Markets in everything separating equilibrium edition

Consider the innovative employment policy of the Internet shoe seller Zappos. At the end of a four-week training course, Zappos offers new employees a one-time offer of $3,000 to quit. In part, the company uses the offer as a screening device. If you’re the type who prefers a quick three grand to the opportunity to work at a great company, then Zappos isn’t the place for you.

Here is a proposal to apply the same idea to law school.

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Al Bundy should have worked for Zappos

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A really good example for my game theory class.

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Re law school proposal to discount first year tuition if the student leaves.

1. Law schools which are confident of their teaching abilities, which have easy classes or grant all A's, or which have strong reputations will offer this as an option. No one will take the offer.
2. Law schools which have poor reputations, are tough but not excellent or don't coddle students, or whose students do not place well will not offer this option.

Unless you can force both types to offer the option, one will and one will not. Moreover, you might have unwelcome changes in behaviour. A good school might change its grading or alter its teaching to make it easier for students, so you might end up with worse results in terms of academic performance or output.

Another unitended result would be that the schools would make the first year easy and really make the last two years hard to screen out poor performers who could affect the schools reputation.

I don't think so. Law firms hire law students almost solely based on first year grades (for their second summer, which turns into full time jobs for most). If law schools start making it so grades blur all the students together, law firms will probably hire more from schools where grades do distinguish between students so they can be sure they are getting students who can handle the tough 1L curriculum. That's the reason only the top three law schools plus berkeley have switched to the Honors/Pass/Low Pass grading system, and even then that system still gives students gpa equivalents that can be used to compare them against each other. Only Yale provides a true pass/fail system, but I think that only applies to first semester of the first year.

As I lawyer that has hired law students, we do not hire on the basis of first year grades; we'll look at law review, which will be based on first year grades and the first semester of the second year; and ask for writing samples, and, while it's true that most of the grades that are looked at for summer internship are the first year and a half, you'd better not slack off. Grades matter as well as class rank.

The second point you make--that some schools that have strong admission requirements and reputations--have switched to pass fail or less comparative grading--actually supports the first point I made: that schools with strong reputations could make the discount offer. But, those with weaker reputations would grant more A's or make classes easier to retain students and not make them as anxious as they would otherwise be. They would all be above average, at least in their own mind.

You do make a good point though about first year, but I think the schools would respond by satisfying the student's anxiety by giving them better grades and a belief that the rest will be easy, so why not stick it out. Today, it is the opposite.

go, You might want to note that Ian Ayres is a prof at Yale, so his proposal, if lesser schools were to follow, would cost his competitors more than it would cost Yale.

Interesting how if you change the nature of competition you can alter your competitors payoffs.

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I don't know where you get the grades from the first year and a half idea from. OCI for the big firms takes place before or during first semester of the second year, and job offers are given and accepted before the completion of first semester. Law Review helps a little bit, but the number one biggest determinant is first year grades. And only one of the top 25 firms even asked for a writing sample.

And again, I don't think weaker schools could grant more As or make classes easier because I think they would hurt their students in the job market by doing so, which would also hurt those schools' rankings

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Nor do we hire only from summer interns.

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goblue, you do have a valid point on one item: class ranking matters more for some schools than for others. We tend to hire the top 10-15%, but go higher for some schools. We also tend to hire not only based on law school rankings if the candidate has an MBA or STEM degree (for IP), and also hire judicial law clerks and laterals.

As for Ayres proposal, what matters is if the student continues past the first year, not year 2 or 3, so making it easier the first year still is valid. You have a valid point that if they all bunch up, there is less of a way to distinguish for those hired for second year summer intern positions.

You have many valid points.

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goblue is making a couple of incorrect assumptions that many first year law students make, especially those at high ranked schools (as Michigan is) - 1) that the majority of hiring is by big firms; 2) that what is true for big firms is true of other firms.

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What is the total that Zappos had to pay out?
How's business?

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Do most applicants know this before applying and how does that affect the demand for applicants?

Yes, what prevents a stampede of applicants looking at them as a cash cow.

The 4 week training course. Although $750/week isn't bad for someone unemployed.

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I'm assuming the training is paid, or isn't it? The incentive to not take the money is strong, since future employers may frown upon the fact that you took the money and ran.

And yet 2-3% do take the money anyway. I think this is an excellent idea and it is money well spent from Zappos.

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I'd be willing to contribute to a fund that paid new law graduates on the condition that they never practiced law anywhere, ever.

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Assuming the training period is a full-time 40-hour workweek, that works out to $18.75/hour, on top of whatever regular hourly wage they're getting while training. Sounds like a great opportunity for students on break.

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Law schools will ultimately pass this rebate cost onto the remaining law students. Might be better structured as paying half-tuition in year 1 and then one-and-a-half-tuition in year 2 or year 3.

Law schools are cash cows for universities, paying back excessive tuition (compared to likely earning potential) to fund sports, liberal arts, building initiatives, etc. But law students pay for law school for social reasons unrelated to economic value of a law degree, so they continue to pay $70k times three years (tuition plus cost of living) for law degrees that for the majority of them will likely yield jobs starting at $60k.

"so they continue to pay $70k times three years (tuition plus cost of living)"

The cost of living seems irrelevant. It's not like the students have a choice not to pay 'cost of living' if they don't go to school. Effectively, it's the net tuition cost + the cost of missed pay (opportunity lost) that matters. The 'cost of living' is completely irrelevant to the equation.

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I recall some years ago The Economist proposed a lump-sum payment of about $250,000 to any law school admission (or perhaps graduate?) who chose not to pursue the legal profession. The payout was based on the estimated cost to society of each additional practicing lawyer.

No doubt the proposed payment would be higher today.

Hmm, couldn't society hire hitmen at a much lower rate than that. 'Never ask for a bribe that's higher than the cost of killing you', etc.

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Well, an unintended (?) consequence of this is that you will filter out most poor students. They have much stronger incentive to take the money up front.

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A lump sum of $1M to any congressman in his/her 3rd or subsequent term (1st for senators) who agreed to retire would save money in the long run. Perhaps even in the short run.

It's not that the replacements will be more honest; I am not that silly. But true greatness in corruption takes time and experience.

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Mo Ibrahim Prize, anyone?

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