Pareto's Apology

I often think about the Coasian bargaining problem of theft.  Theft is for the most part an extremely socially inefficient way to acquire wealth.

In this example, two guys stole three newspaper machines, which likely cost $250 or more to make, each.  They got a handful of change, maybe $20, tops, and tossed the machines away where they could not be found.

So....the cost is 3x$250 + $20.  The yield is $20.  The owners of the machines would clearly have paid at least $200 not to have them stolen.

But...to whom?  Everyone who agrees not to steal the machines?  Of course not, because then the payments would dwarf the benefit.  It was nice of the guy in the example to pay back, not the amount of money he stole ($20) but something closer to the damage that he caused by being a knucklehead.

This was why Tullock included "theft" in the title of his famous paper.  But we don't recognize often enough just how important that is for the study of "voluntary" exchange.  It's a brilliant insight.  Credit to Tullock, even without the Nobel Prize.

The One Crazy Trick Lojack Uses to Make the World a Better Place

Car is having engine troubles.

Took it to the dealership.

Saw signs for Lojack.

Lojack doesn't advertise on the products they protect.

Two reasons.

1) It's easy to create a false signal: a non-customer could put a sticker in the window. The game theoretical outcome erodes the credibility of the signal.
2) Good for business to catch a thief for real. Fewer thieves stealing cars, more apt to attract new customers at the dealership.

Note: the social outcome should be (ceteris paribus) fewer auto thefts. Positive externality. Standard economic theory predicts that this service will be under-supplied in the marketplace because people have an incentive to free-ride.

How strong do you suppose the free-rider effect is here? What factors might mitigate it? Is Lojack undersupplied? How would you test that hypothesis?

What Would YOU Do?

What obligation does the man have to report this, or to return the money?

Here's the setup:

A malfunctioning ATM at a bank in Maine has dispensed $37,000 in cash to a man who requested $140. 

South Portland police say they responded to the TD Bank branch Thursday morning after getting a call from a woman who said a man was spending an unusual amount of time at the ATM she was waiting to use. 

Officers found the man stuffing cash into a shopping bag. The money was returned to the bank. Bank officials say they don't want to press charges. But police continue to investigate. The man hasn't been charged. 

A bank official describes the problem as a "code error" and says no customer accounts were affected. 

What would YOU do?  Suppose it was windy, and it was windy because there was a forest fire nearby.  Suppose the money would have burned if he hadn't taken it.  Or blown into the ocean.

I wonder.  I think I would have just returned the money.  But I'm relatively wealthy, and the threat of being charged with a crime is much worse than $37k.  A desperate person might have offered to split it with the woman behind me, so that she won't call the cops.

So, the question, if a rich person can afford to be "moral," but a poor person is coerced by circumstance to be immoral, are we justified in punishing the poor person?  I think the answer is yes, but the fact that I would return the money is not particularly morally praiseworthy.

Final question:  suppose I knew ALMOST for sure I would not be caught.  What amount of cash would it take to induce me to take it, rather than return it?  I think the answer is about $500,000.  So we already know what I am, we are just haggling about the price.

(With a nod to the LMM for the find...)

Interesting variant on Buchanan's "Samaritan's Dilemma"

You may know J. Buchanan's "Samaritan's Dilemma."  An interesting game, with altruism (game theory does NOT require self-interest, okay?)

Now, here:  What should this woman have done?  What would you have done?

Steiner's "Liberal Theory of Exploitation"

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.