Category: Law

Will D.C. taxis mimic Uber with surge pricing?

There is now talk of this:

Washington could become one of the first U.S. cities to allow its cabdrivers to ignore their meters and adjust fares depending on demand.

D.C. Council members Mary M. Cheh (D-Ward 3) and David Grosso (I-At Large) have introduced legislation that would allow the city’s taxi drivers to embrace “surge pricing,” a practice used by popular mobile-dispatched car services such as Uber, in which prices are adjusted in real-time according to demand.

The council members say that the shift, which would apply only to passengers who use their smartphones or tablets to book a ride, will allow traditional cabs to better compete with new app-based ride services that have sprung up in the District and across the country.

The move could benefit riders by allowing them to comparison shop. But surge pricing has its critics, who say the practice can lead to gouging.

There is more here.

IP law for Girl Scouts (sentences to ponder)

As STEM fields become increasingly popular, it is important that we teach young people about the incentives and protections available to them through the patent system. IPO Education Foundation is excited about the opportunity to work with the GSCNC and the USPTO to bring the patent system to girls through the IP patch…

There is more here, via Mark Thorson.

David Brooks on the McCutcheon decision

The Supreme Court just voted to eliminate aggregate contribution limits, here is David’s response:

The McCutcheon decision is a rare win for the parties. It enables party establishments to claw back some of the power that has flowed to donors and “super PACs.” It effectively raises the limits on what party establishments can solicit. It gives party leaders the chance to form joint fund-raising committees they can use to marshal large pools of cash and influence. McCutcheon is a small step back toward a party-centric system.

In their book “Better Parties, Better Government,” Peter J. Wallison and Joel M. Gora propose the best way to reform campaign finance: eliminate the restrictions on political parties to finance the campaigns of their candidates; loosen the limitations on giving to parties; keep the limits on giving to PACs.

Parties are not perfect, Lord knows. But they have broad national outlooks. They foster coalition thinking. They are relatively transparent. They are accountable to voters. They ally with special interests, but they transcend the influence of any one. Strengthened parties will make races more competitive and democracy more legitimate. Strong parties mobilize volunteers and activists and broaden political participation. Unlike super PACs, parties welcome large numbers of people into the political process.

There is more here.  Ray LaRaja makes related points here.

For which political views should a CEO have to resign?

Andrew Sullivan argues Eich should not have been forced to resign from Mozilla for his anti-gay marriage donations, combined with his unwillingness to recant his position.  As a supporter of gay marriage (as of course Sullivan is too), I very much agree.  Like Sullivan, I see such such ideological witch hunts as unjust, counterproductive, and stifling of free discourse.

I see some further economic angles to this dispute.

First, it implies the market share of browsers is fairly arbitrary, and highly subject to potential consumer rebellion.  I can think of other businessmen who have alienated parts of the American public through their political stances, but still their products are bought and there is little talk of deposing them from their leadership roles.  Free products seem especially vulnerable to fluctuations in corporate image, in part because no product has a durable edge on price.  Since more of our economy seems headed in the direction of “free to consumers for direct use,” we might want to start thinking about this tendency a little more carefully and cautiously.  Charging people a positive price liberates you to be less conformist, at least provided you fare well in market competition.

Second, ambitious young people just got more boring.  It wasn’t long ago that opposition to gay marriage was the mainstream position in American society and of course in many places it still is.

Third, let’s say that “recantation” is becoming more important and more potent as a defense mechanism against charges (I’m not sure this is generally true, but it does seem to be true in the Eich case).  That will make people more likely to express their eccentricities in youthful bursts, rather than as a consistent pattern of donations or support over many years.  Consistent support over time is harder to recant, but a single act is easier to write off as a youthful indiscretion.

The Peltzman Effect in Children

David Ball, a professor of risk management at Middlesex University, analyzed U.K. injury statistics and found that as in the U.S., there was no clear trend over time. “The advent of all these special surfaces for playgrounds has contributed very little, if anything at all, to the safety of children,” he told me. Ball has found some evidence that long-bone injuries, which are far more common than head injuries, are actually increasing. The best theory for that is “risk compensation”—kids don’t worry as much about falling on rubber, so they’re not as careful, and end up hurting themselves more often.

From The Overprotected Kid by Hanna Rosin in the Atlantic.

Addendum: More on the Peltzman Effect.

Did Bitcoins just become less fungible?

Adam Levitin writes:

The IRS ruled that Bitcoin and other virtual currencies are property, not currency.  This means that they are subject to capital gains taxation.  And that means that Bitcoins are not fungible.  The price at which a particular Bitcoin was acquired (and this is traceable) determines the capital gains on that particular Bitcoin when spent.  If I spend Bitcoin A, which I bought at $10, but is now worth $400, I’ve got a very different tax treatment than if I spend Bitcoin B, which I bought at $390. (Poor Satoshi–he’s got a lot more capital gains than most…)  This means Bitcoins are not fungible, and that makes it unworkable as a currency.  If I have to figure out which particular Bitcoin in my wallet I want to spend and what the tax treatment will be, Bitcoin just doesn’t work as a commercial medium of exchange.  Bitcoin still works as a speculative medium, but Bitcoin’s claim has always been to being more than the latest iteration of the trading sardines–it aspired to be a commercial medium.  I don’t see that happening now.

The article is here.

Is age-adjusted divorce actually way up?

Kay Hymnowitz reports:

According to new research, far from declining since 1980 as researchers thought, age-adjusted divorce rates have actually risen 40%.

She cites this new paper from Demography, by Sheela Kennedy and Steven Ruggles. The abstract is this:

This article critically evaluates the available data on trends in divorce in the United States. We find that both vital statistics and retrospective survey data on divorce after 1990 underestimate recent marital instability. These flawed data have led some analysts to conclude that divorce has been stable or declining for the past three decades. Using new data from the American Community Survey and controlling for changes in the age composition of the married population, we conclude that there was actually a substantial increase in age-standardized divorce rates between 1990 and 2008. Divorce rates have doubled over the past two decades among persons over age 35. Among the youngest couples, however, divorce rates are stable or declining. If current trends continue, overall age-standardized divorce rates could level off or even decline over the next few decades. We argue that the leveling of divorce among persons born since 1980 probably reflects the increasing selectivity of marriage.

You will find ungated versions here.  I haven’t had a chance to paw through the argument, but it seemed worth passing along.  Hat tip goes to Charles Murray on Twitter.

Metadata Reveals Sensitive, Private Information

The President and other apologists for the NSA have defended the NSA’s illegal mass surveillance of US telephones by arguing that it’s “only” metadata, so “nobody is listening to our telephone calls.” But where, when, how long and to whom customers make phone calls does reveal information that could easily be used to blackmail, stifle and control. A group of computer scientists at Stanford’s Security Laboratory gathered information from volunteers who agreed to have an app on their cell phone mimic what the NSA collects. Here is an initial report.

At the outset of this study, we shared the same hypothesis as our computer science colleagues—we thought phone metadata could be very sensitive. We did not anticipate finding much evidence one way or the other, however, since the MetaPhone participant population is small and participants only provide a few months of phone activity on average.

We were wrong…The degree of sensitivity among contacts took us aback. Participants had calls with Alcoholics Anonymous, gun stores, NARAL Pro-Choice, labor unions, divorce lawyers, sexually transmitted disease clinics, a Canadian import pharmacy, strip clubs, and much more. This was not a hypothetical parade of horribles. These were simple inferences, about real phone users, that could trivially be made on a large scale.

…Though most MetaPhone participants consented to having their identity disclosed, we use pseudonyms in this report to protect participant privacy.

  • Participant A communicated with multiple local neurology groups, a specialty pharmacy, a rare condition management service, and a hotline for a pharmaceutical used solely to treat relapsing multiple sclerosis.
  • Participant B spoke at length with cardiologists at a major medical center, talked briefly with a medical laboratory, received calls from a pharmacy, and placed short calls to a home reporting hotline for a medical device used to monitor cardiac arrhythmia.
  • Participant C made a number of calls to a firearm store that specializes in the AR semiautomatic rifle platform. They also spoke at length with customer service for a firearm manufacturer that produces an AR line.
  • In a span of three weeks, Participant D contacted a home improvement store, locksmiths, a hydroponics dealer, and a head shop.
  • Participant E had a long, early morning call with her sister. Two days later, she placed a series of calls to the local Planned Parenthood location. She placed brief additional calls two weeks later, and made a final call a month after.

We were able to corroborate Participant B’s medical condition and Participant C’s firearm ownership using public information sources. Owing to the sensitivity of these matters, we elected to not contact Participants A, D, or E for confirmation.

In other news, a former president believes that his email is being monitored. He is probably correct. Monitoring presidential candidates is all too realistic.

Fortunately, President Obama has announced that the bulk collection of phone calls will end. Dismantling that illegal program is a start. Obviously, this would not have happened without the revelations of Edward Snowden.

How are the benefits distributed from Medicare Advantage?

There is a new NBER Working Paper by Mark Duggan, Amanda Starc, and Boris Vabson, here is the abstract, with the bold emphasis added by me:

Governments contract with private firms to provide a wide range of services. While a large body of previous work has estimated the effects of that contracting, surprisingly little has investigated how those effects vary with the generosity of the contract. In this paper we examine this issue in the Medicare Advantage (MA) program, through which the federal government contracts with private insurers to coordinate and finance health care for more than 15 million Medicare recipients. To do this, we exploit a substantial policy-induced increase in MA reimbursement in metropolitan areas with a population of 250 thousand or more relative to MSAs just below this threshold. Our results demonstrate that the additional reimbursement leads more private firms to enter this market and to an increase in the share of Medicare recipients enrolled in MA plans. Our findings also reveal that only about one-fifth of the additional reimbursement is passed through to consumers in the form of better coverage. A somewhat larger share accrues to private insurers in the form of higher profits and we find suggestive evidence of a large impact on advertising expenditures. Our results have implications for a key feature of the Affordable Care Act that will reduce reimbursement to MA plans by $156 billion from 2013 to 2022.

There is an ungated version here (pdf).

Will the current Bitcoin rules become obsolete?

One conclusion drawn by Kroll and his Princeton colleagues Ian Davey and Ed Felten is that those rules will have to be significantly changed if Bitcoin is to last. Their models predict that interest in “mining” for bitcoins, by downloading and running the Bitcoin software, will drop off as the number in circulation grows toward the cap of 21 million set by Nakamoto. This would be a problem because computers running the mining software also maintain the ledger of transactions, known as the blockchain, that records and guarantees bitcoin transactions (see “What Bitcoin Is and Why It Matters”).

Miners earn newly minted bitcoins for adding new sections to the blockchain. But the amount awarded for adding a section is periodically halved so that the total number of bitcoins in circulation never exceeds 21 million (the reward last halved in 2012 and is set to do so again in 2016). Transaction fees paid to miners for helping verify transfers are supposed to make up for that loss of income. But fees are currently negligible, and the Princeton analysis predicts that under the existing rules these fees won’t become significant enough to make mining worth doing in the absence of freshly minted bitcoins.

The only solution Kroll sees is to rewrite the rules of the currency. “It would need some kind of governance structure that agreed to have a kind of tax on transactions or not to limit the number of bitcoins created,” he says. “We expect both mechanisms to come into play.”

That kind of approach is common in established economies, which tame things like insider trading with laws and regulatory agencies and have central banks to shape economies. But many backers of Bitcoin prize the way it currently operates without centralized control, and would likely rebel at any suggestion of changing the rules.

The full article, which is here, has other points of interest.  I would put the problem this way.  It is easy to trust a non-proprietary network, and that is often cited as an advantage of Bitcoin, or for that matter as an advantage of a common language or a standard.  At the same time, the non-proprietary nature of the network makes the rules much harder to change because there is no authority to mandate such a change.  You will find related points in many papers of Joseph Farrell.

Hat tip goes to Andrea Castillo.

Still Burned by the FDA

Excellent piece in the Washington Post on the FDA and sunscreen:

…American beachgoers will have to make do with sunscreens that dermatologists and cancer-research groups say are less effective and have changed little over the past decade.

That’s because applications for the newer sunscreen ingredients have languished for years in the bureaucracy of the Food and Drug Administration, which must approve the products before they reach consumers.

…The agency has not expanded its list of approved sunscreen ingredients since 1999. Eight ingredient applications are pending, some dating to 2003. Many of the ingredients are designed to provide broader protection from certain types of UV rays and were approved years ago in Europe, Asia, South America and elsewhere.

If you want to understand how dysfunctional regulation has become ponder this sentence:

“This is a very intractable problem. I think, if possible, we are more frustrated than the manufacturers and you all are about this situation,”

Who said it? Janet Woodcock, director of the FDA’s Center for Drug Evaluation and Research! Or how about this:

Eleven months ago, in a hearing on Capitol Hill, FDA Commissioner Margaret A. Hamburg told lawmakers that sorting out the sunscreen issue was “one of the highest priorities.”

If this is high priority what happens to all the “low priority” drugs and medical devices?

The whole piece in the Washington Post is very good, read it all. I first wrote about this issue last year.

Addendum: See FDAReview.org for more on the FDA regulatory process and its reform.

Tesla versus the Rent Seekers

The NYTimes has a very bad article on Tesla and auto dealer franchise laws. The worst bit is this mind blowing contradiction:

…most states have some limits on direct sales by auto manufacturers…These rules are generally meant to ensure competition, so that buyers can shop around for discounts from independent dealers, and to protect car dealers and franchises from being undercut by the automakers.

teslacarSo there you have it, limits on direct sales ensure competition and protect car dealers from being undercut by the automakers. Sorry, but you can’t have it both ways. Which view is correct? Let’s begin with some background (drawing on a great article by LaFontaine and Morton).

Franchising arose early on in the history of the auto industry because, as in other industries, franchising can take advantage of local knowledge and at the same time control agency costs. Franchising rules evolved in Coasean fashion so that manufacturers could not expropriate dealers and dealers could not expropriate manufacturers. To encourage dealers to invest in a knowledgeable sales and repair staff, for example, manufactures promised dealers exclusive franchise (i.e. they would not license a competitor next door). But with exclusive franchises dealers would have an incentive to take advantage of their monopoly power and increase profits by selling fewer units at higher profits. Selling fewer units, however, works to the detriment of the manufacturer and the public (ala the double marginalization problem (video)). Thus the manufactures required dealers buy and sell a minimum quantity of cars, so-called quantity forcing. Selling more units is exactly what we want a monopoly to do, so these restrictions benefited manufactures and consumers.

Politics, however, began to intrude into this Coasean world in the 1940s and 1950s. Auto sales accounts for some 20% of sales taxes and auto dealers employ a lot of people so when it came to a battle in the state legislatures the auto dealers trumped the manufacturers. The result was franchise laws that were increasingly biased towards dealers. In essence, exclusive franchises became locked into place, manufactures lost the right to add dealers even with population expansion, quantity forcing became illegal and dealer termination became all but impossible.

The result of dealer rent seeking has been higher auto prices for consumers, about 6% higher according to one (older) study by the FTC. Consumers have been stiffed in other ways as well. In some states, for example, manufacturers were required to reimburse dealers for a repair under warranty whatever amount the dealers would have charged consumers for the same repair not under warranty. As a result, dealers had an incentive to increase their price to consumers because that increased what they would be reimbursed for repairs under warranty. The franchise laws have also resulted in a highly inefficient distribution of dealers as populations have moved but dealers have been frozen into place. The inability to close, move or consolidate dealers has impacted the big-3 American firms especially because they have older networks. As a result, a typical GM dealer sells 377 cars a year while a typical Honda dealer sells 1,062 and a Toyota dealer 1,488.

Tesla wants to sell directly to the public but more generally what we need is to restore the Coasean balance, put dealers and manufacturers back on a equal footing and let the market decide the most efficient means of retailing and distributing automobiles.

Addendum: Dan Crane and Lynne Kiesling have further posts on this topic.

For legal reasons, U.S. lags in commercial drone use

In Japan, the Yamaha Motor Company’s RMAX helicopter drones have been spraying crops for 20 years. The radio-controlled drones weighing 140 pounds are cheaper than hiring a plane and are able to more precisely apply fertilizers and pesticides. They fly closer to the ground and their backwash enables the spray to reach the underside of leaves.

The helicopters went into use five years ago in South Korea, and last year in Australia.

Television networks use drones to cover cricket matches in Australia. Zookal, a Sydney company that rents textbooks to college students, plans to begin delivering books via drones later this year. The United Arab Emirates has a project underway to see if government documents like driver’s licenses, identity cards and permits can be delivered using small drones.

In the United Kingdom, energy companies use drones to check the undersides of oil platforms for corrosion and repairs, and real estate agents use them to shoot videos of pricey properties. In a publicity stunt last June, a Domino’s Pizza franchise posted a YouTube video of a “DomiCopter” drone flying over fields, trees, and homes to deliver two pizzas.

But when Lakemaid Beer tried to use a drone to deliver six-packs to ice fishermen on a frozen lake in Minnesota, the FAA grounded the “brewskis.”

Andreas Raptopoulous, CEO of Matternet in Menlo Park, Calif., predicts that in the near term, there will be more extensive use of drones in impoverished countries than in wealthier nations such as the U.S.

He sees a market for drones to deliver medicines and other critical, small packaged goods to the 1 billion people around the globe who don’t have year-round access to roads.

There is more here, via Claire Morgan.

Crimea through a game theory lens

That is my latest NYT column and you will find it here.  Here is one excerpt:

Long before Malcolm Gladwell popularized the concept [of tipping points], Mr. Schelling created an elegant model of tipping points in his groundbreaking work “Micromotives and Macrobehavior.” The theory applies to war, as well as to marketing, neighborhood segregation and other domestic issues. In this case, the idea of negotiated settlements to political conflicts may be fraying, and the trouble in Crimea may disturb it further, moving the world toward a very dangerous tipping point.

First, some background: With notable exceptions in the former Yugoslavia and in disputed territories in parts of Russia and places like Georgia, the shift to new governments after the breakup of the Soviet Union was mostly peaceful. Borders were redrawn in an orderly way, and political deals were made by leaders assessing their rational self-interest.

In a recent blog post, Jay Ulfelder, a political scientist, noted that for the last 25 years the world has seen less violent conflict than might have been expected, given local conditions. Lately, though, peaceful settlements have been harder to find. This change may just reflect random noise in the data, but a more disturbing alternative is that conflict is now more likely.

Why? The point from game theory is this: The more peacefully that disputes are resolved, the more that peaceful resolution is expected. That expectation, in turn, makes peace easier to achieve and maintain. But the reverse is also true: As peaceful settlement becomes less common, trust declines, international norms shift and conflict becomes more likely. So there is an unfavorable tipping point.

In the formal terminology of game theory, there are “multiple equilibria” (peaceful expectations versus expectations of conflict), and each event in a conflict raises the risk that peaceful situations can unravel. We’ve seen this periodically in history, as in the time leading up to World War I. There is a significant possibility that we are seeing a tipping point away from peaceful conflict resolution now.

Do read the whole thing.

More generally, here is a new edited volume on the economics of peace and conflict, edited by Stergios Skaperdas and Michelle Garfinkel.

And here is the new forthcoming Robert Kaplan book Asia’s Cauldron: The South China Sea and the End of a Stable Pacific.  I have pre-ordered it.