Category: Law
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.
So 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.
Bill Gates on poverty
Should the state be playing a greater role in helping people at the lowest end of the income scale? Poverty today looks very different than poverty in the past. The real thing you want to look at is consumption and use that as a metric and say, “Have you been worried about having enough to eat? Do you have enough warmth, shelter? Do you think of yourself as having a place to go?” The poor are better off than they were before, even though they’re still in the bottom group in terms of income.
The way we help the poor out today [is also a problem]. You have Section 8 housing, food stamps, fuel programs, very complex medical programs. It’s all high-overhead, capricious, not well-designed. Its ability to distinguish between somebody who has family that could take care of them versus someone who’s really out on their own is not very good, either. It’s a totally gameable system – not everybody games it, but lots of people do. Why aren’t the technocrats taking the poverty programs, looking at them as a whole, and then redesigning them? Well, they are afraid that if they do, their funding is going to be cut back, so they defend the thing that is absolutely horrific. Just look at low-cost housing and the various forms, the wait lists, things like that.
As you would expect, the interview is interesting throughout. For the pointer I thank Samir Varma.
*The Once and Future King*
The author is my colleague F.H. Buckley and the subtitle is The Rise of Crown Government in America. I am very enthusiastic about this book, which is a comparative study of American and Canadian systems of government with respect to the abilities to produce varying degrees of tyranny, in the former case mostly through the executive branch. Buckley is himself from Canada and overall favors that system of government. Here are two excerpts:
That was why McGee and the other Fathers thought Canada the freest country in the world. When they looked south, they saw a country with more of Constant’s liberty of the ancients, but with less (so it seemed to them) of the liberty of the moderns. Moreoever, of the former, the right of self-government had been corrupted by political machines and trivialized by elections for dogcatchers. The high ideals of the American Founders had been forgotten, and McGee thought that their republican virtue, in the era of Boss Tweed and Tammany Hall, was now little more than American braggadocio.
And:
Presidential regimes are more likely than parliamentary ones to turn into dictatorships, and to rank lower on measures of public corruption. Thus far we have examined two explanations for this: The president is the head of state and symbol of the nation; and he is relatively immunized from accountability to the legislature. We now turn to a third possible explanation: The separation of powers creates inefficiencies in government that invite the president to step in and correct, and in so doing, to augment his powers and independence from congressional oversight.
I would argue that, for better or worse, a big part of the differences is driven, not only by constitutions but also by the much more active foreign policy of the United States. I wonder what a true parliamentary discussion of nuclear weapons use would look like.
The new CIA scandal
I don’t feel I have an original or substantive point to make on this matter, but it is worthy of note nonetheless. I was favorably impressed with Dana Milbank’s opinion piece today. This is a Richard Nixon-kind of scandal, the CIA does report to the Executive Branch, and so far I haven’t seen the attempt to set things right or even clarify what has happened. Milbank writes:
If the White House wishes to repair the damage, it would declassify without further delay the report done by Feinstein’s committee — along with the Panetta Review. If the White House won’t, Feinstein’s panel and others would be justified in holding up CIA funding and nominations and conducting public hearings.
Obama also should remove those people involved in spying on the Senate panel and in harassing Senate staffers. First out should be Robert Eatinger, the CIA’s acting general counsel. Previously, Eatinger had been a lawyer in the unit that conducted the interrogation program at the heart of the Senate’s probe. Eatinger, Feinstein said, filed a “crimes report” with the Justice Department suggesting that congressional staffers had stolen the Panetta Review.
If somehow you haven’t been following the issue, here is what is up:
California Democrat Dianne Feinstein, chairwoman of the Senate intelligence committee, has been an ally of Obama and a staunch defender of the administration during the controversy over the National Security Agency’s surveillance programs. So her credibility could not be questioned when she went public, reluctantly, to accuse Obama’s CIA of illegal and unconstitutional actions: violating the separation of powers by searching the committee’s computers and intimidating congressional staffers with bogus legal threats.
John B. Judis on *Genesis*
The subtitle of his book is Truman, American Jews, and the Origins of the Arab-Israeli Conflict. I am finding this book interesting, here is one good bit:
The call for a greater Syria reflected the prevailing sentiment among Palestine’s Arab intellectuals. Some notables who were active in the Muslim-Christian Associations wanted an Arab Palestine within the British Empire, but many of the activists and intellectuals, inspired by Faisal’s success, envisaged Palestine as “Southern Syria.”
…There was a good geographical as well as political argument for greater Syria. As subsequent events would reveal, Palestine lacked natural boundaries, especially in the north and south. There were looming disputes over water rights that could be avoided by combining Palestine and Syria.
…The British, fearful that the movement for a greater Syria would undercut their hold over Palestine, encouraged Palestine’s Arabs to think of themselves as Palestinian.
Overall the text offers a strongly non-sentimental account, does not whitewash any of the participants in the disputes, and it communicates how much early American policymakers , including Truman, were skeptical about what ended up happening. Today’s often-unquestioned assumptions were very often historically quite contingent. You can buy the book here.
The John Goodman health care plan
Here is one part of it:
There is something else we could do to promote universal health insurance: We could allow everyone — regardless of income — to enroll in Medicaid, and at the same time allow everyone on Medicaid to leave the program, claim the tax credit, and buy private insurance. This, of course, is the “public option” that the Left has been clamoring for. It’s hard to understand why conservatives are so resistant to it: If a private insurer can’t outperform Medicaid, it doesn’t deserve to be in the market.
The specific tax-credit levels I am proposing are the Congressional Budget Office estimates of the cost of enrolling new people in Medicaid. Under my proposal, people who are already eligible could use their tax credit to buy in, no questions asked, but people with higher incomes might have to pay a premium on top of their tax credit if they have higher-than-average expected costs. Health status wouldn’t be considered, but age and other factors would be. To prevent gaming of the system, no one would be able to move from one plan to another at a premium that is way below his total expected costs. (See below.)
This proposal may appear to be unconservative, but in fact it is consistent with minimizing the role of government. Medicaid would be an insurer of last resort, but, beyond their uniform tax credit, people who are not poor but enroll in Medicaid would not be getting an entitlement. They would have to pay their own way.
The full post is here.
Summers, Lomborg, Tabarrok, and Cowen on climate change
There was a brief symposium, here are the results:
Larry Summers
President Emeritus of Harvard University, Former Chief Economist of the World Bank
My sense is that cap and trade is not the route to the future. It did not make it politically in the US at a moment of great opportunity in 2009. And European carbon markets have been plagued by constant problems. And globally it’s even harder. My sense is that the right strategy has three major elements. First, as the G20 vowed in 2009, there needs to be a concerted phase out of fossil fuel subsidies. This would help government budgets, drive increases in economic efficiency and substantially reduce global emissions. Second, there needs to be assurance of adequate funding for all areas of basic energy research. As a practical matter my guess is the world will produce non fossil fuel power in the next 25 years at today s fossil fuel prices or it will fail with respect to global climate change. Third, there is a strong case for concerted carbon taxes to further discourage greenhouse gas emissions. But this is a follow-on step for after the elimination of fossil fuel subsidies.
Bjorn Lomborg
Director of the Copenhagen Consensus Center and adjunct professor at Copenhagen Business School
The only way to move towards a long-term reduction in emissions is if green energy becomes much cheaper. If it cost less than fossil fuels, everyone would switch, including the Chinese. This, of course, requires breakthroughs in green technologies and much more innovation.
At the Copenhagen Consensus on Climate (fixtheclimate.com), a panel of economists, including three Nobel laureates, found that the best long-term strategy to tackle global warming was to increase dramatically investment in green research and development. They suggested doing so 10-fold to $100bn a year globally. This would equal 0.2% of global GDP. Compare this to the EU’s climate policies, which cost $280 billion a year but reduce temperatures by a trivial 0.1 degrees Fahrenheit by the end of the century.
Alex Tabarrok
Bartley J. Madden Chair in Economics at the Mercatus Center, George Mason University
Neither the developed nor the developing world will accept large reductions in their standard of living. As a result, the only solution to global climate change is innovations in green technology. A carbon tax will induce innovation as people demand a way to avoid the tax. A carbon tax, however, will be more politically acceptable if technologies to avoid the tax are in existence before the tax is put into place. Prizes for green innovations can blaze a path down a road that must be traveled, making the trip easier. The L-prize successfully induced innovation in LED technologies, the X-Prize put a spacecraft into near space twice within two weeks and Google’s Lunar X prize for putting a robot on the moon is close to being awarded. Prizes have proven their worth. To speed both the creation and diffusion of green technology, green prizes should be awarded at the rate of $100-$200 million annually.
Tyler Cowen
Professor of Economics, George Mason University
This is a problem we are failing to solve. Keep in mind it is not just about getting the wealthy countries to switch to greener technologies, but we also desire that emerging economies will find green technology more profitable than dirty coal. A carbon tax is one way forward but the odds are that will not be enough and besides many countries are unlikely to adopt one anytime soon. Subsidies for technology could occur at a very basic level and we could make a gamble that nuclear fusion will finally pay off. We also need a version of green technology that will fit into existing energy infrastructures and into countries which do not have the most reliable institutions. The most likely scenario is that we will find out just how bad the climate change problem is slated to be.
There are further responses at the link.
Addendum: Ashok Rao adds comments.
Constitutions Quantified
The Comparative Constitutions Project has collected data from 720 of the 800 or so constitutions written since 1789. The shortest constitution, for example, is that of Jordan at 2,270 words while the longest is that of India which at 146,385 words is more than twice as long as the next longest constitution and considerable longer than the US 
constitution at 7,762 words. The New Zealand constitution grants the fewest rights, namely zero, while the Bolivian constitution grants the most rights at 88.
Among the rights in the Bolivian constitution are “Every person has the right to health.” That does seem ambitious, although I cannot guarantee the translation perhaps it says health care in the original? There are also rights to homes, sewers, and telecommunication services. I cannot go along with those but I do think this is an advance:
Neither the public authority, nor any person or body may intercept private conversations or communications by an installation that monitors or centralized them.
Venezuela offers almost as many rights in its constitution as Bolivia, 81 according to the data. Nevertheless, I think I would feel more secure in my rights living in New Zealand than Bolivia or Venezuela. A constitution with a long list of rights is a bit like a prenup with a long list of rights, looks good on parchment but parchment does not a marriage or a constitution make.
Your porn is not Canadian enough
For failing to broadcast sufficient levels of Canadian-made pornography — and failing to close-caption said pornography properly — a trio of Toronto-based erotica channels has earned a reprimand from the Canadian Radio-television & Telecommunications Commission.
Wednesday, the CRTC issued a broadcast notice saying AOV Adult Movie Channel, XXX Action Clips and the gay-oriented Maleflixxx were all failing to reach the required 35% threshold for Canadian content.
Based on a 24-hour broadcast schedule, that translates to about 8.5 hours of Canadian erotica a day.
There is more here, and for the pointer I thank TH.
Sentences to ponder heroin markets in everywhere
Stephanie Predel, a stick-thin 23-year-old freshly out of jail, said she was off heroin. But she knows precisely where she could get more drugs if she ever wanted them — at the support meetings for addicts.
“I can get most of my drugs right at the meeting,” she said. “Drug dealers go because they know they’re going to get business.” She added, “People are going into the bathroom to get high.”
Bennington, a pre-Revolutionary town of 17,000 people, presents another face of the heroin epidemic that has swept through Vermont.
There is more here. This article suggests that the crackown on prescription drug abuse helped fuel a surge of interest in heroin. And here is a story on Vermonters for a New Economy.
Daniel Drezner on sanctions against Russia
The piece is here, here is one excerpt:
The only case of economic coercion succeeding in a similar case in history was the 1956 Suez crisis. In that case, Britain, France, and Israel withdrew their forces from the Suez Canal following a U.S.-inspired run on the pound sterling. Except that the Suez case is not at all similar to Russia/Crimea. Britain was a treaty ally of the United States; not so much with Vladimir Putin’s Russia. The Suez was far away from British soil; the Crimea is just across the Sea of Azov. And, perhaps most importantly, Britain was in a fragile economic state trying to protect a fixed exchange rate. Russia’s economy has its problems, but a shortage of hard currency reserves ain’t one of them.
So the conditions under which sanctions would force Russia’s hand in Ukraine are far from ideal. The proposed sanctions coalition is equally flawed, however, as my FP colleague Colum Lynch has noted. European Union leaders are not exactly keen on the idea of broad-based economic sanctions, for understandable reasons. Britain needs Russian finance capital; the rest of Europe needs Russian energy. France is traditionally the most hawkish country in Europe, but that country is too busy planning to export warships to Russia to organize European sanctions.
And here is Dan’s conclusion:
Sorry, but the fact remains that sanctions will not force Russia out of the Crimea. This doesn’t mean that they shouldn’t be imposed. Indeed, there are two excellent reasons why the United States should orchestrate and then implement as tough a set of sanctions on Russia as it can muster. First, this problem is going to crop up again…
Second, while sanctions cannot solve this problem on their own, they can be part of the solution. Over the long term, Russia does need to export energy to finance its government and fuel economic growth. Even if planned sanctions won’t bite in the present, the anticipation of tougher economic coercion to come is a powerful lever in international bargaining.
My earlier post on Drezner on sanctions is here.
How many of the previously uninsured have signed up for Obamacare?
Amy Goldstein reports:
The new health insurance marketplaces appear to be making little headway in signing up Americans who lack insurance, the Affordable Care Act’s central goal, according to a pair of new surveys.
Only one in 10 uninsured people who qualify for private plans through the newmarketplaces enrolled as of last month, one of the surveys shows. The other found that about half of uninsured adults have looked for information on the online exchanges or planned to look.
…The McKinsey survey shows that of people who had signed up for coverage through the marketplaces by last month, about one-fourth described themselves as having been without insurance for most of the past year. That 27 percent, while low, compares with 11 percent a month earlier.
There is more here. You will note that a low rate of sign-up is distinct from a rate of sign-up skewed toward the elderly and the sick. In this sense we still do not know how the new law is doing, though in a broader sense a low rate of sign-up should not be considered good news.
The History of Ethno-National Referendums 1791-2011
That is the title of a useful article by Matt Qvortrup (or here, both possibly gated). Here is one excerpt:
To be sure, the British were not adverse to using the referendum as a tactical means of international politics (for example, in the case of the referendum in Moldova in 1857 — where the referendum was a convenient excuse to curb the influence of the Russian Empire after the Crimean War). Here at the request of the British, a poll was held to unify the two territories Moldavia and Walachia (previously an area that had been under Turkish Suzerainty, though often dominated by Russia) under the name Romania. However, it should be noted that the referendum was anything but free and fair; “Intimidations and arrests were not infrequent” and up to “nine-tenth of the population were denied the right to vote,” and that the vote only was held after some “bizarres manoevres diplomatiques.”
Here is an older (free) historical book on the employment of plebiscites to determine sovereignty. Here is the new, well-timed, and not free March 2014 book by Matt Qvortrupp, on same topic. Qvortrup, by the way, helped design the referendum for South Sudan.