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Suppose there’s a precedent that people don’t like.  A case comes up and they are debating whether the precedent applies.  Often the most effective way to argue against it is to cite previous cases where the precedent was applied and argue that the present case is different.

In order to maximally differentiate the current case they will exaggerate how appropriate the precedent was to the specific details of the previous case, even though they disagree with the precedent in principle because that case was already decided and nothing can be done about that now.

The long run effect of this is to solidify those cases as being good examples where the precedent applies and thereby solidify the precedent itself.

Many laws that restrict freedoms are effectively substitutes for private contracts. In a frictionless world we wouldn’t need those laws because every subset of individuals could sign private contracts to decide efficiently what the laws decide bluntly and uniformly.  But given transaction costs and bargaining inefficiencies those blunt laws are the best we can do.

Some people might want to sign contracts that constrain themselves.  For example I might know that I am tempted to drink too many Big Gulps and I might want to contract with every potential supplier of large sugary drinks, getting them to agree never to sell them to me even if I ask for it.  But this kind of contract is plagued not only by the transaction costs and bargaining inefficiencies that justify many existing planks in the social contract, but in addition a new friction:  these contracts are simply not enforceable.

Because even with such a contract in place, when I actually am tempted to buy a Slurpee, it will be in the interest of both me and my Slurpee supplier to nullify the contract.  (It doesn’t solve the problem to structure the contract so that I have to pay 7-11 if I buy a Slurpee from them.  If that contract works then I don’t buy the Slurpee and 7-11 would be willing to agree to sign a second contract that nullifies the first one in order to sell me a Slurpee.)

These considerations alone don’t imply that it would be socially efficient to substitute a blanket ban on large sugary drinks for the unenforceable contracts. But what they do imply is that it would be efficient for the courts to recognize such a ban if a large enough segment of the population wants it. (And this is no way intended to suggest that one Michael Bloomberg by himself constitutes a large enough segment of the population.)

Arthur Robson wrote this on Facebook:

If am peacefully working out, and someone else arrives in the gym, they usually grab the TV remote to bathe in the inane chatter of preternaturally perky news shows. What if I were to arrive while they were watching TV and switched it off?

Which is a good point but still I think that a case can be made that it is morally allowed to turn on the TV but not to turn it off.

If you walk into the gym and the TV is on, that fact is a strong signal that somebody is watching it and would be harmed if you turned it off.  On the other hand when the TV is off you have much less information about what people are paying attention to.  You only know that nobody turned the TV on.  This is consistent with everybody being indifferent to the TV being on and off.

The point being that a utilitarian calculation based only on the signal of whether the TV is on or off will always make it strictly more permissible to turn the TV on than to turn it off.

But note that the inference is a function of the moral code. And if people are following the turn-on-but-not-off code then the TV will be on even if nobody is watching it.

So what we need is an equilibrium code:  a code that works even in equilbirium when it is expected to be followed by others.

For law journals at least:

IT IS A COMMON PRACTICE among law review editors to demand that authors support every claim with a citation. These de- mands can cause major headaches for legal scholars. Some claims are so obvious or obscure that they have not been made before. Other claims are made up or false, making them more diffi- cult to support using references to the existing literature.

Legal scholars need a source they can cite when confronted with these challenges. It should be something with an impressive but ge- neric title. I offer this page, with the following conclusion: If you have been directed to this page by a citation elsewhere, it is plainly true that the author’s claim is correct. For further support, consult the extensive scholarship on the point.1

The footnote, of course points to the article itself.

Mortarboard motion:  Justin Wolfers

The abstract:

This is a line-by-line analysis of the second verse of 99 Problems by Jay-Z, from the perspective of a criminal procedure professor. It’s intended as a resource for law students and teachers, and for anyone who’s interested in what pop culture gets right about criminal justice, and what it gets wrong.

For example:

E. Line 7

So I pull over . . . At this point, Jay-Z has been seized, for purposes of Fourth Amendment analysis, because he has submitted to a show of police authority. He has thus preserved his Fourth Amendment claims. If you are stopped illegally and want to fight it later, you have to submit to the show of authority. In this case, if the police find the contraband, he’ll be able to challenge it in court. Smart decision here by Jay-Z.

The full paper is here, I thank the organic Troy Kravitz for the link.

CJ Roberts rescues the mandate by noticing that it’s a tax.  Here’s the key line in the dissent of the minority, Kennedy, Scalia, Alito, and Thomas:

The issue is not whether Congress had the power to frame the minimum-coverage provision as a tax, but whether it did so.

The full decision is here.

Instead of a mandate to buy insurance and a penalty of $X if you do not comply, what if everyone’s taxes are raised by $X and anyone who complies with the mandate receives a refund of $X? Does that make it constitutional?

Professional line standers.

The word “Intrepid” is on Hans Scheltema’s business card, and it’s more than just the name of his business. The professional line-stander prides himself on sticking it out, in all kinds of weather, on behalf of the lawyers, lobbyists and others willing to pay for a place in line at big events, such as arguments before the Supreme Court this week on thefederal health-care overhaul.

But even a guy with supreme stick-to-itiveness has his limits.

On Sunday afternoon, after holding down spot No. 3 outside the Supreme Court for the better part of the day, he hired a homeless man to fill in for a few hours. Scheltema, 44, who had taken over Sunday morning for a guy who had held the spot since Friday, wanted to go home to recharge — both himself and his BlackBerry.

Defamation is the making of a false statement that creates a negative image of another person.  At a superficial level the point of anti-defamation laws are to prevent such false statements.  But false statements by themselves are not damaging unless they do harm to the subject’s reputation.  For that, the statement must be credible.

If the direct effect of an anti-defamation law is to reduce the number of false statements made, an indirect effect is to enhance the credibility of all of the false statements that continue to be made.  Because a member of the public who cannot assess the veracity of a given statement will begin with the presumption that the statement is more likely to be true since a larger fraction of all statements made are true.  This of course encourages more false statements, undermining the original direct effect of the law.

Indeed it is impossible to eliminate false damaging statements without making them even more damaging.

Nevertheless, in equilibrium the net effect of an anti-defamation law is to increase the truthfulness of public discourse.  The marginal slanderous statement is the one which is just damaging enough to compensate for the expected cost of a lawsuit.  When that cost is higher, the previously marginal statement is crowded out.

But that just says that the proportion of statements that are false goes down.  Another effect anti-defmation laws are to reduce the number of truthful statements.  Even a truthful statement has a chance of being judged false and damaging.  There will overall be fewer things said.

Furthermore, since a defamatory statement must be proven to be false and some falsehoods are easier to demonstrate than others, the incidence of anti-defamation laws on various types of lies must be considered.   A libelous claim will be made if and only if the cost of the potential lawsuit is outweighed by the value of making it.  For statements whose explicit intention is to defame, that value increases as the overall credibility of public discourse increases.  Among those statements, the ones that are hardest to prove false will actually be said more and more often.

In fact as long as the speaker is creative enough to think of a variety of different ways to defame, the main effect of anti-defamation laws will be to substitute away from verifiable lies in favor of statements which are more difficult to prove false.  This will be so as long as a sufficiently large segment of the public cannot tell the difference between statements that can be verified and statements that cannot.

via Arthur Robson:

While appeals often unmask shaky evidence, this was different. This time, a mathematical formula was thrown out of court. The footwear expert made what the judge believed were poor calculations about the likelihood of the match, compounded by a bad explanation of how he reached his opinion. The conviction was quashed.

And the judge ruled that Bayes’ law for conditional probabilities could not be used in court.  Statisticians, Mathematicians, and prosecutors are worried that justice will suffer as a result.  The statistical evidence centered around the likelihood of a coincidental match of shoeprint with shoes owned by the Defendant.

In the shoeprint murder case, for example, it meant figuring out the chance that the print at the crime scene came from the same pair of Nike trainers as those found at the suspect’s house, given how common those kinds of shoes are, the size of the shoe, how the sole had been worn down and any damage to it. Between 1996 and 2006, for example, Nike distributed 786,000 pairs of trainers. This might suggest a match doesn’t mean very much. But if you take into account that there are 1,200 different sole patterns of Nike trainers and around 42 million pairs of sports shoes sold every year, a matching pair becomes more significant.

Now if I can prove to jurors that there was one shoe in the basement and another shoe upstairs, then probably I can legitimately claim to have proven that the total number of shoes is two because the laws of arithmetic should be binding on the jurors deductions.  And if there is a chance that a juror comes to some different conclusion then it would make sense for an expert witness, or the judge even, tell the juror that he is making a mistake.  Indeed a courtroom demonstration could prove the juror wrong.

But do the “laws” of probability have the same status?  If I can prove to the juror that his prior should attach probability p to A and probability q to [A and B], and if the evidence proves that A is true,  should he then be required to attach probability q/p to B?  Suppose for example that a juror disagreed with this conclusion. Could he be proven wrong?  A courtroom demonstration could show something about relative frequencies, but the juror could dispute that these have anything to do with probabilities.

It appears though that the judge’s ruling in this case was not on the basis of bayesian/frequentist philosophy, but rather about the validity of a Bayesian prescription when the prior itself is subjective.

The judge complained that he couldn’t say exactly how many of one particular type of Nike trainer there are in the country. National sales figures for sports shoes are just rough estimates.

And so he decided that Bayes’ theorem shouldn’t again be used unless the underlying statistics are “firm”. The decision could affect drug traces and fibre-matching from clothes, as well as footwear evidence, although not DNA.

This is a reasonable judgment even if the court upholds Bayesian logic per se.  Because the prior probability of a second pair of matching shoes can be deduced from the sales figures only under some assumptions about the distribution of shoes with various tread patterns.  The expert witnesses probably assumed that the accused and a hypothetical third-party murderer were randomly assigned tread patterns on their Nikes and that these assignments were independent.  But if the two live in the same town and shop at the same shoe store and if that store sold shoes with the same tread pattern, then that assumption would significantly understate the probability of a match.

The right to remain silent is not necessarily a blessing to a defendant.  Because having a choice is not necessarily a good thing.  Unless the decision to testify is uncorrelated with guilt, that decision by itself will convey information to the jury. (I know juries are instructed not to infer anything.  But that is impossible.) So for example, if those who take the fifth are more likely to be guility (as I would guess.  Are there data on this?), then an innocent person’s “right” to remain silent is actually a right to partially incriminate himself

A prohibition against defendants testifying on their own behalf is worth considering.  If the goal is to protect defendants from incriminating themselves, then the above benefit offsets the obvious cost.

And if that is too extreme there are middle grounds to consider.  For example, since the defense puts on its case last, the defendant does not make his decision until after the prosecution has introduced evidence.  A defendant might want to commit in advance of that evidence being revealed that he will not testify so that nothing can be revealed by his decision being contingent on the evidence. As far as I know this commitment is not possible under current law.

In general the earlier you commit not to testify the less can be inferred from this.  So we should allow citizens to register their commitments before they are charged with any crime. When you register to vote you also check a box that says whether you or not you will testify in the event you are ever charged with a crime.


There is typically a fine for parking your car on the street facing the wrong direction, i.e. against traffic.  What is the harm in that?

Economic theory suggests that penalties should be attached to behaviors that are correlated with crime and not necessarily to criminal behavior itself.  For example, price fixing may be impossible to detect, but conspiracy to fix prices may be much easier.  It makes sense to make cheap talk a crime even though the talk itself causes no harm.

When you car is parked facing the wrong way its a sure sign that A) you previously committed the crime of driving the wrong way and B) you will soon do it again.


How do you get deadbeat dads to pay child support?  You threaten them with incarceration if they don’t pay.  But if the punishment has its intended effect you will find that the only deadbeats who actually receive the punishment are those for whom the punishment is pointless because they don’t have the money to pay.  They are the turnips.

“Deadbeats,” according to Sorensen, are parents who could pay but choose not to. “Turnips” — invoking the phrase, “You can’t get blood out of a turnip” — are parents who don’t have the money to pay. So what percentage of nonpaying parents are deadbeats and what percentage are turnips? Sorenson says most of those who end up in jail are low-income, and thus, “more likely to be a turnip than a deadbeat.”

Is that a bug or a feature?  That’s part of what the Supreme Court will decide in a case that was argued last week.

So leads us to the remarkable story of Imperial College’s self-effacing head librarian, pitted in a battle of nerves against the publisher of titles like the Lancet. She is leading Research Libraries UK (RLUK), which represents the libraries of Russell Group universities, in a public campaign to pressure big publishers to end up-front payments, to allow them to pay in sterling and to reduce their subscription fees by 15%. The stakes are high, library staff and services are at risk and if an agreement or an alternative delivery plan is not in place by January 2nd next year, researchers at Imperial and elsewhere will lose access to thousands of journals. But Deborah Shorley is determined to take it to the edge if necessary: “I will not blink.”

The article is here.  Part of what’s at stake is the so called “Big Deal” in which Elsevier bundles all of its academic journals and refuses to sell subscriptions to individual journals (or sells them only at exorbitant prices.)  Edlin and Rubinfeld is a good overview of the law and economics of the Big Deals.

Boater Bow:  Not Exactly Rocket Science.

I wrote last week about More Guns, Less Crime.  That was the theory, let’s talk about the rhetoric.

Public debates have the tendency to focus on a single dimension of an issue with both sides putting all their weight behind arguments on that single front.  In the utilitarian debate about the right to carry concealed weapons, the focus is on More Guns, Less Crime. As I tried to argue before, I expect that this will be a lost cause for gun control advocates.  There just isn’t much theoretical reason why liberalized gun carry laws should increase crime.  And when this debate is settled, it will be a victory for gun advocates and it will lead to a discrete drop in momentum for gun control (that may have already happened.)

And that will be true despite the fact that the real underlying issue is not whether you can reduce crime (after all there are plenty of ways to do that,) but at what cost.  And once the main front is lost, it will be too late for fresh arguments about externalities to have much force in public opinion.  Indeed, for gun advocates the debate could not be more fortuitously framed if the agenda were set by a skilled debater.  A skilled debater knows the rhetorical value of getting your opponent to mount a defense and thereby implicitly cede the importance of a point, and then overwhelming his argument on that point.

Why do debates on inherently multi-dimensional issues tend to align themselves so neatly on one axis?  And given that they do, why does the side that’s going to lose on those grounds play along?  I have a theory.

Debate is not about convincing your opponent but about mobilizing the spectators.  And convincing the spectators is neither necessary nor sufficient for gaining momentum in public opinion.  To convince is to bring others to your side.  To mobilize is to give your supporters reason to keep putting energy into the debate.

The incentive to be active in the debate is multiplied when the action of your supporters is coordinated and when the coordination among opposition is disrupted.  Coordinated action is fueled not by knowledge that you are winning the debate but by common knowledge that you are winning the debate.  If gun control advocates watch the news after the latest mass killing and see that nobody is seriously representing their views, they will infer they are in the minority and give up the fight even if in fact they are in the majority.

Common knowledge is produced when a publicly observable bright line is passed.  Once that single dimension takes hold in the public debate it becomes the bright line:  When the dust is settled it will be common knowledge who won. A second round is highly unlikely because the winning side will be galvanized and the losing side demoralized.  Sure there will be many people, maybe even most, who know that this particular issue is of secondary importance but that will not be common knowledge.  So the only thing to do is to mount your best offense on that single dimension and hope for a miracle or at least to confuse the issue.

(Real research idea for the vapor mill.  Conjecture:  When x and y are random variables it is “easier” to generate common knowledge that x>0 than to generate common knowledge that x>y.)

Chickle:  Which One Are You Talking About? from

Did you know that in the states of Oregon and Louisiana a defendant is convicted if 10 out of 12 jurors vote guilty? In Federal trials and in all other states unanimity is required.  A recent case was appealed to the Supreme Court challenging Oregon’s non-unanimous juries on 14th Ammendment grounds. On Monday the Court declined to hear the case.  (Here is Eugene Volokh, who brought the petition.)

This opinion piece in the Washington Examiner argues that the unanimity requirement is essential for preserving “liberties.”  I assume that what the author means is protection against convicting the innocent.  Because on its face it would seem that such a mistake is less likely when unanimous agreement of all 12 jurors is required.

Of course we should care not just about the error of convicting the innocent, but also acquitting the guilty.  But even if your concept of liberty puts maximum weight on the protection of the innocent, it is naive to suppose that this is achieved by unanimous juries.

Suppose you are on a jury in Oregon and the foreman has joined with 8 others who have decided to convict.  Looking for the 10th vote, he turns to you. Compare your incentives to convict in this situation to the analogous situation where, in Illinois, 11 others are looking your way.  With only 9 others prepared to convict there is not only less peer pressure on you, but other things equal the evidence is less persuasive.  It has only convinced 9 others.

All jurors see the same evidence but each views it from his or her own perspective. When a jury votes the jurors are signaling to one another how they interpret the evidence.  The more other jurors voting to convict, the stronger is your inference that the evidence shows the defendant is guilty. When you are the pivotal 10th juror you know only that 9 others have concluded that the defendant is guilty.

The lower threshold for conviction in fact makes you less likely to vote to convict.

This strategic effect of course has to be weighed against the mechanical effect of lowering the threshold and the net effect could go either way.  However, there is one unambiguous sense in which unanimous jury standards are in fact the worst possible.

In a famous paper, Feddersen and Pesendorfer showed that jury voting is informationally efficient in the following sense:  given enough jurors with enough independent information the strategic effect outlined above is dampened.  And the defendant is convicted if and only if he is guilty.

Now in a sense this is purely of theoretical interest.  Juries of 12 are not “arbitrarily large” and even if they perfectly pool their information they will make mistakes. But the point of this result is that it says that jury voting in principle works. Feddersen and Pesendorfer showed that this is true regardless of the threshold fraction of votes required for conviction, but with one single exception.  Under unanimity rule the strategic effect is not dampened.  Indeed with more and more jurors, knowing that you are the last holdout is stronger and stronger evidence that you should convict.  Thus there is always a probability of convicting the innocent even with very large juries.

Made it to Brooklyn alive. I don’t see what the big deal is, some nice chap shoveled me a spot and even gave me a free chair!

From @TheWordAt.

Speaking of which, have you noticed the similarity between shovel-earned parking dibs and intellectual property law?  In both cases the incentive to create value is in-kind:  you get monopoly power over your creation.  The theory is that you should be rewarded in proportion to the value of the thing you create.  It’s impossible to objectively measure that and compensate you with cash so an elegant second-best solution is to just give it to you.

At least in theory.  But in both IP and parking dibs there is no way to net out the private benefit you would have earned anyway even in the absence of protection.  (Aren’t most people shoveling spaces because otherwise they wouldn’t have any place to put their car in the first instance? Isn’t that already enough incentive?)  And all of the social benefits are squandered anyway due to fighting ex post over property rights.

I wonder how many people who save parking spaces with chairs are also software/music pirates?

Finally, here is a free, open-source Industrial Organization textbook (dcd: marciano.)  This guy did a lot of digging and we all get to recline in his chair.

A dozen Cook County judges deemed unqualified by legal organizations won reelection on Nov. 2, a result that left their opponents searching for better ways to educate city voters and strengthen Chicago’s judiciary.
Two judges rated “not recommended” in a Judicial Performance Commission pilot project only barely topped the 60 percent of votes necessary to keep their jobs. Their support was stronger in the city than in the Chicago suburbs.
Read the article.  Background is here.


Last Tuesday, everyone’s favorite mad-scientist-laboratory of Democracy, the San Francisco City Council enacted a law banning the Happy Meal. Officially what is banned is the bundling of toys with fast food. The theory seems to be that toys are a cheap substitute for quality food and that a prohibition on bundling will force McDonald’s to compete instead on the quality of its food.

But it’s not easy to lay out a coherent theory of the Happy Meal. You could try a bargaining story. Kids like toys, parents want healthy food but are willing to compromise if the kids put up enough of a fuss. McDonald’s offers that compromise in the form of cheap toys and crappy food, raking in their deadweight loss (!).

You could try a story based on 2nd degree price discrimination. There are parents who care more about healthy food (Chicken Nuggets??) and parents who care less. A standard form of price discrimination has a higher end item for the first group and a low-end item for the second. The low-end item fetches a low price because it is purposefully inferior. But if toys are a perfect substitute for healthy food in the eyes of the health-indifferent parents, then a Happy Meal raises their willingness to pay without attracting the health-conscious (and toy-indifferent) parents.

You could even spin a story that suggests that the SF City Council’s plan may backfire. That’s what Josh Gans came up with in his post at the Harvard Business Review Blog.

For a parent, this market state of affairs spells opportunity. With McDonald’s offering a toy instead of additional bad stuff, the parent can ‘sell’ this option to their children and get them to eat less bad stuff than they would at another chain. The toy is a boon if the parents are more concerned about the bad stuff than having another junky toy in the house … They allow a parent to increase the value of healthier products in the eyes of children and negotiate a better price (perhaps in the form of better food at home) for allowing their children to have them. Happy Meals do have carrots after all.

But all of these stories have the same flaw:  McDonald’s can still achieve exactly the same outcome by unbundling the Happy Meal, selling toys a’la carte alongside the Now-Only-Somewhat-Bemused Meals they used to share a cardboard box with.  Just as before families will settle their bargains by re-assembling the bundle, health sub-conscious families will buy the low-end burger and pair it with toys, and parents who have to bribe their kids will buy McDonald’s exclusive movie-tie-in toys to get them to eat their carrots.

(Yes I am aware of the Adams-Yellen result that bundling can raise profits, but this has nothing to do with toys and healthy food specifically.  Indeed McAfee, McMillan and Whinston show that generically the Adams-Yellen logic implies that some form of bunding is optimal.  So this cannot be the relevant story for McDonalds which is otherwise a’la carte.)

So I don’t think that economic theory by itself has a lot to say about the consequences of the Exiled Meal.  The one thing we can say is that McDonald’s doesn’t want to be forced to unbundle.  Putting constraints like that on a monopolist can sometimes improve consumer welfare and sometimes reduce it.  It all depends on whether you think McDonald’s increases its share of the surplus by lowering the total or raising it.  The SF City Council, like most of us one way or the other, probably had formed an opinion on that question already.

Last Friday I earned $17.20 for a day’s work as a standby juror.  Standby jurors wait in a big room until they are put in a panel of 14 and sent into a courtroom for selection.  In civil trials, 6 jurors will be selected and seated from the 14.  I was rejected from two panels and then sent home.

The jury selection process is a little obscure, but I found this.  Here’s the model I glean from it.  The panel is numbered 1-14.  Lawyers for Plaintiff and Defendant each have 3 “peremptory” challenges which enables them to strike a juror from the panel.  The Plaintiff moves first and makes any peremptory challenges. This creates a provisional jury consisting of the 6 highest jurors on the list that have not been eliminated yet.  The Defendant can either accept this jury or use a challenge to strike one or more from it sending a new proposed jury, again consisting of the 6 highest jurors not yet struck, back to the Plaintiff.  This continues until someone accepts or all challenges are exhausted.

The game can be solved by backward induction.  I think something like the following is an optimal strategy.  First, when given a proposal of 6 jurors, rank them from least favorable to most.  To decide whether to strike the least favorable, ask whether her replacement will be stricken by the opposition (and any further replacements) and if so whether the final replacement will be better or worse than the least favorable now.  Of course you could always just strike the 3 least favorable in one go, but you are better off moving sequentially in hopes that the other guy makes a mistake and does it for you.

It gets more complicated when you take into account the challenges for “cause.”  These are challenges that require justification on the grounds that the juror is biased.  The possibility of challenges for cause explains why the panel has 14 rather than just 12.  And challenges for cause are evidently used a lot because on my second panel all but 3 jurors were excused.

In practice the jury selection is at least as much signaling as screening.  As if we were playing jury-Jeopardy, the lawyers sent messages phrased in the form of a question.  The defendant asked us “Does everybody understand that anyone can file a lawsuit if they pay a fee?”  The Plaintiff said “Does everyone understand that an insurance company has all the same rights as an individual?”  This is a kind of pre-opening statement.

I wonder whether it was the Plaintiff or Defendant that challenged me.  What they knew about me is that I am a Professor of Economics, the father of three kids, and that I drove a car over a mailbox when I was 16.  (Both of the cases were insurance claims arising out of an auto accident so they wanted to know.)

When I entered the first courtroom the Judge informed us that this case involved an insurance company.  I sized up the lawyers for the two sides.  I immediately pegged the Plaintiff as a sleazy ambulance chaser and the Defendant as a slick insurance company henchman whose life’s calling is to deprive the injured their just deserts (and instead send them to the Mojave for ice cream sundaes.)  The next thing we were told was that this was in fact a case in which the insurance company was suing a client.  So much for reading people by their faces.

The judges struck me as smarter than the attorneys.  (This based on talking with them, not just the looks on their faces :) )

30% of my fellow standby jurors were unemployed.  60% were divorced or separated.

The seminal (economist’s!) answer to this question has been offered by my old teacher in grad school and my colleague till a few years ago, Kathy Spier, in her paper “Incomplete Contracts and Signaling”.  As her title suggests, her core idea is based on signaling: an informed party making an offer in a game signals his private information via the offer.  An offer that carries a negative inference may not be made.  Kathy’s model is quite complex but it’s central logic is captured in a passage from her paper:

A fellow might hesitate to ask his fiancée to sign a prenuptial agreement…. because to do so would lead her to believe that the quality of the marriage – or the probability of divorce – are higher than she had thought.

In the new century, roles are reversed – the wealthy partner might be female and the poor one male.  If there is no pre-nup, the man can extract a large fraction of his ex-wife’s wealth after a divorce.  In that situation, to signal his love, the man should offer to sign a pre-nup that gives him none of his ex-wife’s fortune.  If he is confident the marriage will survive, divorce is impossible anyway , so why worry about income in an impossible event?

Alas, as the poets have long told us, the path of true love does not run smooth – the most well-intentioned and loving couple can find their marriage has hit the rocks.  Then, there will be much regret and perhaps desperate, legal action to extract enough cash to live in the style to which one has become accustomed.

And so I turn finally to this sad case in the British courts:

When Katrin Radmacher and Nicolas Granatino married in 1998, she insisted it had been for love, not for money. That was why the wealthy German heiress had ensured that her banker husband signed a prenuptial agreement promising to make no claims on her fortune if the marriage failed. It was, she said, “a way of proving you are marrying only for love”.

Once the love had gone, however – the couple separated in 2006 – the fortune remained, and Granatino, by then a mature student at Oxford, decided to challenge the prenup, which they had signed in Germany before marrying and divorcing in Britain, arguing it had no status in English law.

But Granatino lost.

I’m sure a research paper can come out of this: two-sided incomplete information, two-sided signaling and optimal contracting…..I’m too busy keeping my marriage alive to have the time to write it.

The threat of the death penalty makes defendants more willing to accept a given plea bargain offer.  But a tough-on-crime DA takes up the slack by making tougher offers.  What is the net effect?  A simple model delivers a clear prediction:  the threat of the death penalty results in fewer plea bargains and more cases going to trial.

The DA is like a textbook monopolist but instead of setting a price, he offers a reduced sentence.  The defendant can accept the offer and plead guilty or reject and go to trial taking his chances with the jury. Just like the monopolist, the DA’s optimal plea offer trades off marginal benefit and marginal cost.  When he offers a stiffer sentence, the marginal benefit is that defendants who accept it serve more time.  The marginal cost is that it is more likely that the defendant rejects the tougher offer, and more cases goes to trial.  The marginal defendant is the one whose trial prospects make him just indifferent between accepting and rejecting the plea bargain.

Introducing the death penalty changes the payoff to a defendant who rejects a plea deal (his reservation value.)  The key observation is that this change affects defendants differently according to their likelihood of conviction at trial. Defendants facing a difficult case are more likely to be convicted and suffer the increased penalty.  (Formally, the reservation value is now steeper as a function of the probability of conviction.)

One thing the DA could do is increase the sentence in his plea bargain offer just enough that the pre-death-penalty marginal defendant is once again indifferent between accepting and rejecting.  The rate of plea bargains would then be the same as before the death penalty.

But he can do better by offering an even tougher sentence. The reason: his marginal benefit of such a move is the same as it was pre-death penalty (the same infra-marginal defendants serve more time) but the marginal cost is now lower for two reasons.  First, compared to the no-death penalty scenario, fewer defendants reject the tougher offer.  Because we are moving along a steeper reservation value curve.  Second, those who do reject now get a stiffer penalty (death) conditional on conviction.

The DA’s tougher stance in plea bargaining means that fewer defendants accept and more cases go to trial.  Evidence?  Here is one paper that shows that re-instatement of the death penalty in New York lead to no increase in the rate of plea bargains accepted (and a clear decrease in the size of plea bargain offers.)

For the sake of argument let’s take on the plain utilitarian case for waterboarding: in return for the suffering inflicted upon a single terror suspect we may get information that can save many more people from far greater suffering. At first glance, authorizing waterboarding simply scales up the terms of that tradeoff. The suspect suffers more and therefore he will be inclined to give more information and sooner.

But these higher stakes are not appropriate for every suspect. After all, the utilitarian cost of torture comes in large part from the possibility that this suspect may in fact have no useful information to give, he may even be innocent. When presented with a suspect whose value as an informant is uncertain, these costs are too high to use the waterboard. Something milder is preferred instead like sleep deprivation.

So the utilitarian case for authorizing waterboarding rests on the presumption that it will be held in reserve for those high-value suspects where the trade-off is favorable.

But if we look a little closer we see it’s not that simple. Torture relies on promises and not just threats. A suspect is willing to give information only if he believes that it will end or at least limit the suffering. When we authorize waterboarding, we undermine that promise because our sleep-deprived terror suspect knows that as soon as he confesses, thereby proving that he is in fact an informed terrorist, he changes the utilitarian tradeoff. Now he is exactly the kind of suspect that waterboarding is intendend for. He’s not going to confess because he knows that would make his suffering increase, not decrease.

This is an instance of what is known in the theory of dynamic mechanism design as the ratchet effect.

Taken to its logical conclusion this strategic twist means that the waterboard, once authorized, can’t ever just sit on the shelf waiting to be used on the big fish. It has to be used on every suspect. Because the only way to convince a suspect that resisting will lead to more suffering than the waterboarding he is sure to get once he concedes is to waterboard him from the very beginning.

The formal analysis is in Sandeep’s and my paper, here.

BP’s cap on the ruptured gulf coast oil well is a two-edged sword.  On the one hand, there is a good chance it will hold and the problem will be solved.   On the other hand,  the cap makes it harder to verify whether this solution has failed.

The cap means that pressure is diverted elsewhere underground.  Right now there is a camera in place pointing at the capped part of the well.  When the cap was not in place this camera made it common knowledge whether oil was flowing into the gulf and it made quite clear how much.  With the cap however, “seepage” in other locations can only be measured by noisy tests that can easily be disputed by both parties.

For example, BP will cite:

Some seepage from the ocean floor is normal in the Gulf of Mexico, according to University of Houston professor Don Van Nieuwenhuise.

“A lot of oil that’s formed naturally, by the Earth, ends up escaping or leaking to the surface in the form of natural seeps and yes, there are a lot of these all around the world,” he said.

and the government will argue:

“If the well remains fully shut in until the relief well is completed, we may never have a fully accurate determination of the flow rate from this well. If so, BP — which has consistently underestimated the flow rate — might evade billions of dollars of fines,” Markey, D-Massachusetts, said in a letter to Allen released Sunday.

The deadweight loss of negotiation and litigation means that even if the risk to the gulf is substantially reduced by having the cap in place, it may still be better to uncap the well and seek solutions (such as extraction of the flowing oil) that can be monitored directly by the camera that is already there.

A primer in the New York Times.

Kit is a freegan. He maintains that our society wastes far too much. Freeganism is a bubbling stew of various ideologies, drawing on elements of communism, radical environmentalism, a zealous do-it-yourself work ethic and an old-fashioned frugality of the sock-darning sort. Freegans are not revolutionaries. Rather, they aim to challenge the status quo by their lifestyle choices. Above all, freegans are dedicated to salvaging what others waste and — when possible — living without the use of currency. “I really dislike spending money,” Kit told me. “It doesn’t feel natural.”

Its kinda like composting as a lifestyle, only with someone else’s waste and instead of making fertilizer you either eat it or live in it.  An entertaining read from start to finish with cameos by roadkill, frozen toilets and even property rights.

Elena Kagan is 50 years old which is not much younger than the average age of newly appointed justices:  53.  That average age upon entry has been relatively constant over time but with life expectancies steadily increasing, the average tenure on the court has increased from 15 to 25 years before and after 1970.

We could argue about the socially efficient entry age and tenure length but its more fun to think about strategy.  As a President from The Democratic Party you are today’s player in the infinite-horizon alternating-move SCOTUS appointment game. It is essentially a game of tug-of-war:  they will appoint conservatives to balance out the liberals that you will appoint in order to balance out their conservatives…

The younger your appointee the longer she will sit on the court.  On the plus side this means she is less likely to die or retire early.  On the down side you will have to live longer with a Justice whose views are harder to discern and are more likely to change.

Tradeoff?  Less than it appears.  It boils down to a comparison of two probabilities:  the probability that the older Justice will step down in a year when the Republicans control the White House versus the probability that the younger Justice will switch teams.  Unless there is a lot of uncertainty about the younger Justice, the second probability is smaller and you should appoint her.

How young should you go?  As you consider younger and younger nominees the mid-tenure defection eventually becomes the dominant concern.  The probability that a non-defector can retire under a Democrat administration reaches its maximum but the uncertainty surrounding a younger Justice steadily increases.

The New York Post reports that the FTC and the Justice Department are deciding which of those two entities will conduct an inquiry into Apple’s ban on iPhone-iPad development using cross-platform tools such as Adobe’s Flash-to-iPhone.

An inquiry doesn’t necessarily mean action will be taken against Apple, which argues the rule is in place to ensure the quality of the apps it sells to customers. Typically, regulators initiate inquiries to determine whether a full-fledged investigation ought to be launched. If the inquiry escalates to an investigation, the agency handling the matter would issue Apple a subpoena seeking information about the policy.

An inquiry is harmless in theory, often a slippery slope in practice.  While there is certainly much to complain about, the general principle of not meddling when the market is still in its fluid infancy is the dominant consideration here.  Remember the Microsoft case?

A new paper by Bollinger, Leslie, and Sorenson studies Starbuck’s sales data to assess the effects of New York City’s mandatory calorie posting law.  Here is the abstract:

We study the impact of mandatory calorie posting on consumers’ purchase decisions, using detailed
data from Starbucks. We find that average calories per transaction falls by 6%. The effect is almost
entirely related to changes in consumers’ food choices—there is almost no change in purchases of beverage calories. There is no impact on Starbucks profit on average, and for the subset of stores located close to their competitor Dunkin Donuts, the effect of calorie posting is actually to increase Starbucks revenue. Survey evidence and analysis of commuters suggest the mechanism for the effect is a combination of learning and salience.

And this bit caught my eye:

The competitive effect of calorie posting highlights the distinction between mandatory vs. voluntary posting. It is important to note that our analysis concerns a policy in which all chain restaurants, not just Starbucks, are required to post calorie information on their menus. Voluntary posting by a single chain would result in substantively different outcomes, especially with respect to competitive effects.

A natural response to these laws is that if it were in the interests of consumers, vendors would voluntarily post calorie counts.  But if consumers are truly underestimating calories, then unilateral posting by a single competitor would backfire.  Consumers would be shocked at the high calorie counts at Starbucks and go somewhere else where they assume the counts are lower.

We tend to think of intellectual property law as targeted mostly at big ideas with big market value.  But for every big idea there are zillions of little ideas whose value adds up to more.  Little ideas are little because they are either self-contained and make marginal contributions or they are small steppingstones, to be combined with other little ideas, which eventually are worth a lot.

It’s now cheap to spread little ideas.  Whereas before even very small communication costs made most of them prohibitively expensive to share.  In some cases this is good, but in some cases it can be bad.

When it comes to the nuts and bolts kinds of ideas, like say how to use perl to collect data on the most popular twitter clients, ease of dissemination is good and intellectual property is bad.  IP protection would mean that the suppliers of these ideas would withold lots of them in order to profit from the remainder.  Without IP protection there is no economic incentive to keep them to yourself and the infinitessimal cost of sharing them is swamped by even the tiniest pride/warm glow motives.

Now the usual argument in favor of IP protection is that it provides an economic incentive for generating these ideas.  But we are talking about ideas that don’t come from research in the active sense of that word.  They are the byproduct of doing work.  When its cheap to share these ideas, IP protection gets in the way.

The exact same argument applies to many medium-sized ideas as well.  And music.

But there are ideas that are pure ideas.  They have no value whatsoever except as ideas.  For example, a story.  Or basic research.  The value of a pure idea is that it can change minds.  Ideas are most effective at changing minds when they arrive with a splash and generate coordinated attention.  If some semblance of the idea existed in print already, then even a very good elaboration will not make a splash.  “That’s been said/done before.”

Its too easy now to spread 1/nth-baked little ideas.  Before, when communication costs were high it took investment in polishing and marketing to bring the idea to light.  So ideas arrived slowly enough for coordinated attention, and big enough to attract it.  Now, there will soon be no new ideas.

Blogs will interfere with basic research, especially in the social sciences.

When it comes to ideas, here’s one way to think about IP and incentives to innovate.  It’s true that any single individual needs extra incentive to spend his time actively trying to figure something out.  That’s hard and it takes time.  But, given the number of people in the world, 99.999% of the ideas that would be generated by active research would almost certainly just passively occur to at least one individual.

Via The Volokh Conspiracy, I enjoyed this discussion of the NFL instant replay system.  A call made on the field can only be overturned if the replay reveals conclusive evidence that the call was in error.   Legal scholarship has debated the merits of such a system of appeals relative to the alternative of de novo review:  the appelate body considers the case anew and is not bound by the decision below.

If standards of review are essentially a way of allocating decisionmaking authority between trial and appellate courts based on their relative strengths, then it probably makes sense that the former get primary control over factfinding and trial management (i.e., their decisions on those matters are subject only to clear error or abuse of discretion review), while the latter get a fresh crack at purely “legal” issues (i.e., such issues are reviewed de novo). Heightened standards of review apply in areas where trial courts are in the best place to make correct decisions.

These arguments don’t seem to apply to instant replay review.  The replay presumably is a better document of the facts than the realtime view of the referee. But not always.  Perhaps the argument against in favor of deference to the field judge is that it allows the final verdict to depend on the additional evidence from the replay only when the replay angle is better than that of the referee.

That argument works only if we hold constant the judgment of the referee on the field.  The problem is that the deferential system alters his incentives due to the general principle that it is impossible to prove a negative.  For example consider the (reviewable) call of whether a player’s knee was down due to contact from an opposing player.  Instant replay can prove that the knee was down but it cannot prove the negative that the knee was not down.  (There will be some moments when the view is obscured, we cannot be sure that the angle was right, etc.)

Suppose the referee on the field is not sure and thinks that with 50% probability the knee was down.  Consider what happens if he calls the runner down by contact.  Because it is impossible to prove the negative, the call will almost surely not be overturned and so with 100% probability the verdict will be that he was down (even though that is true with only 50% probability.)

Consider instead what happens if the referee does not blow the whistle and allows the play to proceed.  If the call is challenged and the knee was in fact down, then the replay will very likely reveal that.  If not, not.  The final verdict will be highly correlated with the truth.

So the deferential system means that a field referee who wants the right decision made will strictly prefer a non-call when he is unsure.  More generally this means that his threshold for making a definitive call is higher than what it would be in the absence of replay.  This probably could be verified with data.

On the other hand, de novo review means that, conditional on review, the call made on the field has no bearing.  This means that the referee will always make his decision under the assumption that his decision will be the one enforced.  That would ensure he has exactly the right incentives.


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