Smuggling Cubans

by on December 18, 2014 at 7:30 am in Economics, Law, Sports | Permalink

This post isn’t about smuggling Cuban cigars it’s an incredible story about smuggling Cuban baseball players.

The average wage in Cuba is about $20 per month so a typical Cuban might earn 50 times more in the United States but a star Cuban baseball player (who also earns about $20 per month in Cuba) might earn 10,000 times more in the United States. Markets abhor a price differential so there is an active market in smuggled Cubans.

Yasiel Puig, now a star player for the Los Angeles Dodgers, was smuggled out of Cuba in 2012. The smuggling operation was paid for by a group of Miami businessmen:

Investigators and court documents say Suarez was one of the Miami-based financiers of the 2012 smuggling venture in which Puig was taken by boat from Cuba to a fishing village near Cancun, Mexico, eventually crossing into the U.S. at Brownsville, Texas, on July 3 of that year. In return, the financiers were getting a percentage of the seven-year, $42 million contract Puig signed with the Dodgers.

The story is not unique

The plea is the second in Miami federal court this year involving the smuggling of a Cuban baseball player into the U.S. Last month, 41-year-old Eliezer Lazo was sentenced to 14 years in federal prison for conspiring to smuggle 1,000 Cubans, including baseball players such as Texas Rangers outfielder Leonys Martin.

Puig did in fact pay Suarez $2.5 million. A high price for a relatively simple operation–the going rate to smuggle an ordinary Cuban is about $10,000–but, as we will see, more than smuggling was involved. It took five attempts before Puig reached the shores of Mexico. On one of the earlier attempts Puig was captured by the US Coast guard who sent him back–after some of the crew asked for his autograph!

On the fifth attempt, Puig, along with “a boxer, a pinup girl, and a Santeria priest, the latter of whom blessed their expedition with a splash of rum and a sprinkle of chicken blood” managed to escape Cuba guided by the smugglers and their accomplices—“The Chinaman” and “The Hungarian”. Once in Mexico, however, the operation got messy because Mexico’s Zetas gang were acting as intermediaries and with Puig in hand they demanded a greater share of the proceeds.

“If they didn’t receive the money, they were saying that at any moment they might give him a machetazo”—a whack with a machete—“chop off an arm, a finger, whatever, and he would never play baseball again, not for anyone.” 

The case has lots of interesting asides: Why flee to Mexico first and only then to the United States? It’s all about the money and the weird rules of MLB:

A foreign-born player who immigrates without a contract is treated as an amateur by MLB; he can negotiate only with the team that drafts him. By declaring himself a free agent before arriving, that player can entertain all comers; the difference is worth millions. Federal law, of course, bars Americans from paying money to Cubans—or “trading with the enemy”—so a ballplayer like Puig needs not only to defect but also to establish legal residency in a country that he does not actually intend to live in.

Now back to the Zetas and the hostage negotiations.

As the standoff entered its third week, the smugglers began looking elsewhere to recoup their costs. The idea occurred to them that they could auction Puig off.

Eventually a rescue operation was staged by the Miami businessmen (details are unclear) and Puig escapes to Mexico City where in essence an auction is held in which the Dodgers win with a bid of $42 million over seven years. 

Puig, however, continued to be threatened by the Zetas, hence, it seems, the aforementioned $2.5 million dollar payment to the Miami businessman who in turn paid off the Zetas (a murder also appears to be related).

As if all of this isn’t astounding enough these details have come to light only because of a US civil case against Puig. Puig had been approached a few years earlier when he was just 19 by another would be smuggler. Fearing the state police who monitored him constantly, Puig alerted the sports ministry to the offer and they notified state security. The alleged smuggler was arrested by the Cuban police, jailed, and perhaps tortured. Now here is where it gets really strange. The alleged smuggler, still in jail in Cuba, and his mother are suing Puig in American court for $12 million dollars for turning the smuggler over to the Cuban authorities and thus potentially violating the Torture Victim Protection Act.

There are many lessons here about open(ing) borders, rent seeking, the law, and how making some trades illegal creates black markets often ruled by violence. Thankfully an opening of relations with Cuba may cause this market to wither away. Next up, college athletes.

I received this email:

A colleague forwarded your post this morning, and there is an easy reply to your concerns.

Nothing in our analysis implicates academic freedom in the least, and the paper addresses this point directly in the text at page 12:

“The Harvard Proposal’s incomplete and categorical analysis of the academic literature could be published in any academic journal without raising any risk of violating the federal securities laws. But when scholars avail themselves of SEC regulations to force issuers to place statements describing academic research in the corporation’s proxy materials, the scholars voluntarily subject themselves to standards of legal liability that do not apply in other venues. There is no “professor exemption” from the requirement that a proxy proposal not be materially false or misleading.”

Thus, the salient point is that the proposal appears in the proxy only because the Harvard SRP voluntarily decides to avail itself of an SEC rule that forces the company to put the statement on the company’s proxy. In order to benefit from this rule, the proponent has to agree to abide by SEC rules that prohibit proposals from making statements that suffer from material omissions. The Harvard SRP can write or say whatever it wants without any of the concerns raised in the paper, provided that those statements don’t appear in Rule 14a-8 proposals. But, once the statements are submitted as a Rule 14a-8 proposal, they have to abide by the same rules as any other 14a-8 proposal.

The article’s analysis therefore suggests no constraint on academic freedom. We academics can write and say what we want without any concern regarding any of these SEC rules, provided we are not submitting shareholder proposal. And, for what it’s worth, to the best of my knowledge, the Harvard SRP is the only university-run program that engages in Rule 14a-8 campaigns, and no research by any Harvard scholar is at all affected by our article’s analysis, other than the materials that appear within the four corners of the shareholder proposals voluntarily submitted by the SRP.

Indeed, as an academic who benefits from academic freedom, I too would be concerned about any suggestion that our analysis has any effect on academic freedom whatsoever. It doesn’t.

Hope that’s responsive to your concerns.

Here is the home page of Joseph A. Grundfest.  Here is his Wikipedia page.

Just this week, Commissioner Daniel M. Gallagher and former Commissioner Joseph A. Grundfest issued a draft of a paper that takes on the Harvard Shareholder Rights Project.  The Harvard SRP describes itself as “a clinical program operating at Harvard Law School and directed by Professor Lucian Bebchuk.”  From 2012 through 2014, the Harvard SRP focused on proposing precatory shareholder resolutions under Rule 14a-8 seeking the elimination of staggered boards.  It claims that 121 companies receiving these proposals “have agreed to move toward annual elections following the submission of board declassification proposals for 2012, 2013 and/or 2014 meetings.”

The Commissioners take issue with the Harvard SRP’s reliance on academic research finding that staggered boards are inimical to shareholder interests.  They note that the Harvard SRP omits the larger body of academic research that contradicts the research relied upon by the Harvard SRP.  They claim not to take sides in the debate over the merits of board classification, but they do conclude:

  • The Harvard SRP proposal could be described as materially false and misleading because it omits the contradictory research…

There is more to the story, but that is already enough to make me nervous.  Here is Matt Levine on the same:

Here is an utterly loony paper by Securities Exchange Commissioner Daniel Gallagher and former SEC commissioner Joseph Grundfest arguing that Harvard is violating the securities laws in its Shareholder Rights Project. That project, run by Harvard professor Lucian Bebchuk, submits shareholder proposals to public companies asking them to de-stagger their boards, so that all directors are elected every year instead of electing one-third of directors a year to three-year terms. Staggered boards make activism hard and hostile takeovers nearly impossible, and so are often viewed as shareholder-unfriendly. There is some empirical evidence that they are in fact bad for shareholders. There is other empirical evidence that they are good for shareholders. There is yet other empirical evidence that they are sometimes good and sometimes bad. (This is how empirical corporate governance research always works out, by the way.) Harvard, in advocating against staggered boards, cites the research that supports its side, and doesn’t cite the research that supports the other side. Gallagher and Grundfest argue that this could be “a material omission that violates” the proxy rules. Umm? It is not exactly news that some people think staggered boards are good and others think they are bad, and that the ones who think they are bad will, you know, say that they’re bad. It would be hard to argue that Bebchuk et al. don’t believe that their arguments are true.

“If the SEC took the more draconian step of suing Harvard, the agency would be ‘in my opinion, very likely to prevail,’ Mr. Grundfest said in an interview,” though, I mean, it won’t? The purpose of this paper is to make life a bit easier for companies that are targeted by the Harvard Shareholder Rights Project. First, it will probably drive Harvard to soften the language of its proposal a bit. Second, and more importantly, it will give companies that oppose de-classification a very authoritative-sounding source of empirical data for their position (“Look, the SEC says staggered boards are good!”). And third, it may allow companies to exclude the Harvard proposal from their proxies entirely, by arguing to the SEC that it is false and misleading.

…the swaps push-out rule — section 716 of Dodd-Frank, which would require banks to book their derivatives in subsidiaries that are not their insured depository institutions — may be killed as part of the new deal to fund the government. Or here is Mike Konczal arguing to preserve the rule. You don’t need me to tell you how terrible the politics (all politics) are — Why do financial regulation in an unrelated spending bill? Why rewrite financial regulation based on a draft by Citigroup lobbyists? — but let’s spend a minute on why it’s not worth caring about.

First: The rule doesn’t apply to most derivatives. Federal Deposit Insurance Corporation Vice Chairman Tom Hoenig:

“In fact, under 716, most derivatives — almost 95% — would not be pushed out of the bank. That is because interest rate swaps, foreign exchange and cleared credit derivatives can remain within the bank. In addition, derivatives that are used for hedging can remain in the bank. The main items that must be pushed out under 716 are uncleared credit default swaps (CDS), equity derivatives and commodities derivatives. These are, in relative terms, much smaller and where the greater risks and capital subsidy is most useful to these banking firms.”

[This is now Levine again.]  I have my biases, but I have a hard time believing equity derivatives will bring down a bank. Uncleared CDS, I’ll grant you, has a rough track record, though the market is slowly moving away from it in general. But the big derivatives risks, by notional, were going to be allowed to remain in the depository banks anyway. “Oh but no one could be blown up on interest rate swaps,” you say, as the Fed discusses the timing of rate increases.

Second: Pushing out derivatives into non-insured subsidiaries doesn’t make them go away. Defenders of the rule cite the example of AIG, which foundered on uncleared CDS and brought down the financial system. AIG: not an insured bank! Neither was Lehman! The people arguing for the swaps push-out rules are not people who, in other contexts, would say that only insured depository banks get any government support. They’d say that “too big to fail” banks (you know: derivatives dealers) pose risks to the financial system even in their non-bank subsidiaries, risks that lead to an implicit expectation of government support beyond the explicit FDIC insurance. Here, they are right. If JPMorgan blows itself up trading CDS, that will be a problem for everyone, whether it happens in the insured bank or some uninsured subsidiary. The rule won’t stop that. The rule is (was?) fine, but it’s not worth getting upset about. This is all theater.

The link is here.

Large numbers of doctors who are listed as serving Medicaid patients are not available to treat them, federal investigators said in a new report.

“Half of providers could not offer appointments to enrollees,” the investigators said in the report, which will be issued on Tuesday.

Many of the doctors were not accepting new Medicaid patients or could not be found at their last known addresses, according to the report from the inspector general of the Department of Health and Human Services. The study raises questions about access to care for people gaining Medicaid coverage under the Affordable Care Act.

That is from Robert Pear, there is more here.  And about one-quarter of actual providers had wait times of over a month.  Once again, it is the supply-side problems in American medicine which are paramount.

The mainland – which has long been criticised by international human rights groups for using organs harvested from executed prisoners as its main source of organ transplants – will completely ban the practice from next year.

All organs used in future transplants must be from donors, the Southern Metropolis News quoted Dr Huang Jiefu as saying. Huang is former deputy director of the health ministry and director of the China Organ Donation and Transplant Committee.

Major transplant centres had already stopped using executed prisoners’ organs, said Huang, who chaired an industry forum in Kunming on Wednesday.

There is more here, via Mark Thorson.  The article notes China has one of the lowest voluntary organ donation rates in the world.  0.6 individuals out of a million sign up to donate their organs after they die, and that means the number of actual donors is lower yet.  If you google around, you will find some ambiguity as to whether the donation rate or the “register to donate rate” is that low, but as far as I can tell (try this Chinese source) it is the actual register to donate rate, in part because they just aren’t many ways to register right now.  Please let us know if you have additional information on this point.

Wikipedia by the way reports:

The wait times for organ transplants for organ recipients in China are much lower than elsewhere in the world, and there is evidence that the execution of prisoners for their organs is “timed for the convenience of the waiting recipient.

Here are some of Alex’s earlier posts on a market for transplanted organs.

Callisto, an online sexual assault reporting system under development by a nonprofit called Sexual Health Innovations, aims to change this and provide better options for victims of sexual assault on college campuses.

The project builds on the idea of “information escrows” proposed by Ian Ayres and Cait Unkovic in a 2012 Michigan Law Review article. Mr. Ayres, an economist at Yale’s law school, and Ms. Unkovic, a graduate student at the University of California-Berkeley, suggest that reporting of misbehavior that is difficult or costly for victims to disclose might be increased if people had the option to report that information to a third party who would make the disclosure only if others also reported misconduct by the same individual.

There is more here, from Brendan Nyhan.

I enjoyed this LRB piece, here is one excerpt:

All Jerusalemites pay taxes, but the proportion of the municipal budget allocated to the roughly 300,000 Palestinian residents of a city with a population of 815,000 doesn’t exceed 10 per cent. Service provision is grossly unequal. In the East, there are five benefit offices compared to the West’s 18; four health centres for mothers and babies compared to the West’s 25; and 11 mail carriers compared to the West’s 133. Roads are mostly in disrepair and often too narrow to accommodate garbage trucks, forcing Palestinians to burn rubbish outside their homes. A shortage of sewage pipes means that Palestinian residents have to use septic tanks which often overflow. Students are stuffed into overcrowded schools or converted apartments; 2200 additional classrooms are needed. More than three-quarters of the city’s Palestinians live below the poverty line.

Since 1967 no new Palestinian neighbourhoods have been established in the city, while Jewish settlements surrounding existing Palestinian areas have mushroomed. Restrictive zoning prevents Palestinians from building legally. Israel has designated 52 per cent of land in East Jerusalem as unavailable for development and 35 per cent for Jewish settlements, leaving the Palestinian population with only 13 per cent, most of which is already built on. Those with growing families are forced to choose between building illegally and leaving the city. Roughly a third of them decide to build, meaning that 93,000 residents are under constant threat of their homes being demolished.

And this:

The crucial difference between the mid-1980s and today is that Palestinian civil society is now much weaker, and so, too, is the likelihood of coherent political organisation of the kind that emerged soon after the First Intifada began. The groups that then channelled political activity have been supplanted, either by the institutions of a technocratic PA whose existence is premised on close co-operation with Israel, or by NGOs whose foreign funders make assistance conditional on the pursuit of apolitical development projects or vague peace-building strategies that explicitly rule out non-violent confrontation with Israel and any initiative likely to drive up the costs of military occupation. Palestinian society is afflicted with dependency, and it is dependent on forces that wish to preserve the status quo.

It is interesting (and controversial) throughout.

Is SMS a form of net non-neutrality?

by on November 30, 2014 at 4:58 pm in Economics, Law, Web/Tech | Permalink

People have wondered how an Internet without net neutrality would work. Net neutrality is more than just a debate, it’s not a hypothetical, and it’s real and alive today with SMS.

It is currently hypothetical that on an Internet without net neutrality, companies would need to “pay to play” and live by arbitrary, ISP-devised rules for accessing consumers who want and pay for their services. This is the so-called “fast lane.” While ISPs argue this is about network utilization and bandwidth costs, businesses worry that it’s far beyond that.

At stake is access to consumers, and ISPs monetizing their subscriber bases instead of providing the open pipe consumers pay for. While some companies think it’s just a problem for Netflix or other high-bandwidth applications like streaming video, it’s not. The very real potential is that if you don’t have the right relationships, abide by arbitrary rules or pay appropriately, your company doesn’t get slow access – it gets no access. We know because this is how SMS in the U.S. works today.

That is from Jeff Lawson, there is more here.  Here is Steven Pearlstein’s column on net neutrality.

“Corinthian Colleges, accused of exploiting students, finds a buyer for half its schools.  The unlikely savior?  A student loan debt collection company.”

Note that quotation is in the print edition but I don’t see it on-line.

Is this information about the work week good news or bad news?

But in reality, France’s 35-hour week has become largely symbolic, as employees across the country pull longer hours and work more intensely, with productivity per hour about 13 percent higher than the eurozone average. And a welter of loopholes lets many French employers outmaneuver the law.

All told, French workers put in an average of 39.5 hours a week, just under the eurozone average of 40.9 hours a week, according to the Organization for Economic Cooperation and Development.

That is from Liz Alderman.

The most contentious may be one put forward by a group called Ecopop, which would limit immigration to 0.2 per cent of the resident population. That has alarmed businesses, who worry it would make it harder to hire skilled staff and sour relations with the EU, which is Switzerland’s largest export market.

Another initiative would force the central bank to hold 20 per cent of its assets in gold, as well as ban it from selling any of its holdings of the metal. Gold bug supporters say it would strengthen Switzerland’s independence but the central bank has warned it will make harder its job of ensuring economic stability.

And the third would scrap the system of tax privileges for wealthy foreigners that prompted such people as Michael Schumacher, German Formula 1 racing driver, and Ingvar Kamprad, Swedish Ikea founder, to call Switzerland home.

The full FT story is here.  I am hoping they all fail, although the social scientist in me is curious about #2.

The Bloomberg editorial staff says no:

Videos often lack critical context, and studies have repeatedly shown that jurors can be misled by variables such as a film’s angle or focus, which can unduly sway perceptions of guilt. That cuts both ways: Footage of a protester bumping into a cop, devoid of context, could make life much easier on a prosecutor.

Police cameras are also prone to intentional abuse. With mysterious frequency, they seem to accidentally get switched off or malfunction at critical moments. One obvious remedy is to require that cops always keep them on. But that can be counterproductive. Witnesses and victims may be less forthcoming on camera. Attracting competent officers could become harder if their every interaction is recorded. Crucially, officers may simply avoid engaging certain communities, or avoid areas where confrontations are likely, if they know they’re being filmed.

Finally, equipping police with cameras and audio recorders means that they’re constantly conducting surveillance on innocent civilians — and potentially storing it all. Police frequently enter private homes and encounter people in medical emergencies who may not want to be filmed. Some officers may be tempted to record people on the basis of race or religion. And some departments have asserted that the public has no right to see such footage.

In short, a policy intended to empower the public and monitor the police could have precisely the opposite effect.

There is more here, food for thought of course.  Via Adam Minter.

The economics of rape

by on November 25, 2014 at 2:53 am in Economics, Law, Uncategorized | Permalink

There are some interesting and under-reported papers on this topic, here is one of them, by Jordan D. Matsudaira and Emily Greene Owens, here is the abstract:

In 2006, approximately 49% of violent crimes were not reported to police. Being the victim of sexual assault is expensive; each incident imposes an external cost of over $100k on the victim. However, recent estimates of the total social cost are an order of magnitude larger suggesting that from a social welfare standpoint rape is likely to be underreported if the victim’s demand for reporting is price elastic. In spite of the centrality of victim reporting in the functioning of the criminal justice system, to date there is very little systematic evidence on what governments can do to encourage victims to report crimes. We estimate the sensitivity of victims to the cost of reporting in an Alaskan city between 1993 and 2006, during which time a chief of police publicly supported a policy of charging victims of sexual assault for medical procedures required to collect evidence against their attackers. Using a triple differences approach that compares trends in reported sexual assaults to other index crimes over time and across Alaskan cities, we estimate that this shift in cost of approximately $1,200 from the city government to victims reduced the number of reported rapes by between 50 and 80%. This large response highlights the importance of public policies which reduce the private cost of reporting crime.

The full paper is here.  Here is a paper by Paul Zimmerman and Bruce Benson on the economics of alcohol and rape, the published version is here.  Here is W. David Allen on the under-reporting of rape.  Here is a paper on rape as an economic crime.  This Scott Cunningham paper covers the connection between prostitution and rape.  This study shows that porn does not seem to lead to rape.  That said, if you enter “economics rape” into, many of the top entries are about the crop.  My Google searches for “political economy of rape” do not turn up much useful, although that ought to be a very important topic.

David E. Kalist and Daniel Y. Lee report:

This article investigates the effects of National Football League (NFL) games on crime. Using a panel data set that includes daily crime incidences in eight large cities with NFL teams, we examine how various measurements of criminal activities change on game day compared with nongame days. Our findings from both ordinary least squares and negative binomial regressions indicate that NFL home games are associated with a 2.6% increase in total crimes, while financially motivated crimes such as larceny and motor vehicle theft increase by 4.1% and 6.7%, respectively, on game days. However, we observe that play-off games are associated with a decrease in financially motivated crimes. The effects of game time (afternoon vs. evening) and upset wins and losses on crime are also considered.

Is it that a game works up everyone’s excitement, but the playoff games the criminals actually watch?  That is via the excellent Kevin Lewis.