Category: Law
The Impact of Divorce Laws on the Equilibrium in the Marriage Market
Does easier divorce affect who marries whom? I exploit time variation in the adoption of unilateral divorce across the United States and show that it increases assortative matching among newlyweds. To unravel the underlying mechanisms, I estimate a novel life-cycle equilibrium model of marriage, labor supply, consumption, and divorce under the baseline mutual consent divorce regime. By solving the model under unilateral divorce, I find that, consistent with the data, assortative matching increases. Effects are largely due to changes in choices when risk sharing and cooperation within marriage decrease, which highlights the importance of considering equilibrium effects when evaluating family policies.
That is from a new JPE piece by Ana Reynoso.
MR Podcast: Insurance!
In our new Marginal Revolution Podcast Tyler and I talk insurance, the history of insurance, the economics of insurance, the prospects for new types of insurance and more. Did you know that life insurance was once considered repugnant and was often illegal?
Tyler and I were both surprised how little good work there is on insurance. Here’s Tyler:
[Y]ou look at microeconomic theory. You feel all insurance should be a simple thing. There is risk aversion. You buy the contract. You look at the actual history. It’s very hard to make sense of it. The more I learned, I found the more questions I had. I didn’t fall into some, oh, now I understand what was happening kind of pattern. And the second is simply, I had been underrating Charles Ives. He was more than a great composer. Those are my takeaways.
Here’s one more bit:
COWEN: I want to get to the big, big question about insurance and see what you think. This is my worry. My worry is the agency problems behind insurance never have been solved.
….TABARROK: It is a peculiar market in the sense that all of your revenues come early.
COWEN: That’s right.
TABARROK: You’re selling all of this insurance, and everything is great because all of the money is coming in and your costs don’t come until much, much later. Your customers need to be convinced that you’re going to be around for a long time and are going to fulfill these implicit debts. Which is one reason insurance companies like to have big buildings with giant columns, like banks, to make them look solid. How do we guarantee that? I absolutely agree that’s a huge problem. I hate to say, but, there is a lot of insurance regulation which is precisely meant to deal with this problem.
COWEN: At the state level, you can choose the state. There’s reinsurance through Bermuda or other locales….[But] the problem is not just the company, it’s the person buying the insurance. You could have an insurance company. They advertise, we hold only T-bills and you know they’re safe. People don’t want that. It’s not what I would want. I want the riskier life insurance to get a higher return on the package.
The fact that it’s not for me, makes it really easy to spend for something that promises higher return. They don’t pay it all off, or oh, whatever, but I’ll be dead then, and you don’t think that explicitly. But your ability to monitor the true safety is maybe fairly weak. Maybe it’s efficient to have a bunch of these not pay off, and you get the higher yields on average. You don’t want full safety in most spheres of human existence. The real risk is that you die, right?
TABARROK: If anything, the insurance markets have becoming safer over time because as they get larger, law of large numbers does mean that the risk falls.
COWEN: Assets are more and more correlated over time, I would say.
TABARROK: Well, so we have reinsurance…
COWEN: It’s not that everyone’s going to die at once. The problem is the assets all go crazy at the same time. The world’s more globalized, the gains in the S&P 500 have been concentrated in seven or eight stocks lately. There’s a lot of worrying signs on the asset side, this higher correlation and the law of large numbers is working against you. Fewer publicly traded companies. A place like China is not really somewhere you’re going to be investing in. Maybe you would have thought that 15 years ago. It seems to me going in the wrong direction.
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How to make DOGE work
That is the topic of my latest Bloomberg column, here is one excerpt:
Another priority should be to deregulate medical trials. America is now in a golden age of medical discovery, with mRNA vaccines, anti-malaria vaccines, GLP-1 weight loss drugs and new treatments against cancer all showing great promise. AI may bring about still more advances.
Unfortunately, the US system of clinical trials remains a major obstacle to turning all this science into medicine. There are regulations concerning hospital protocols, the design of the trials, FDA requirements, the procedures of universities and institutional review boards, and the handling of data, among other barriers. America can have better and speedier approval procedures without lowering its standards.
Of all the tasks I’ve outlined, this is by far the most difficult, because it involves changes in so many different kinds of institutions. Yet it has one of the highest possible payoffs, because more treatments might be developed and made available if the clinical trial process weren’t so onerous. Reforming clinical trials should also appeal to older Americans, who are especially likely to vote and who think the most about their medical care. The goal should be an America where most people live to 90.
Many Republicans are very excited about DOGE. But its governance structure is undefined and untested. It does not have a natural home or an enduring constituency. It cannot engage in much favor-trading. Its ability to keep Trump’s attention and loyalty may prove limited. And it’s not clear that deregulation is a priority for many voters.
The more I read about DOGE from Vivek and Musk, the more I feel it needs a greater sense of prioritization.
Let’s reform taxation for expats
That is the topic of my latest Bloomberg column. We should tax on the basis of residency, not citizenship. Only Eritrea shares with us the practice of doing the latter. Here is one excerpt:
There is another possible gain, one which may have more appeal to the incoming administration than to economists like me. Trump and his advisers have long worried about the US trade deficit, and there has been talk of taxing foreign direct investment to weaken the dollar and boost US exports. Rather than discourage foreign investment in the US, why not do something more positive — and encourage US investment abroad?
If Americans leave and start new businesses around the world, using previously domestic capital, that too will bring downward pressure on the dollar. Thus could Trumpian ends be achieved by more constructive means. As a bonus, such a plan would not alienate foreign countries, as they tend to view a tax on FDI as a tax on their citizens.
This tax reform also might benefit US exports more directly. Say a US company wants to send an employee abroad to do market research and explore distribution channels for future sales. The US tax system should not turn this into a difficult ordeal.
Encouraging more Americans to work abroad also is a form of foreign aid, as many of them will grow or start businesses, creating jobs and tax revenue for the foreign country. And it is a form of foreign aid that benefits US citizens rather than costing them money. In fact, given the prowess of US business, it may be one of America’s most effective forms of foreign aid.
This one we should just do.
The 1970s Crime Wave
Tyler and I wrap up our series of podcasts on the 1970s with The 1970s Crime Wave. Here’s one bit:
TABARROK: …people think that mass incarceration is a peculiarly American phenomena, or that it came out of nowhere, or was due solely to racism. Michelle Alexander’s, The New Jim Crow, takes his view. In fact, the United States was not a mass incarceration society in the 1960s.
It became one in the 1980s and 1990s due to the crime wave of the 1970s. It was not simply due to racism. It is true Blacks do commit more crimes relative to their population than whites, but Blacks are also overrepresented as victims. The simple fact of the matter is that Black victims of crime, the majority group, demanded more incarceration of Black criminals. In 1973, the NAACP demanded that the government lengthen minimum prison terms for muggers, pushers, and first-degree murders.
The Black newspaper, the Amsterdam News, advocated mandatory life sentences for “the non-addict drug pusher of hard drugs.” The Black columnist, Carl Rowan, wrote that “locking up thugs is not vindictive.” Eric Holder, under Obama, he was the secretary of—
COWEN: Of something.
TABARROK: Yes, of something. He called for stop and frisk. Eric Holder called for stop and frisk. Back then, the criminal justice system was also called racist, but the racism that people were pointing to was that Black criminals were let back on the streets to terrorize Black victims, and that Black criminals were given sentences which were too light. That was the criticism back then. It was Black and white victims together who drove the punishment of criminals. I think this actually tells you about two falsehoods. First, the primary driver of mass imprisonment was not racism. It was violent crime.
Second, this also puts the lie, sometimes you hear from conservatives, to this idea that Black leaders don’t care about Black-on-Black crime. That’s a lie. Many Black leaders have been, and were, and are tough on crime. Now, it’s true, as crime began to fall in the 1990s, many Blacks and whites began to have misgivings about mass incarceration. Crime was a huge problem in the 1970s and 1980s, and it hit the United States like a brick. It seemed to come out of nowhere. You can’t blame people for seeking solutions, even if the solutions come with their own problems.
A lot of amazing stuff in this episode. Here’s our Marginal Revolution Podcast 1970s trilogy
- 1970s Inflation: The Economic Fever That Changed America
- Oil Shocks, Price Controls and War
- The 1970s Crime Wave
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How well does bar exam performance predict subsequent success as a lawyer?
Eh:
How well does bar exam performance predict lawyering effectiveness? Is performance on some components of the bar exam more predictive? The current study, the first of its kind to measure the relationship between bar exam scores and a new lawyer’s effectiveness, evaluates these questions by combining three unique datasets—bar results from the State Bar of Nevada, a survey of recently admitted lawyers, and a survey of supervisors, peers, and judges who were asked to evaluate the effectiveness of recently-admitted lawyers. We find that performance on both the Multistate Bar Examination (MBE) and essay components of the Nevada Bar have little relationship with the assessed lawyering effectiveness of new lawyers, calling into question the usefulness of these tests.
Here is the full article by Jason M. Scott, Stephen N. Goggin, and David Faigman. Via the excellent Kevin Lewis.
A new meta-meta analysis says things I agree with
We combine societal-level institutional measures from 51 countries between 1996 and 2017 with individual decision-making outcome data from 1,126 laboratory experiments in six meta-analyses to evaluate the effects of within-country institutional change on pro-social and Nash behavior. We find that government effectiveness and regulatory freedom positively correlate with pro-social behavior. We find that freedom from each of the following components of regulation; interest rate controls, binding minimum wages, worker dismissal protections, conscription, and administrative requirements; are correlated with prosocial behavior and are inversely correlated with Nash behavior. These results suggest the importance of considering spillover effects in pro-social behavior when designing government policy.
That is from a new NBER working paper by
Tariff sentences to ponder
In a September 2024 report, UBS, an investment banker, predicted both tech hardware and semiconductors to be among the top four sectors that would be hardest hit by a general tariff. Their analysis is spot on. Many of the hardware components that make AI and digital tech possible rely on imported materials not found or manufactured in the United States. Neither arsenic nor gallium arsenide, used to manufacture a range of chip components, have been produced in the United States since 1985. Legally, arsenic derived compounds are a hazardous material, and their manufacture is thus restricted under the Clean Air Act. Cobalt, meanwhile, is produced by only one mine in the U.S. (80 percent of all cobalt is produced in China). While general tariffs carry the well-meaning intent of catalyzing and supporting domestic manufacturing, in many critical instances involving minerals, that isn’t possible, due to existing regulations and limited supply. Many key materials for AI manufacture must be imported, and tariffs on those imports will simply act as a sustained squeeze on the tech sector’s profit margins.
China’s Libertarian Medical City
You’ve likely heard of Prospera, the private city in Honduras established under the ZEDE (Zone for Employment and Economic Development) law, which has drawn global investment for medical innovation. The current Honduran government is trying to break its contracts and evict Prospera from 
Honduras. The libertarian concept of an autonomous medical hub, free to attract top talent, pharmaceuticals, medical devices, ideas, and technology from around the world is, however, gaining traction elsewhere—most notably and perhaps surprisngly in the Boao Hope Lecheng Medical Tourism Pilot Zone in Hainan, China.
Boao Hope City is a special medical zone supported by the local and national governments. Treatments in Boao Hope City do not have to be approved by the Chinese medical authorities as Boao Hope City is following the peer approval model I have long argued for:
Daxue: Medical institutions within the zone can import and use pharmaceuticals and medical devices already available in other countries as clinically urgent items before obtaining approval in China. This allows domestic patients to access innovative treatments without the need to travel abroad…. The medical products to be used in the pilot zone must possess a CE mark, an FDA license, or PMDA approval, which respectively indicate that they have been approved in the European Union, the US, and Japan for their safe and effective use.
Moreover, evidence on the new drugs and devices used within the zone can be used to support approval from the Chinese FDA–this seems to work similar to Bartley Madden’s dual track procedure.
Daxue: Since 2020, the National Medical Products Administration has introduced regulations on real-world evidence (RWE), with the pilot zone being the exclusive RWE pilot in China. This means that clinical data from licensed items used within the zone can be transformed into RWE for registration and approval in China. Consequently, medical institutions in the zone possess added leverage in negotiations with international pharmaceutical and medical device manufacturers seeking to enter the Chinese market.
… This process significantly reduces the time required for approval to just a few months, saving businesses three to five years compared to traditional registration methods. As of March 2024, 30 medical devices and drugs have been through this process, among which 13 have obtained approval for being sold in China.
The zone also uses peer-approval for imports of health food, has eliminated tariffs on imported drugs and devices and waived visa requirements for many medical tourists.
To be sure, it’s difficult to find information about Boao Hope medical zone beyond some news reports and press releases so take everything with a grain of salt. Nevertheless, the free city model is catching on. There are already 29 hospitals in the zone including international hospitals and hundreds of thousands of medical tourists a year. The medical zone is part of a larger free port project.
Prospera is ideally placed for a medical zone for North and South America. The Honduran government should look to China’s Boao Hope Medical Zone to see what Prospera could achieve for Honduras with support instead of oppositon.
Hat tip: MvH.
Where they are headed
The Australian government has pledged to legislate an age limit of 16 years for social media access, with penalties for online platforms that do not comply.
But the Labor government has not spelled out how it expects Facebook, Instagram, TikTok and others to actually enforce that age limit. Anthony Albanese is facing pressure from the Coalition opposition to rush the bill through parliament in the next three weeks, although a federal trial into age assurance technology has not yet commenced.
Albanese and the communications minister, Michelle Rowland, did not rule out the potential for social media users to have their faces subject to biometric scanning, for online platforms to verify users’ ages using a government database, or for all social media users – regardless of age – being subject to age checks, only saying it would be up to tech companies to set their own processes.
Here is the full story. Keep in mind this move, if applied consistently, would eliminate anonymous postings. It also would have to be enforced across a very large number of apps, even for Meta alone. Should everyone’s biometrics be put into what might be China-hackable form? And it means the government — not the parents — is deciding the proper level of social media access for children.
Are the major social media critics for this? Against it? Or are they not so keen to say, one way or the other?
The Amazon nuclear project
Nuclear power plants are designed to withstand a plane crash. We are now getting a live experiment in whether the nuclear sector is built of similar stuff, after federal regulators dropped a bomb on Friday night. In a 2-1 vote, the Federal Energy Regulatory Commission rejected an amended interconnection agreement for the deal that sparked a frenzy for nuclear power stocks earlier this year: Amazon.com’s acquisition of a datacenter co-located with a reactor owned by Talen Energy Corp. Few saw it coming, and the sector dived on Monday morning.
Here is more from Bloomberg, via Nicanor.
How much is a rare bee worth?
Plans by Mark Zuckerberg’s Meta to build an AI data centre in the US that runs on nuclear power were thwarted in part because a rare species of bee was discovered on land earmarked for the project, according to people familiar with the matter.
Zuckerberg had planned to strike a deal with an existing nuclear power plant operator to provide emissions-free electricity for a new data centre supporting his artificial intelligence ambitions.
However, the potential deal faced multiple complications including environmental and regulatory challenges, these people said.
Here is more from the FT.
My Conversation with the excellent Christopher Kirchhoff
Here is the audio, video, and transcript. Here is the intro:
Christopher Kirchhoff is an expert in emerging technology who founded the Pentagon’s Silicon Valley office. He’s led teams for President Obama, the Chairman of the Joint Chiefs of Staff, and CEO of Google. He’s worked in worlds as far apart as weapons development and philanthropy. His pioneering efforts to link Silicon Valley technology and startups to Washington has made him responsible for $70 billion in technology acquisition by the Department of Defense. He’s penned many landmark reports, and he is the author of Unit X: How the Pentagon and Silicon Valley are Transforming the Future of War.
Tyler and Christopher cover the ascendancy of drone warfare and how it will affect tactics both off and on the battlefield, the sobering prospect of hypersonic weapons and how they will shift the balance of power, EMP attacks, AI as the new arms race (and who’s winning), the completely different technology ecosystem of an iPhone vs. an F-35, why we shouldn’t nationalize AI labs, the problem with security clearances, why the major defense contractors lost their dynamism, how to overcome the “Valley of Death” in defense acquisition, the lack of executive authority in government, how Unit X began, the most effective type of government commission, what he’ll learn next, and more.
Excerpt:
COWEN: Now, I never understand what I read about hypersonic missiles. I see in the media, “China has launched the world’s first nuclear-capable hypersonic, and it goes 10x the speed of sound.” And people are worried. If mutual assured destruction is already in place, what exactly is the nature of the worry? Is it just we don’t have enough response time?
KIRCHHOFF: It’s a number of things, and when you add them up, they really are quite frightening. Hypersonic weapons, because of the way they maneuver, don’t necessarily have to follow a ballistic trajectory. We have very sophisticated space-based systems that can detect the launch of a missile, particularly a nuclear missile, but right then you’re immediately calculating where it’s going to go based on its ballistic trajectory. Well, a hypersonic weapon can steer. It can turn left, it can turn right, it can dive up, it can dive down.
COWEN: But that’s distinct from hypersonic, right?
KIRCHHOFF: Well, ICBMs don’t have the same maneuverability. That’s one factor that makes hypersonic weapons different. Second is just speed. With an ICBM launch, you have 20 to 25 minutes or so. This is why the rule for a presidential nuclear decision conference is, you have to be able to get the president online with his national security advisers in, I think, five or seven minutes. The whole system is timed to defeat adversary threats. The whole continuity-of-government system is upended by the timeline of hypersonic weapons.
Oh, by the way, there’s no way to defend against them, so forget the fact that they’re nuclear capable — if you want to take out an aircraft carrier or a service combatant, or assassinate a world leader, a hypersonic weapon is a fantastic way to do it. Watch them very carefully because more than anything else, they will shift the balance of military power in the next five years.
COWEN: Do you think they shift the power to China in particular, or to larger nations, or nations willing to take big chances? At the conceptual level, what’s the nature of the shift, above and beyond whoever has them?
KIRCHHOFF: Well, right now, they’re incredibly hard to produce. Right now, they’re essentially in a research and development phase. The first nation that figures out how to make titanium just a little bit more heat resistant, to make the guidance systems just a little bit better, and enables manufacturing at scale — not just five or seven weapons that are test-fired every year, but 25 or 50 or 75 or 100 — that really would change the balance of power in a remarkable number of military scenarios.
COWEN: How much China has them now? Are you at liberty to address that? They just have one or two that are not really that useful, or they’re on the verge of having 300?
KIRCHHOFF: What’s in the media and what’s been discussed quite a bit publicly is that China has more successful R&D tests of hypersonic weapons. Hypersonic weapons are very difficult to make fly for long periods. They tend to self-destruct at some point during flight. China has demonstrated a much fuller flight cycle of what looks to be an almost operational weapon.
COWEN: Where is Russia in this space?
KIRCHHOFF: Russia is also trying. Russia is developing a panoply of Dr. Evil weapons. The latest one to emerge in public is this idea of putting a nuclear payload on a satellite that would effectively stop modern life as we know it by ending GPS and satellite communications. That’s really somebody sitting in a Dr. Evil lair, stroking their cat, coming up with ideas that are game-changing. They’ve come up with a number of other weapons that are quite striking — supercavitating torpedoes that could take out an entire aircraft carrier group. Advanced states are now coming up with incredibly potent weapons.
Intelligent and interesting throughout. Again, I am happy to recommend Christopher’s recent book Unit X: How the Pentagon and Silicon Valley are Transforming the Future of War, co-authored with Raj M. Shah.
What do panda rental contracts look like?
Administrators cannot discuss panda illness, death, disease or “any other important matters” without first consulting with their Chinese partners, whose views “shall be fully respected.”
“In cases where release of related information to the outside world or acceptance of media interviews is necessary, it shall be implemented only after communication and consultation between the parties and a consensus is reached,” the contracts read. “And where no consensus is reached, no news shall be released.”
In a statement, the San Diego Zoo said it was common for partners to discuss animal well-being “and come to a mutual understanding before sharing updates publicly.”
Previous contracts did not contain such “information management” restrictions.
Here is more from Mara Hvistendahl at the NYT, interesting throughout.
The protest culture that is Maine
A man used homemade explosives, some of which he dropped from drones, to attack or intimidate in a dispute rooted in local politics in a community in northern Maine, law enforcement officials said. No one was hurt.
Joshua Brydon, 37, of Woodland, appeared in court this week after authorities say he set off explosives near the homes of several people with devices he created from fireworks, propane bottles and other materials, according to court documents. One of the blasts was strong enough to knock items off a wall in a home, and several of the explosives were dropped by drones operated by Brydon, according to documents.
Court records indicate Brydon targeted people who had taken issue with a former member of the Woodland Select Board or with his father-in-law, the town’s road commissioner.
Here is the full story, via Mike Rosenwald.