Category: Economic Analysis of Law

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Listen to Some Hot Air On Gas Gouging

I did an interview on public radio that appeared over the weekend on WAMC‘s “The Weekly Rundown.” No, I’m not at Tulane, as Mary Darcy (the host) suggests. But the Co-Op got a shout-out, so I really ought not complain. Welcome, readers from upper New York State! Go ahead and give it a listen (I start about two minutes in. I’m the guy who pronounces “gas” as “gaaz,” as all true Philadelphians do.).

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Memento Mori, and Constraining of Executive Power

362319_caesar.jpgClifford Ando’s book on Imperial Ideology and Provincial Loyalty in the Roman Empire is being passed around the family lending library. It, together with a recent conference invitation, has gotten me to thinking some about the different ways that the American legal system works to constrain executive power. This may all be old hat to some, but, hey, this is just a blog entry!

The legal system offers two major methods of constraining executives: incentives and structural checks. Both approaches are formal, and to a large extent, treat subject executives as rational, wealth-maximizing, actors. Incentive-based constraints follow a fairly traditional carrots-and-sticks approach.

Corporate law relies mostly on carrots. Punishments in corporate law are rarely felt by individual Directors and officers due to the BJR and D&O Insurance. SOX is a notable, and contested, exception. By contrast, control of public sector executives (like agency heads, police, and military officers) is largely based on sticks: court marshals; public shaming, etc.

Control of the government’s chief executive is largely left to institutional constraints. President Bush, not so long ago, reminded Americans that a second-term President has a wide latitude to act in ways that might seem unpopular: “We had our accountability moment, and that’s called the 2004 elections.” That is, elections provide limited incentives; impeachment an impractical stick. Congressional control of subpoena power is the real hammer.

The Romans had a somewhat different model. They had exceptionally few state administrators – a few thousand folks in total at the empire’s height. Those administrators were governed and constrained in a variety of ways. The preeminent, according to Ando, seems to have been socialized norms. Thus, famously, Roman generals on their victory parade were accompanied by a slave whispering in their ear: “Memento Mori.” Remember, you are mortal.

Are there interesting ways to pay-off this analogy? Perhaps we might achieve more efficient corporate and federal executive control through socializing norms of humbleness, loyalty, and self-control. Maybe this humbling function could be served by independent directors, in a reinvigorated real devil’s advocate way. Or, if we wanted to really re-engineer the system, perhaps SOX should be amended to rely less on punishment and more, as in the sexual harassment context, on a system of presumptions that encourages training and socialization of pro-social norms. In the federal government arena, perhaps we need to hire someone who will remind Presidents of the limits of their power, and the fact of their morality. Hmm. Actually, maybe those positions are filled already.

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An Early Law and Economist?

supply_demand.jpgShimeon Ben Gamaliel was a Jewish jurist (of a sort) who lived sometime around the year 50 C.E. Before tonight, the only thing I knew about him was his famous endorsement of capital punishment on deterrence grounds, sometimes quoted in law reviews:

[Jewish scholars asserted that a Court of Law] that kills [i.e., convicts on a capital crime] once a week is called “destructive.” [But a scholar then glossed:] “Once in seventy years.” [Two other even more luminary scholars objected], “If we had been on the [Court], there would never have been a person killed.” [But] R. Shimeon ben Gamaliel [replied], “They would have increased the number of spillers of blood in Israel.”

Sounds like Sunstein and Vermeule, remixed. Tonight, through my father at our interesting Seder, I heard a different story about Ben Gamaliel:

The price of a pair of pigeons [used for ritual purposes] in Jerusalem once reached a golden dinar [which was out of the reach of the poor]. Rabban Simeon ben Gamaliel then said: By this Temple (an oath), I shall not rest tonight until a pair of pigeons are sold for [a silver] dinar. He went into the court and taught: If a woman underwent five definite births or five definite issues, she brings only one pigeon as a sin-offering and she may then eat of the sacrifices, and no obligation devolves on her to bring the other offerings. That very day the price of a pair of pigeons stood at two quarters [of a silver dinar]

You never know which of these stories are apocrypha. But it is fun to think of this ancient jurist as an early legal economist, before Coase, Posner, Becker and others made it trendy. And best of all, he is apparently the first known jewish juggler. Altogether a fairly interesting guy!

But Certainly Everyone Has $200 to Donate?

Michelle Cottle has a delicious critique of the NYT Thursday Styles Section, aptly titled The Gray Lady Wears Prada. Cottle juxtaposes the “high-minded liberal sensibility” that the Times’s bobo readers aspire to cultivate with the breathless high-end consumerism of Thursday Styles’ Hermès scarves and Jimmy Choo mules. The most revealing quote comes from Times editor Bertram “Trip” Field III, who insists that “we’re [not] trying to serve only those readers who can afford a $10,000 watch.” When Cottle examines the egalitarian timepieces Trip’s claimed to have covered, it turns out the cheapest one is an $890 Prada.

I’m not going to tsk-tsk consumerism here—been there, done that. But I do think Cottle’s insightful piece discloses another aspect of elite journalism—a class bias so pervasive that it’s not even noticed. I think such biases also work their way into scholarship. For example, the bien-pensant consensus on campaign finance reform has long held that we want races funded by a large number of “small donors”—presumably those who donate less than $500. But really, with median family income around $65,000 and average household savings near zero, how many of these small donations are going to come from those at the bottom half of the income scale?

Thankfully, Bruce Ackerman and Ian Ayres’s “Patriot Dollars” proposal addresses this issue by proposing donation vouchers of equal size for all voters. But I’m wondering where else implicit class biases inform a scholarly consensus…any ideas?

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The Federal Bias In Criminal Law Scholarship

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John Pfaff has an interesting post up at Empirical Legal Studies Blog entitled Federalism and Empirical Legal Research. In it he asks why there appears to a skew towards analysis of federal law among empirical researchers of criminal law. He ultimately boils his questions down to these:

1. Do we focus “too much” on federal outcomes?

2. If we do, does this mean that we are not developing results that explain either the impact of or the forces behind the legal changes that actually play a bigger role in people’s lives?

3. If so, how can we rectify this? In particular, if it’s a problem of data availability, how can we get the numbers we actually need?

In my view, we do focus too much on federal courts. Most cases – and prisoners – are in state systems. And states really are different. The employees are different because state criminal jobs often involve less training and lower salaries than comparable federal positions. State facilities are often in much poorer condition. State sentencing schemes vary widely from state to state, and often look little like federal provisions. And because most state prosecutors and judges stand for election, they operate under a different set of professional pressures. I would expect these differences have substantial effects on case processing and outcome.

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Necessary Investment Incentives?

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Pretty soon the alternative minimum tax is going to hit millions more taxpayers—even people making less than $50,000 annually. This extended reach will primarily harm those who work hard, pay property taxes, and have other deductions for things like dependent care, education, and health care. This AMT bite was never intended by Congress—it’s just reaching down the tax bracket because the figures it’s based on were drawn up decades ago.

You’d think this problem would be at the top of the tax reform agenda. Sadly, no. Rather, the big debate is over whether to extend tax cuts on investment income. As brilliant NYT tax reporter David Cay Johnston observes,

Among taxpayers with incomes greater than $10 million, the amount by which their investment tax bill was reduced averaged about $500,000 in 2003, and total tax savings, which included the two Bush tax cuts on compensation, nearly doubled, to slightly more than $1 million.

So this debate is basically about whether to make such windfalls permanent, or to try to stop our current fiscal irresponsibility and actually do something about our massive national debt.

But perhaps I misunderstand the issue. Is there a good policy reason for tax cuts for the superrich? Would they simply refuse to invest if better tax treatment weren’t given—choosing instead, perhaps, to roll around in vaults of money ala Scrooge McDuck? Would they renounce U.S. citizenship and move to the Isle of Man? I’m just trying to understand this policy on a higher level than positive political theory (which would, of course, predict that those best able to invest in money-intensive politics would get the highest returns). I guess I need to start reading the Tax Prof Blog!

A Triumph for Divided Government?

Apparently Massachusetts politicians have hammered out a plan providing universal health coverage in that state. The bill is an interesting mix of mandates, incentives, and taxes. There’s still some chance a squabble over taxes on businesses that don’t provide insurance coverage may scuttle the deal. But overall, it’s a very encouraging sign.

As the deal is finalized, I’ll be watching my indefatigable friend Nathan Newman’s blog (and that of PLAN, a group advocating social justice on a variety of fronts in state legislatures, and the Center for American Progress). Newman appears pretty pleased with the direction of reform now. If it works, it might stand as a great argument for divided government. Everyone knows health care reform is necessary, but few interests appear willing to give anything if “the other side’s” party is the only one responsible for legislation (remember the scorched earth tacticians Harry & Louise?). A Republican governor in Massachusetts, balanced by a strongly Democratic legislature, appears to have broken the gridlock.

Relative Deprivation, Location, and Lawdenfreude

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As a recent buyer of a “luxury” (read: habitable) condo in a not-so-fashionable precinct of Jersey City, I obsessively read about the “housing bubble.” It’s about as irresistible as kitschy old TV shows. The latest installment is this interesting piece by Dean Baker, arguing for governmental intervention designed to pop the purported bubble “sooner rather than later:”

If mortgage rates were pushed back to more normal levels (e.g., 7 to 8 percent), it would almost certainly lead to a sharp reduction in housing prices. Deliberately destroying trillions of dollars of wealth may seem like perverse policy, but it is important to recognize the context. If there is in fact an unsustainable run-up in housing prices, then the question is not whether prices will fall, but rather when prices will fall. The wealth is not really there. It is an illusion.

Housing economists can have a field day debating the wisdom of this proposition as a policy matter—I defer to their opinions. What piques me is the notion of “illusory wealth.” The housing bubble story reveals something fundamental about “wealth creation” via certain assets that mainstream economic measurement tends to ignore. For the 68% or so of people who own a house, rising real estate prices bring security and well-being. But for the rest, they can cause real anxieties. In many commodities markets, rising prices can induce more suppliers to meet the demand. But in many urban centers, there is little space left next to public transit or desirable amenities. Supply can’t rise to meet demand. So what we really have is a bidding war for prime space. Does this have any implications for law?

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Single-Payer Music Care?

Les bon temps roulez! It appears the French legislature has picked up on the conversation started by one of Christine Hurt’s posts here a few weeks ago on the iPod, and wants to do something about Apple’s iTunes lockout of rival music sellers and players. The IP blogosphere is abuzz over the move, which directly challenges Apple’s aggressive efforts to leverage dominance in the portable-player market into a monopoly over digital music retailing.

Libertarians are likely to applaud moves like this, as this Cato Institute Report demonstrates. But I want to push the dialogue in an even more market-oriented direction. Since we’re thinking big here, why don’t consumers take some self-help measures? The recording industry is extraordinarily concentrated, provoking antitrust investigations left and right. So why don’t consumers form buyers’ cooperatives? If the “big four” own 90% of the music, why don’t consumers form four or so buyers’ groups that will negotiate access to music? Each would manage a library with about one-fourth of recordings. That seems to be the model behind Europe’s efforts to hold down health care costs—have one or a few big players form a monopsony (or oligopsony?), and bargain down the price.

Now I’m not saying that’s always the best solution for health care—as Cutler, DiMasi, and others have noted, a lot of innovation is funded by the fragmented buying pool in the U.S. system. But while I care a lot about innovation in health care, I’m a bit agnostic about innovation in music. Can we reliably say that the whole lot of music composed and performed after 1980 is worth more than J.S. Bach’s oeuvre? I don’t know. So I don’t care if “single-payer music care” ends up reducing revenues to the culture industries. Admittedly, in the end, I think it would actually help those industries, as William Fisher so skillfully documents in his Promises to Keep. But that’s another post…

Boutique Medicine: Tax it, Don’t Ax It

Sick of waiting weeks for a doctor’s appointment? Or hurried visits? Well, “concierge physicians” have got a deal for you. Just pay a retainer to a practice (usually between $2,000 and $5,000 annually), and you’ll get immediate attention, long visits, and personalized preventive care. There’s just one catch—when you and, say, 400 other health care “consumers” sign-up at a given practice, it drops the other 1500 patients it had been serving to concentrate solely on retainer patients.

Is this problematic? Some important Democrats say yes, and have moved to kick “concierge physicians” out of the Medicare program. Tommy Thompson resisted that move when he headed HHS—and now he’s on a leading concierge franchise’s board. But since he’s left, some lower level officials at HHS have been raising concerns about “boutique medicine.”

After thinking about retainer care for a while, I have a few conclusions about these efforts. In a nutshell: I think it’s unwise to try to ban concierge care outright. But I do worry about it. It’s consonant with a larger movement that TNR describes: “to radically transform health insurance altogether, so that risk is gradually transferred away from large groups ( i.e., the government and large employers) and onto individuals (i.e., you).” If health insurance starts to move from a “defined benefit” to a “defined contribution” model, we can count on a diversion of scarce medical resources from a common risk pool to pockets of well-heeled consumers. Here’s why I think so…

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