becker

What is the proper penalty for scientific fraud the culture that is China what would Gary Becker say?

In the past few months, China has announced two new crackdowns on research misconduct — one of which could lead to executions for scientists who doctor their data.

Scientists have been sounding alarms for years about the integrity of research in China. One recent survey estimated that 40 percent of biomedical papers by Chinese scholars were tainted by misconduct. Funding bodies there have in the past announced efforts to crack down on fraud, including clawing back money from scientists who cheat on their grants.

This month, in the wake of a fake peer review scandal that claimed 107 papers by Chinese scholars, the country’s Ministry of Science and Technology proclaimed a “no tolerance” policy for research misconduct — although it’s not clear what that might look like. According to the Financial Times, the ministry said the mass retractions “seriously harmed the international reputation of our country’s scientific research and the dignity of Chinese scientists at large.”

But a prior court decision in the country threatened the equivalent of the nuclear option. In April courts approved a new policy calling for stiff prison sentences for researchers who fabricate data in studies that lead to drug approvals. If the misconduct ends up harming people, then the punishment on the table even includes the death penalty. The move, as Nature explained, groups clinical trial data fraud with counterfeiting so that “if the approved drug causes health problems, it can result in a 10-year prison term or the death penalty, in the case of severe or fatal consequences.”

Here is the story, via the excellent Mark Thorson.

What Was Gary Becker’s Biggest Mistake?

The econometrician Henri Theil once said “models are to be used but not to be believed.” I use the rational actor model for thinking about marginal changes but Gary Becker really believed the model. Once, at a dinner with Becker, I remarked that extreme punishment could lead to so much poverty and hatred that it could create blowback. Becker was having none of it. For every example that I raised of blowback, he responded with a demand for yet more punishment. We got into a heated argument. Jim Buchanan and Bryan Caplan approached from the other end of the table and joined in. BeckerIt was a memorable evening.

Becker isn’t here to defend himself on the particulars of that evening but you can see the idea in his great paper, Crime and Punishment: An Economic Approach. In a famous section he argues that an optimal punishment system would combine a low probability of being punished with a high level of punishment if caught:

If the supply of offenses depended only on pf—offenders were risk neutral — a reduction in p “compensated” by an equal percentage increase in f would leave unchanged pf…

..an increased probability of conviction obviously absorbs public and private resources in the form of more policemen, judges, juries, and so forth. Consequently, a “compensated” reduction in this probability obviously reduces expenditures on combating crime, and, since the expected punishment is unchanged, there is no “obvious” offsetting increase in either the amount of damages or the cost of punishments. The result can easily be continuous political pressure to keep police and other expenditures relatively low and to compensate by meting out strong punishments to those convicted.

We have now tried that experiment and it didn’t work. Beginning in the 1980s we dramatically increased the punishment for crime in the United States but we did so more by increasing sentence length than by increasing the probability of being punished. In theory, this should have reduced crime, reduced the costs of crime control and led to fewer people in prison. In practice, crime rose and then fell mostly for reasons other than imprisonment. Most spectacularly, the experiment with greater punishment led to more spending on crime control and many more people in prison.

Why did the experiment fail? Longer sentences didn’t reduce crime as much as expected because criminals aren’t good at thinking about the future; criminal types have problems forecasting and they have difficulty regulating their emotions and controlling their impulses. In the heat of the moment, the threat of future punishment vanishes from the calculus of decision. Thus, rather than deterring (much) crime, longer sentences simply filled the prisons. As if that weren’t bad enough, by exposing more people to criminal peers and by making it increasingly difficult for felons to reintegrate into civil society, longer sentences increased recidivism.

Instead of thinking about criminals as rational actors, we should think about criminals as children. In this light, consider the “Becker approach” to parenting. Punishing children is costly so to reduce that cost, ignore a child’s bad behavior most of the time but when it’s most convenient give the kid a really good spanking or put them in time out for a very long time. Of course, this approach leads to disaster–indeed, it’s precisely this approach that leads to criminality in later life.

So what is the recommended parenting approach? I don’t want to get into a debate over spanking, timeouts, and reasoning but one thing all recommendations have in common is that the consequences for inappropriate behavior should be be quick, clear, and consistent. Quick responses help not just because children have “high discount rates” (better thought of as difficulty integrating their future selves into a consistent whole but “high discount rates” will do as short hand) but even more importantly because a quick response helps children to understand the relationship between behavior and consequence. Prior to Becker there was Becaaria and in Beccarian theory, people must learn to associate crime with punishment. When responses aren’t quick, children, just like scientists, have difficulty learning cause and effect. Quick is thus one way of lowering cognitive demands and making consequences clear.

Animals can learn via conditioning but people can do much better. If you punish the child who steals cookies you get less cookie stealing but what about donuts or cake? The child who understands the why of punishment can forecast consequences in novel circumstances. Thus, consequences can also be made clear with explanation and reasoning. Finally, consistent punishment, like quick punishment, improves learning and understanding by reducing cognitive load.

Quick, clear and consistent also works in controlling crime. It’s not a coincidence that the same approach works for parenting and crime control because the problems are largely the same. Moreover, in both domains quick, clear and consistent punishment need not be severe.

In the economic theory, crime is in a criminal’s interest. Both conservatives and liberals accepted this premise. Conservatives argued that we needed more punishment to raise the cost so high that crime was no longer in a criminal’s interest. Liberals argued that we needed more jobs to raise the opportunity cost so high that crime was no longer in a criminal’s interest. But is crime always done out of interest? The rational actor model fits burglary, pick-pocketing and insider trading but lots of crime–including vandalism, arson, bar fights and many assaults–aren’t motivated by economic gain and perhaps not by any rational interest.

Here’s a simple test for whether crime is in a person’s rational interest. In the economic theory if you give people more time to think carefully about their actions you will on average get no change in crime (sometimes careful thinking will cause people to do less crime but sometimes it will cause them to do more). In the criminal as poorly-socialized-child theory, in contrast, crime is often not in a person’s interest but instead is a spur of the moment mistake. Thus, even a small opportunity to reflect and consider will result in less crime. As one counselor at a juvenile detention center put it:

20 percent of our residents are criminals, they just need to be locked up. But the other 80 percent, I always tell them – if I could give them back just ten minutes of their lives, most of them wouldn’t be here.

ThinkingProblemsCognitive behavioral therapy teaches people how to act in those 10 minutes–CBT is not quite as simple as teaching people to count to ten before lashing out but it’s similar in spirit, basically teaching people to think before acting and to revise some of their assumptions to be more appropriate to the situation. Randomized controlled trials and meta-studies demonstrate that CBT can dramatically reduce crime.

Cognitive behavioral therapy runs the risk of being labeled a soft, liberal approach but it can also be thought of as remedial parenting which should improve understanding and appreciation among conservatives. More generally, it’s important that crime policy not be forced into a single dimension running from liberal to conservative, soft to tough. Policing and prisons, for example, are often lumped together and placed on this single, soft to tough dimension when in fact the two policies are different. I favor more police on the street to make punishment more quick, clear, and consistent. I would be much happier with more police on the street, however, if that policy was combined with an end to the “war on drugs”, shorter sentences, and an end to brutal post-prison policies that exclude millions of citizens from voting, housing, and jobs.

Let’s give Becker and the rational choice theory its due. When Becker first wrote many criminologists were flat out denying that punishment deterred. As late as 1994, for example, the noted criminologist David Bayley could write:

The police do not prevent crime. This is one of the best kept secrets of modern life. Experts know it, the police know it, but the public does not know it. Yet the police pretend that they are society’s best defense against crime. This is a myth

Inspired by Becker, a large, credible, empirical literature–including my own work on police (and prisons)–has demonstrated that this is no myth, the police deter. Score one for rational choice theory. It’s a far cry, however, from police deter to twenty years in prison deters twice as much as ten years in prison. The rational choice theory was pushed beyond its limits and in so doing not only was punishment pushed too far we also lost sight of alternative policies that could reduce crime without the social disruption and injustice caused by mass incarceration.

Further Gary Becker links

Russ Roberts on Gary Becker.  And Steve Levitt on Gary Becker.  And Heckman’s 181 pp. of notes on Becker (correct link here), many superb photos, large font and lots of space, I had not known Jacob Viner called Becker his best student ever, or how much Solow and Becker were rivals.  And Justin Wolfers on Becker.

All are excellent and fascinating pieces.

Some neglected Gary Becker open access pieces

Summarizing Becker’s contributions is like trying to summarize economics and it is not really possible.  I believe he has the best “30th best” paper of any economist, living or dead.

Here are a few Becker articles which are not even his best known work:

1. “Irrational Behavior and Economic Theory.”  Can the theorems of economics survive the assumption of irrational behavior? (hint: yes)

2. “Altruism, Egoism, and Genetic Fitness: Economics and Sociobiology.”  The title says it all, from 1976.

3. “A Note on Restaurant Pricing and Other Examples of Social Influence on Price.”  Why don’t successful restaurants just raise the prices for Saturday night seatings?

4. “The Quantity and Quality of Life and the Evolution of World Inequality” (with Philipson and Soares).  The causes and importance of converging lifespans.

5. “Competition and Democracy.”  From 1958, but most people still ignore this basic point about why government very often does not improve on market outcomes.

6. “The Challenge of Immigration: A Radical Solution.”  Auction off the right to enter this country.

Tim Harford interviews Gary Becker

Here is the link, Becker joked only once, and Tim reports:

Becker wants a clear head for tennis that afternoon. He is 75 and looks
it, with fine white hair and translucent, heavily lined skin, but he
moves like a younger man. When I arrived at his home to take him up on
his offer of a lift to the restaurant, I could see his silhouette
coming down the stairs at a fair clip. He drives confidently. In the
summer, he moves his work to Cape Cod and often swims in the ocean.
Becker has always loved sport, but that, and his family, seem to be his
only distraction from work. "I don’t like small talk too much, so I
don’t try to get involved in that." It is clear from even a few minutes
conversation that what really motivates Becker is the world of ideas.

Did Gary Becker prove that advertising is informative?

So claims a NYT obituary for John Kenneth GalbraithCrookedTimber and Brad DeLong question whether such models should be called "proofs."  Fair enough, but neither does the obituary correctly represent Becker’s theory of advertising.  As I understand Becker’s work (with Kevin Murphy) on the topic, individuals consume "social images" or "self-images."  Having Nike shoes gives you the "benefits of being cool" if a) you actually have Nikes, and b) the ad links Nikes to a cool image for your relevant peer group.  The standard economic theory of complements then applies for analyzing ads.  Under some conditions, advertising can be a "bad" for consumers, not a "good," and advertisers will pay consumers to watch ads.  Furthermore ads will present images and cultural linkages, rather than substantive information in the traditional sense.  This generates some Galbraithian results, but without requiring that consumers are "tricked" or even "persuaded" into a particular point of view.   This is not a proof; I think of it as an existence theorem that advertising can make corporate sense, and sometimes be socially welfare-improving, yet without being very informative.

Keep in mind that Becker titled his 1998 book Accounting for Tastes, a concession to the Galbraithian way of thinking.

Arrow, Becker, and Levitt on Grokster

How is that for heavyweights?  You can add William Landes, Kevin Murphy, and Steve Shavell — among others — to the list.

Here is their Amicus brief on the Grokster case coming before the Supreme Court.  (Here is a more general list of amicus briefs on the case.)  Their bottom line, however, is general rather than concrete:

They argue that indirect liability often makes economic sense.  If a file-sharing service can distinguish and police illegal files at low cost, that service should not be able to hide behind the 1984 Sony Betamax decision (i.e., the mere existence of non-infringing uses for a technology implies no liability).  Furthermore we should consider whether P2P services offer real benefits above and beyond fully legal alternatives, such as iTunes.  They stress that previous courts have failed to ask these key questions.

I’ve argued similar points myself, but my doubts grow.  I worry we cannot find a standard of indirect liability with clear lines.  Just how easy must it be to monitor illegal behavior and how hard must Grokster try?  Most likely all the variables lie along a relatively smooth continuum.

And who else can be indirectly liable?  File-sharing through iPods, email, blogs, and instant messaging is larger than you think.  36 million Americans admit to having shared files in this manner. 

"All these internet technologies share this common mass-copying capability: e-mail, web servers, web browsers, basic hard drives," said Jason Schultz, an attorney with the Electronic Frontier Foundation, which represents StreamCast Networks. "There’s no principal distinction between (P2P) and other internet technologies in the way it’s designed.

Read more here

Is the question which level of technology can police illegal file sharing and copying most easily?  This might not be Grokster at all, since they have only an indirect link to the downloaded files.  Such a "least cost" approach might result in a monitoring chip put into all hard drives.  Yikes. 

Does Grokster supply any economically useful product that the legitimate services don’t?  Well, how about free files for those who wouldn’t otherwise pay for them?  If we approach the problem in a utilitarian manner, we can’t flinch from this conclusion.

My current best guess is that an economic approach — however correct in general terms — won’t come up with any new solutions we can live with.  We may be stuck with the Sony case after all.

Becker on the FDA

In the latest Milken Institute Review, Nobel laureaute Gary Becker argues (sign up required) that the FDA should permit drugs to be sold once they have passed a safety standard, i.e. a return to the pre-1962 system. He writes:

…a return to a safety standard alone would lower costs and raise the number of therapeutic compounds available. In particular, this would include more drugs from small biotech firms that do not have the deep pockets to invest in extended efficacy trials. And the resulting increase in competition would mean lower prices – without the bureaucratic burden of price controls…

Elimination of the efficacy requirement would give patients, rather than the FDA, the ultimate responsibility of deciding which drugs to try…To be sure, some sick individuals would try ineffective treatments that would otherwise have been prevented from reaching market under present FDA regulations. But the quantity of reliable health information now available with only a little initiative is many times greater than when the efficacy standard was introduced four decades ago.

Dan Klein and I have written extensively on this issue at our web site, FDAReview.org, and in our latest paper Do Off Label Drug Practices Argue Against FDA Efficacy Requirements?

Communism still matters liberty still matters

Those who grew up in East Germany seem to have a harder time cottoning to the realities of capitalism:

We analyze the long-term effects of living under communism and its anticapitalist doctrine on households’ financial investment decisions and attitudes towards financial markets. Utilizing comprehensive German brokerage data and bank data, we show that, decades after Reunification, East Germans still invest significantly less in the stock market than West Germans. Consistent with communist friends-and-foes propaganda, East Germans are more likely to hold stocks of companies from communist countries (China, Russia, Vietnam) and of state-owned companies, and are unlikely to invest in American companies and the financial industry. Effects are stronger for individuals exposed to positive “emotional tagging,” e.g., those living in celebrated showcase cities. Effects reverse for individuals with negative experiences, e.g., environmental pollution, religious oppression, or lack of (Western) TV entertainment. Election years trigger further divergence of East and West Germans. We provide evidence of negative welfare consequences due to less diversified portfolios, higher-fee products, and lower risk-adjusted returns.

That is from a new NBER paper by Christine Laudenbach, Ulrike Malmendier, and Alexandra Niessen-Ruenzi.

But if you are looking for a contrary point of view, consider this new paper by Sascha O. Becker, Lukas Mergele, and Ludger Woessmann:

German separation in 1949 into a communist East and a capitalist West and their reunification in 1990 are commonly described as a natural experiment to study the enduring effects of communism. We show in three steps that the populations in East and West Germany were far from being randomly selected treatment and control groups. First, the later border is already visible in many socio-economic characteristics in pre-World War II data. Second, World War II and the subsequent occupying forces affected East and West differently. Third, a selective fifth of the population fled from East to West Germany before the building of the Wall in 1961. In light of our findings, we propose a more cautious interpretation of the extensive literature on the enduring effects of communist systems on economic outcomes, political preferences, cultural traits, and gender roles

That said, I still believe that communism really matters, and durably so, even if the longer history matters all the more so.  And now there is yet another paper on East Germany and political path dependence, by Luis R. Martinez, Jonas Jessen, and Guo Xu:

This paper studies costly political resistance in a non-democracy. When Nazi Germany surrendered in May 1945, 40% of the designated Soviet occupation zone was initially captured by the western Allied Expeditionary Force. This occupation was short-lived: Soviet forces took over after less than two months and installed an authoritarian regime in what became the German Democratic Republic (GDR). We exploit the idiosyncratic line of contact separating Allied and Soviet troops within the GDR to show that areas briefly under Allied occupation had higher incidence of protests during the only major episode of political unrest in the GDR before its demise in 1989 – the East German Uprising of 1953. These areas also exhibited lower regime support during the last free elections in 1946. We argue that even a “glimpse of freedom” can foster civilian opposition to dictatorship.

I take the core overall lesson to be that the eastern parts of Germany will experience significant problems for some time to come.

And speaking of communist persistence, why is it again that Eastern Europe is doing so well against Covid-19?  Belarus is an extreme case, with hardly any restrictions on activity, and about 14,000 cases and 89 deaths.  You might think that is a cover-up, but the region as a whole has been quite robust and thus it is unlikely to be a complete illusion.  And no, it doesn’t seem to be a BCG effect.

Does communism mean there is less of a culture of consumption and thus people find it easier to just stay at home voluntarily?  Or have all those weird, old paranoid communist pandemic ministries persisted and helped with the planning?  Or what?

Double credit on this one to both Kevin Lewis and Samir Varma, neither less excellent in his conjunction with the other.