not having a clip to share): do you get the sense from watching the film that the business of POW camp trader is euvoluntary? It's not that easy a question, is it? In an absolute sense, everyone in the camp (perhaps even the guards) has a lousy BATNA, but since the prisoners all more or less share the same grim fate, there's not a lot of disparity there. That is, until the gains from trade start to accrue to the entrepreneur.

Even if everyone is better off in the camp as a result of a functioning market, is it still okay to begrudge the modest wealth accumulated by the shopkeep? What's your opinion? How does Spielberg want you to think about it? Does the silver screen depiction mirror commonplace moral intuitions? Does it attempt to insert its own interpretations into the minds of the audience? How successful do you think it is?

Under what conditions do POW camp black markets stop providing net benefit and begin being truly predatory?

Money for Nothing, and Women are More Moral

Who Is Willing to Sacrifice Ethical Values for Money and Social Status? Gender Differences in Reactions to Ethical Compromises 

Jessica Kennedy & Laura Kray
Social Psychological and Personality Science, forthcoming

Abstract: Women select into business school at a lower rate than men and are underrepresented in high-ranking positions in business organizations. We examined gender differences in reactions to ethical compromises as one possible explanation for these disparities. In Study 1, when reading decisions that compromised ethical values for social status and monetary gains, women reported feeling more moral outrage and perceived less business sense in the decisions than men. In Study 2, we established a causal relationship between aversion to ethical compromises and disinterest in business careers by manipulating the presence of ethical compromises in job descriptions. As hypothesized, an interaction between gender and presence of ethical compromises emerged. Only when jobs involved making ethical compromises did women report less interest in the jobs than men. Women’s moral reservations mediated these effects. In Study 3, we found that women implicitly associated business with immorality more than men did.