Category: Law

Markets in Everything – law school

Jay Wilson, a second-year law student at New York University, was
desperate to register for a popular course in constitutional law.

Unfortunately for him, the course, taught by the youthful Daryl
Levinson, was completely booked for the upcoming spring semester.
Fortunately, Mr. Wilson had some money to spare. In a posting on an
online bulletin board at the law school, Mr. Wilson offered $300 to any
student willing to drop the course to make room for him…

Students interviewed at the law school said the practice of
exchanging course spots is common at the school. As a kind gesture,
some cash-strapped students have promised to bake cookies for willing
traders or pass them invitations to exclusive parties.

Mr. Wilson, they said, took things to a new level: a no-nonsense
business deal, the sort of financial transaction that they expect to
deal with only after graduation.

Of course, the authorities soon moved to quash such deals.  The dean, however, did not explain why paying to get into a class is wrong but paying to get into law school is good.  Hmmm….perhaps Mr. Wilson would have had better luck had he offered to pay the dean rather than another student.

I have pioneered this approach even further.  Students in my classes have been known to offer payment to get out. 🙂

Thanks to Ray Lehmann for the link.

Jail Mail

I edited a book, Changing the Guard, on private prisons and crime control.  Last week I received an interesting letter from an expert in the field….a prisoner in Tennessee.  Frankly, I was expecting a crank but in fact the prisoner, who shall remain anonymous, had a lot of intelligent things to say about how the prison system operates.  Here is one observation:

A privately owned and publicly traded company like CCA has no incentive to rehabilitate criminals.  It is in the best interests of the company for even more criminals to exist.  Unfortunately, the same is true of government run prisons.  And contrary to what you may have been told, prisoners are not paroled because they have indicated by their actions or behaviors while inside that they are less likely to reoffend; they are let go because the Parole Boards believe that will commit another crime.  This way the prison lobbyists can then "prove" that parole doesn’t work.  The Department of Corrections gets less money from paroled prisoners than it does for those kept inside.  And also, "good" inmates are less trouble (less labor) than the trouble-makers, and so trouble-makers get released.

Good analysis.  I hope, however, that he does not test his theory on how to gain early release.

Halloween Banned!

A school in Puyallup Washington has banned all Halloween activities. Why?

“We have been contacted by followers of the Wiccan religion, and they indicated they have been offended after seeing elementary school depictions of witches with long noses, warts, cauldrons and such,” said Tony Apostle, the superintendent who banned Halloween.

Halloween activities have also been banned elsewhere in the country but for a different reason:

Complaints about Halloween from Pentecostal parents in Texas have forced a significant number of that state’s school districts to cancel in-school parties, said Richard W. Stadelmann, a professor of religious studies at Texas A&M University.

There is a geographical pattern to the grumbling, according to Stadelmann and others. Christian complaints come mostly from the South and Midwest, whereas Wiccan complaints are more likely to come from California and the Pacific Northwest.

Gay marriage and the deficit

What would happened if all of America’s roughly 600,000 cohabitating gay couples decided to marry?

For one thing, they would all start paying the marriage penalty. Each year, over the next five years, the deficit would fall about $350-450 million per year. Yes that is about one-tenth of one percent of the yearly deficit, but at least a move in the right direction. It is also estimated that social security and related expenditures would increase only slightly as a result of the marriages.

That is from The Atlantic Monthly, October issue, p.64. If you are looking for a good historical introduction to some of the issues surrounding gay marriage, I recommend George Chauncey’s recent Why Marriage?.

China fact of the day

China is stepping up its hard line against internet pornography by threatening life imprisonment for anyone caught peddling porn.

Ne’er-do-wells involved in the production and distribution of online adult content – including “phone sex” – face a range of punishments including compulsory surveillance and imprisonment. Those behind sites that generate more than 250,000 hits will be treated as “very severe” and could face life imprisonment.

Linking the jail sentence to the number of hits, now that is a saddening use of optimal punishment theory. Here is the full story.

We will not rock you

Virginia and 39 other states sued eight music distributors and retailers accusing them of price-fixing and all I got was a lousy Michael Bolton CD. Well, not me personally, but that is what lots of libraries and public schools in Virginia and across the nation are getting as their share of the $75 million non-cash part of the settlement. Other CDs distributed as part of the deal include teen band Hanson’s “Snowed In” and, get this, Martha Stewart’s “Spooky, Scary, Sounds for Halloween.” Not every CD is a dud but it’s fair to say that the value of the CDs is substantially less than $75 million. If you were a member of the class and signed up you could also get a check for almost $13, $67 million in total.

According to the judge, pure transaction costs were $6-8 million and the lawyers got just over 14 million so depending on how you evaluate the free CDs (I think $35 million is generous) total transaction costs might eat 20-30 percent of the settlement – not bad as far as these things go. Note, however, that the plaintiff’s claim was that consumers were being overcharged by 23 cents a CD. Personally, I’d be happy to pay the extra 23 cents to be free of class-action lawsuits like this. But then again I don’t buy as many CDs as Tyler.

Courses (markets) in everything

How about a $10,000 class for teaching top executives how to cope with prison? Students are taught the following:

1. Learn meditation and physical exercise routines.

2. Get used to the fact that nothing changes and everything is outside your control.

3. Discard your addictions and vices.

4. Bring a cheap watch.

5. Never make eye contact with anyone; no one is your friend.

6. “If you are going to hurt somebody, drag them into your cell, because then you have an excuse that they invaded your privacy.”

Here is the full story. The entrepreneurs claim they have had twelve clients a year for the last two years.

Seeking safety in Latin America

In Mexico City I am relieved to step out of the taxicab and into the street. Cabs are a major venue for robbery and kidnapping. In Rio de Janeiro I am relieved to step out of the street and into the taxicab. Cabs are relatively safe, but a twelve-year old street urchin might knife you in the gut for a dollar.

I’ve yet to find a good explanation for this difference in criminal method. Could it be that Mexican crime is more closely linked to the drug trade and especially the export of drugs to the U.S.? This increases the optimal size for a criminal gang and might cause robbery and mayhem to be better organized and more capital-intensive. Brazil also appears to have an especially bad educational system, which lowers the average criminal age but also diminishes the relevance of taxis.

Cutting the fat

Dieting is difficult because it’s so much easier to give in to temptation and consume what you should not. It’s a constant struggle to cut the fat. The same is true in business. Economists may write down a “cost curve” on the blackboard but these curves, which represent the minimum cost of producing a particular quantity, are not given to the firm they are products of the firm. It takes effort and attention and willpower to keep costs low. Letting costs go by raising salaries, increasing benefits and paying little attention to the bottom line is easy and, for a time, pleasant which is why firms need strong incentives, including the carrot of profit and the stick of loss, to get and stay trim.

Government agencies face few such incentives. As a result, fat is rampant. Case in point, California prison guards. To encourage fitness the California Department of Corrections created a fitness bonus some years ago. The bonus was quite substantial, $100 per month but to get it guards had to pass a fitness test involving sit-ups, running and jumping. Five years ago the state paid out about $5 million for the fitness incentive. But who wants to be the bad guy who denies a prison guard a bonus? No one – if they aren’t paying the bills.

As a result, the fitness test started to get easier as the bonus got larger. Last year, California shelled out $33.2 million for fitness bonuses and some 80 percent of prison employees, not just guards but wardens and mangers also, now get the fitness bonus. Of course, a test is no longer required – all the employee need do to get the bonus is visit a doctor once per year.

With the California budget crunch even the politically poweful prison guards are having to cut some fat but in the long run recognize the incentive structure and don’t expect government to go on a diet.

Facts about the Mexican judiciary

1. In Mexico the federal judiciary employs 29,800 employees; in the much larger and richer United States the same number is 34,000.

2. Mexico employs about 900 federal judges; in the United States it is 1700.

3. The Mexican Supreme Court employs 3400 individuals; in the United States the corresponding number is 430.

4. The Mexican federal judiciary employs more chaffeurs than judges.

I can think of at least two explanations. First, Mexico, which has lower wage rates, chooses a higher labor-to-capital ratio. Second, the Mexican system is full of corrupt perks.

My blog source writes:

En México, el tercer poder es totalmente disfuncional en todos sus niveles y funciones. [In Mexico the third branch of government is totally dysfunctional in all of its levels and functions.]

Number of judges do not the rule of law make.

The data are from La Boveda, an excellent Spanish-language blog, from Mexico, for economics and politics.

Economic foundations of law

If tenants benefit from a law that says apartments must have hot water then surely a law that says tenants must have hot water and a dishwasher benefits them even more, right? What about a law that says tenants must have hot water, a dishwasher and cable tv? By now the students have cottoned on to the idea that the rent will increase. Once you realize that the law causes the rent to increase it’s no longer obvious if tenants benefit or if landlords are harmed.

We can work out what happens with sone numbers. Let’s suppose that after much bargaining the tenant and landlord have agreed upon the rent and the amenities – each party to the contract is profit maximizing, doing as well as they can given market conditions and the interests of the other. Now suppose that tenants value the hot water benefit at $100 and that it costs the landlord $150 to provide the hot water. At these prices the tenant does not buy the hot water. The law is passed; by how much does the rent increase? By at least $100 but no more than $150. The landlord knows for certain that he can increase the rent by $100 because this will make the tenant just as well off as he was before, which by assumption was an equilibrium price. Similarly, if the landlord could profitably raise the rent by more than his cost he would have done so already – the fact that he did not indicates that an increase of more than $150 would not be profitable

Thus the rent rises somewhere between $100 and $150, the precise amount to be determined by bargaining power. Suppose that the rent increases by $120. Then the tenant gets a benefit worth $100 at a price of $120 and is worse off by $20 and the landlord gets a benefit of $120 at a cost of $150 and so is worse off by $30. The law makes both the landlord and tenant worse off!

The lesson here is that a contract is multi-dimensional so if the government changes one dimension of a contract the other dimensions will adjust towards offsetting that change.

Bonus points: a) Suppose the tenant values the hot water at $150 and it cost the landlord $100. Does the regulation benefit the tenant and landlord now?. If so, what is odd about this example? b) Explain why the loss to the tenant and the loss to the landlord must add up to $50. How does this further illustrate the principle?

The glory of Athens

Politicians often refer to our Judeo-Christian heritage but in math, science, philosophy, and especially politics we owe much more to our Greco-Roman heritage. Consider; democracy, republicanism, and the rights of citizenship, these idea owe virtually nothing to the Judeo-Christian tradition and everything to Greece and Rome.

I am reminded of this by rereading Pericles’ Funeral Oration. Here, from nearly 2500 years ago, is Pericles, in the midst of war in a ceremony to honor the dead he speaks to Athens, and also perhaps to us, about liberty and war.

If we turn to our military policy, there also we differ from our antagonists. We throw open our city to the world, and never by alien acts exclude foreigners from any opportunity of learning or observing, although the eyes of an enemy may occasionally profit by our liberality; trusting less in system and policy than to the native spirit of our citizens; while in education, where our rivals from their very cradles by a painful discipline seek after manliness, at Athens we live exactly as we please, and yet are just as ready to encounter every legitimate danger.

Do Not Pass Go…

Crime doesn’t pay, but criminals just might.

That is what more and more local governments are hoping, as they grapple with soaring prison populations and budget pressures.

To help cover the costs of incarceration, corrections officers and politicians are more frequently billing inmates for their room and board, an idea popular with voters.

Here in suburban Macomb County, 25 miles north of Detroit, Sheriff Mark Hackel has one of the most successful of these programs in the nation. Last year, the sheriff’s department collected nearly $1.5 million in what are being called “pay to stay” fees from many of the 22,000 people who spent time in the county jail.

Inmates are billed for room and board on a sliding scale of $8 to $56 a day, depending on ability to pay [TC: hey, that’s price discrimination!]. When they are released, the sheriff’s office will go to court to collect the unpaid bills, seizing cars or putting some inmates back in jail. The wife of one inmate, a Chrysler truck factory worker who is serving half a year for drunk driving, dropped off a check for $7,212 this week to cover part of his bill, the largest single amount ever collected by the sheriff.

I’m not comfortable with this notion, since I don’t think government prisons should move toward becoming profit centers. And ex post, elasticity of demand is not very high. But now more than half of the states are collecting fees of some kind from their prisons. It is noted, however, that Martha Stewart will not be paying for her time in jail.

Here is the full story.