Category: Economic Analysis of Law

15

Saving the world, one Biglaw associate position at a time

I’ve known a number of people over the years who had clear opportunities to work at high-paying “Biglaw” positions at the major New York firms, but instead chose to work at low-paying public-interest jobs. That decision often struck me as economically questionable.

Throw some numbers into the mix. Assume that our law school graduate has two options. She can work at Skadden Arps and earn $140,000 a year. Or she can work at Legal Aid and earn $40,000 a year. Which should she take?

The standard analysis says that if she’s interested in a higher salary then she should work at Skadden, and if she’s interested in helping out people (say, in the criminal defense division) then she should work for Legal Aid. It all depends on her starting premises. So if we posit that our law student (a) doesn’t really care about earning a high salary, and (b) wants to help people by defending indigent criminal defendants, well then her clear choice is the Legal Aid job. Or is it?

What if instead, she took the Skadden job, and donated most of her salary to Legal Aid?

With her $140,000 Skadden salary, she could donate $80,000 to Legal Aid, sufficient to allow them to hire two new attorneys, and thus defend twice as many indigent criminal defendants.* Meanwhile, she would retain $60,000 of her salary to live on, herself — more than enough for her purposes, since she doesn’t care about money (recall that she was happy to work for 2/3 that amount).

That’s twice the net gain in overall defense for the indigent, if our law student doesn’t choose Legal Aid herself. (And that’s not even including her ability to do some pro bono work while at Skadden — or the extra Legal Aid attorneys that her year-end bonus might be able to hire in a good year.)

So why don’t more law students take this route?

*Note that in order to succeed, this program would require some careful a tailored salary. Taxes would almost certainly eat too much of her pay to make this feasible if her pay all went through her. She would need to arrange for Skadden pay $80,000 of her $140,000 directly to Legal Aid, rather than to her.

From the New Property to the New Responsibility

apple small.jpgJust as Charles Reich was a premier theorist of rights to government largesse, Peter Schuck and Richard Zeckhauser are leading exponents of the responsibilities it entails. In Targeting Social Programs, S&Z focus on the denial of benefits to “bad bets” and “bad apples:”

Bad bets are individuals who are likely to benefit little from social resources relative to other [beneficiaries]. . . . Bad apples are individuals whose irresponsible, immoral, or illegal behavior in the past—and predictably, in the future as well—marks them as unsuitable to receive the benefits of social programs.

This may sound a bit cold-hearted at first, but S&Z make a good case that, behind a veil of ignorance, we’d quite sensibly allocate resources to, say, the transplant recipient who is most likely to benefit, rather than the one who has been on the wait list the longest. They also show how often “bad apples'” worst effects are on the disadvantaged citizens near them. (For an example, see Kahan and Meares on anti-loitering ordinances.)

The West Virginia Medicaid program provides an interesting case study of “bad apple screening.” Consider the fate of one beneficiary who refuses to sign a “health responsibility contract:”

Mr. Johnson. . . goes to a clinic once a month for diabetes checkups. Taxpayers foot the bill through Medicaid . . . [b]ut when doctors urged him to mind his diet, “I told them I eat what I want to eat and the hell with them. . . . I’ve been smoking for 50 years — why should I stop now? . . . This is supposed to be a free world.”

Traditionally, there was little Medicaid could do to encourage compliance. But now, “[u]nder a reorganized schedule of aid, the state, hoping for savings over time, plans to reward “responsible” patients with significant extra benefits or — as critics describe it — punish those who do not join weight-loss or antismoking programs, or who miss too many appointments, by denying important services.” But as the article notes, “Somewhat incongruously, [Johnson] appears to be off the hook: as a disabled person he will be exempt under the rules.”

Critics claim the program is unduly intrusive: “What if everyone at a major corporation were told they would lose benefits if they didn’t lose weight or drink less?” asked one doctor. Certainly in some manifestations it could be; consider this 1997 proposal by Judge John Marshall Meisburg:

Congress should . . . consider legislation stipulating that no one can be granted disability by SSA if s/he continues to smoke against the advice of his physician, and smoking is a factor material to the disability, because such claimants are bringing illness and disability upon themselves. Such a law would reduce the burden of proof now needed to deny benefits to persons who fail to heed their doctors’ advice, and would dovetail with legislation just passed by Congress to abolish disability benefits for persons addicted to drug and alcohol. In many cases, smoking is akin to “contributory negligence” and the SSA law should recognize it as such. [From Federal Lawyer, 44-APR FEDRLAW 56 on Westlaw.]

I think S&Z frame the debate in a nuanced enough way to avoid this kind of draconian proposal. But I do have a few quibbles with the framing of their work, if not its substance.

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13

Law and the Cost of Sex

baby.jpgA German court recently ruled that a gynecologist who improperly implanted a contraceptive device was potentially liable for child support when his patient conceived an unwanted child. The decision has garnered some critical commentary in Germany, where it has been suggested that by holding that the brute existence of a child constitutes a legal wrong, the court has sent a horrible message to the child involved. Be that as it may, there is probably a fair efficiency argument in favor of the decision.

Sex has costs. The most obvious is pregnancy or the risk of pregnancy, which exacts considerable physical costs on a woman’s body but also results in a child that will create enormous costs. Who should bear the costs of sex? In a sense, this is what the abortion debate is about. Should we use a medical procedure to shift (some) of the costs of sex from the woman to the unborn child? (Folks differ dramatically on the justice of making the fetus bear these costs; it strikes me as wildly unfair but others disagree.) Paternity suits and child-support obligations are another way of allocating costs. Biology and tradition throws the costs of child rearing overwhelmingly on women, and the law tries to compensate by shifting some of those costs to men.

Traditional law and economics suggests that the cost of sex ought to be assigned to the cheapest cost avoider. A social conservative might follow through on this logic and argue that the costs of sex should never been shifted by the law to parties other than those actually having sex, as they can always avoid sex via abstinence. The problem with this argument as an economic matter is that it assumes that abstinence has no costs. If we assume that sex has a positive value then the economic argument may counsel in favor of shifting the costs of sex to other parties whose costs are less than the benefit of foregone sexual activity. Hence, one might argue that the cost of the doctor performing the contraception implantation with greater care is less than the cost of the couple doing something else with their evening. We would still need to know, however, that additional care by the doctor would have been cheaper than some alternative form of contraception such as a condom. Finally, there is the issue of contract. One might argue that the doctor ought to pay because he failed to do what he promised to do. (Note: the German court’s decision seems to have sounded in tort rather than contract to the extent that cases sound in tort or contract in the civil law system.) This, however, gets us into the question of optimally efficient contract damages, and I think that it is pretty unlikely that the payment of the 18 years of child support by the doctor in this case is economically efficient.

Of course, the analysis above assumes that the cost-shifting process has no externality problems. The critical commentary on the court’s decision essentially amounts to the claim that the decision also imposes psychic costs on the child in question. This may or may not be true. It can’t be good for a child to be publicly labeled by her parents as an unwanted cost, on the other hand I doubt that most toddlers are following the doings of high courts closely. At the end of the day, I don’t have much sympathy for the doctor in this case. I’ve got even less for the father, who seems to have entirely exited the picture. After all, economics aside a child ought to be much more to a parent than simply a cost.

Grimmelmann: “Is Fashion a Bad?”

mugatuzoolander.jpg

I always enjoy James Grimmelmann’s blog and learn much from his articles. He combines a passion for precision with an unerring sense of the big picture. That’s evident today on the Picker MobBlog discussing Raustiala & Sprigman’s work on IP protections (or the lack thereof) in the fashion industry. Rather than engage the usual dialogue on innovation maximization, Grimmelmann asks flat out: is fashion a bad?

Sure, the fashion cycle may work for the fashion industry, but is that really something we should be glad about? . . . If low IP protection is good for the fashion industry because it enables rapid copying and a quick cycle of obsolescence, and if that cycle involves waste induced by conspicuous consumption, then isn’t a low IP regime a bad thing?

I’m sympathetic with Grimmelmann’s position, and this gap is symptomatic of a larger problem: “most economists believe that the core of economics can be developed with no assumptions at all about what an economy should aim to provide” (Dupre & Gagnier). But I also feel obliged to give the other side its due. And recently, one of the most enthusiastic exponents of laissez-faire here has been Virginia Postrel. Consider this encomium to style:

Even analysts who do not view luxury goods as waste do not [adequately] credit the goods’ intrinsic sensory appeal. . . . [They have] a hard time noticing any qualities beyond status badges and advertising-created brand personas. [But] more is going on. . . . People pet Armani clothes because the fabrics feel so good. Those clothes attract us as visual, tactile creatures, not because they are “rich in meaning” but because they are rich in pleasure. The garments’ utility includes the way they look and feel.

So the challenge for the latter-day Veblen is to disaggregate the “status-conferring” aspect of the fashion from its aesthetic, tactile, and expressive appeal (as Jeff Harrison notes). But as Veblen himself realized, this is an inquiry that has to share in both economic and humanistic approaches. And perhaps it even involves a bit of “norm entrepreneurship” in reinterpreting fashion . . .

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The Beauty-Industrial Complex

There have been a lot of reviews lately of Alex Kuczynski’s Beauty Junkies: Inside our $15 Billion Obsession with Cosmetic Surgery. Kuczynski writes for the NYT’s Thursday Styles section, and has a journalist’s flair for finding the most bizarre instances of consumer trends (such as an $11,000 South African surgery/safari package). I found Rebecca Mead’s take particularly insightful:

“We have begun to think of our bodies as something like an accessory that can be modified when necessary, discarded when it is worn out, and upgraded when required, a leathery sack to transport us from one medical specialist to the next,” Kuczynski writes; and the analogy is apt . . . . The new idea offered by the contemporary culture of cosmetic surgery is that it is the vessel itself that we must value, rather than the soul or spirit that it contains.

Mead also focuses on an underreported aspect of Kuczynski’s analysis: how business pressures and laws governing health care and insurance are spurring the trend:

Kuczynski argues that the soaring incidence of cosmetic surgery—a nearly fivefold increase in the number of cosmetic procedures performed on Americans during the past decade—has been driven by market forces rather than by the measurable health needs of the nation. Surgeons exhausted by the medical-insurance morass are flocking to the field. “If you’re a doctor working in this kind of environment, do you want to spend an hour removing a freckle and get paid $12 in two months by some insurance company? Or do you want to spend fifteen minutes putting Botox into someone’s face and get $1,000 in cash five minutes later?” one attendee at a convention of plastic surgeons asks.

Indeed, many moves to “high end health care” are driven by frustration with insurance providers. Some argue that a move to “free up” the health care field from regulation might help restore a balance. But a book on plastic surgery far more critical than Kuczynski’s suggests there is a deeper “market based” method to the industry. . .

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Deep Blue, Metropolis, Big Sky, Greater Dixie

election.jpgThere are a lot of old faces leaving Congress, and we can expect many efforts to figure out what the Democratic wave meant. On one level, it may be all about “corruption [and] the Iraq war.” But a recent analysis by Stan Cox suggests some interesting possibilities.

Cox “compiled rankings of the 50 states for a range of characteristics, including wages, taxes, and energy costs from a recent Forbes Magazine’s survey entitled “The Best States for Business,” an environmental policy (“green-capacity”) rating by the Resource Renewal Institute, and government data on median income, income inequality, population size, and the number of Wal-Mart Supercenters relative to population.” He then divided “divergent states” into four categories based on their status: Deep Blue, Metropolis, Big Sky, Greater Dixie. He found that the more Democratic of these (Deep Blue and Metropolis) had median incomes “25% higher than in Big Sky and Greater Dixie.” Big Sky and Greater Dixie states also had far higher “Iraq war deaths per million residents,” lower minimum wages, and worse environmental policies (though they had cleaner environments, largely due to less population density).

I don’t agree with all the ways Cox interprets the data, but his organization of it is interesting. It’s a nice reminder to the MSM that rather than incessant coverage of the “horse race,” it might help to point out the huge disparities “in wages, business and environmental policies, income inequality, population size, racial and ethnic makeup, poverty, and military impact” of different areas. These disparities might explain a lot more about what went on Tuesday than the Limbaugh/Fox, macaca/misogynist, and Kerry “stuck in Iraq” feuds they fixated on.

Photo Credit: Flickr/Poor Yorick (“The 2004 presidential election as represented by population, by Mark Newman, Department of Physics and Center for the Study of Complex Systems, University of Michigan”).

PS: I forgot to mention a certain counterintuitive paper that suggests some legal uses of these results. Anup Malani has suggested that “The value of a law should be judged by the extent to which it raises housing prices and lowers wages. . . . Housing prices go up because more people want to live there. Wages go down because more people want to work there.” This type of data helps correlate things like wages and environmental laws.

2

The Law & Economics of Quaker Litigation

quakers.bmpI feel duty bound to write a post defending the honor of 17th century Quaker grandees. Their reputation has suffered enough. The Quakers had (still have?) a tradition of discouraging intra-Quaker litigation in the secular courts. In England, Quaker eschewal of litigation was founded in part on the religious inaccessibility of the courts. Courts required oaths, and Quakers, taking Christ’s admonition in the New Testament to “swear not” literally, refused to take oaths. Once the Quakers started founding settlements in America, however, this problem went away, as Pennsylvania law allowed for “affirmations” in place of oaths, an explicit religious accommodation that eventually found its way into the Constitution. Nevertheless, Quaker sermons and pamphlets continued to insist that Friends should resolve their disputes amicably before the Monthly Meetings of the Society rather than sue in the secular courts.

In his book Of “Good Laws” and “Good Men”: Law and Society in the Delaware Valley, 1680-1710, William Offutt compared the records of the Monthly Meetings with the local court records to determine the extent to which Quakers actually lived up to their own sermons. What he found was that despite the nominal threat of excommunication for filing suit against another Friend, Quakers were quite enthusiastic about suing one another. Looking at the records of the Monthly Meetings, in turn, he found that congregational leaders were more likely to “sue” other congregational leaders before the Monthly Meetings but that Quaker leaders were perfectly happy to sue ordinary Quakers before the secular courts. Offutt rather archly suggests that the reasons for this had to do with the (hypocritical) desire of Quaker elites to maintain their images with other Quaker elites. Economics, however, suggests a more charitable reading of the actions of Quaker leaders.

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14

The Athenian Model

redrope.gifThe USA Today reports that shirking jury duty is an worsening problem. In response, local registrars are becoming punitive:

Tulare jury candidates who fail to show are warned that they could be found in contempt of court. If they do not respond, a second letter is sent, warning that a warrant will be issued for their arrest . . .

In Danville, Ill., a 19-year-old woman was found in contempt of court and sentenced to 14 days in jail for failing to appear for jury duty.

In Topeka, no-shows have been fined up to $100 a day.

In Grand Rapids, Mich., warrants were issued recently for the arrests of 56 people who failed to go to court and explain why they couldn’t serve.

It’s a trend. A foolish one. Why are folks always reaching for sticks, when there are carrots near to hand?

Seriously, jailing citizens for failing to be civic minded is, I think, a bad way of encouraging compliance. Why not try shaming, as the Athenians did with their famous red rope?

But, backwards.

Jurors ought to be given a public reward that will encourage norms of civic engagement. Like, say, a bumper sticker (“I love my state so I served on a jury.”), a t-shirt (“I’m not too sexy for jury service”), a newspaper advertisement (“Pennsylvania salutes its jurors . . . “), or a red ribbon. Such small rewards will have the incidental positive effect of making people happier with the experience itself. Jail time, by contrast, will only reduce civic support for the jury system, and will be unlikely to be enforced at levels sufficient to really deter shirking. And, tangible rewards are better than the empty rhetoric that currently marks the legal system’s approach to the reward-punishment problem:

“Conscientious service brings its own reward in the personal satisfaction that an important task has been well done. The effectiveness of our system of justice is measured by the integrity and dedication of the jurors who serve in our courts.”

3

Pay the Poor to Be Citizens

money.jpgA colleague suggests that there might be a relationship between a series of seemingly random observations:

  • A sudanese cell-phone billionaire announced a prize for good governance, to be awarded to current African leaders when they step down from office. According to news reports, “each leader awarded the prize will receive $5 million spread over 10 years after leaving office. If still alive when the initial prize is exhausted, prize-winners will receive another $200,000 annually until they die.”
  • The Arizona Voter Reward Act, which would establish a $1,000,000 prize whose proceeds would go to a randomly-selected voter, is on November 7th’s ballot. The state’s Chamber of Commerce is opposed: Harvard’s Info/Law project is more open minded. Most think the law would be plainly illegal preempted by federal law even if passed.
  • Jury pay rates are embarassingly low, if meant to be compensatory. Some jurisdictions are funding pilot projects to study if pay raises will increase compliance with jury service.

Here is the question for debate: is there any meaningful way to distinguish the African prize (which many legal commentators no doubt would celebrate) from the voting and jury service problems? Or, more provocatively, are the powerful the only people who we will allow to make money from being good citizens?

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2

The Economics of Things that Flow

water.jpgThis week’s New Yorker has an article about water, and, specifically, a claim that it isn’t well suited to traditional economic analysis. For a taste, check out the interview with author Michael Specter here.

Specter provides many examples (from different cultures) of the difficulty societies have in creating residential water markets. Folks resist thinking of water as a commodity. In other countries (particularly, those without a strong riparian law tradition) misuse is rampant. Urban dwellers demand water for free (or force industry to subsidize home use). The result: waste, extreme shortages of potable water, and disease. Specter is particularly strong when he discusses how the competition for water in India and China (in particular) has resulted in a classic tragedy of the commons: farmers competing to dig wells deeper than their neighbors, leading to a falling water table, and, ultimately contamination by salt and poisons. He also provides the somewhat astonishing factoid that water use in the United States has fallen in absolute and per capita terms in the last thirty years, largely due to demand-side reductions caused by technological development. The article claims that the technological change was in turn spurred by the Clean Water Act’s pressure on industry.

The article reminded me of Frank’s nice post of last week on Net Neutrality: Law, Money, and Culture. As you may recall, Frank argued against treating network access as a normal economic good, largely to avoid “another avenue for the large corporations that dominate the culture industry to fast-track their wares to consumers? In the end, network bias-toward-wealthy-entities portends ever more pervasive commercialization of cultural life.” While Frank doesn’t exactly come out and say so, you get the sense (reading other net neutrality folks) that the nondiscrimination principle arises from an intuition that access to a certain quantum of information is a new part of Americans’ birthright endowment.

Perhaps the analogy is facile, but is there a meaningful connection between the economics of water and information? The reason that the analogy occurs to me is that both goods the real cost is access, not consumption. Obviously, there are some important differences too (information isn’t life, whatever Neal Stephenson thinks, etc.) But it might be that the lessons from the partial commodification of water in the last thirty years, and the positive consequences of regulation, could inform our experiences with informational regulation as well. Or, as the title says, is it time for an economics of things that flow?

[Will Baude points out that the idea of fugitive resources isn’t new. Can anyone recommend a good primer comparing water and information economics? I obviously need to catch up!]