Category: Law
Crime in Europe and the U.S.
Has there been a “reversal of fortune”? Paolo Buonanno, Francesco Drago, Roberto Galbiati, and Giulio Zanella step into these treacherous waters with a new paper (pdf):
Contrary to common perceptions, today both property and violent crimes (with the exception of homicides) are more widespread in Europe than in the US, while the opposite was true thirty years ago. We label this fact as the “reversal of misfortunes”. We investigate what accounts for the reversal by studying the causal impact of demographic changes, incarceration, abortion, unemployment and immigration on crime. For this we use time series data (1970-2008) from seven European countries and the U.S. We find that the demographic structure of the population and the incarceration rate are important determinants of crime. Our results suggest that a tougher incarceration policy may be an effective way to contrast crime in Europe. Our analysis does not provide information on how incarceration policy should be made tougher nor does it provide an answer to the question whether a such a policy would also be efficient from a cost-benefit point of view. We leave this to future research.
I would stress that there are numerous controversial claims in this paper. (I also personally believe that the heavy U.S. reliance on incarceration is morally problematic.) Nonetheless we are committed to bringing you thought-provoking material and so there you go.
For the pointer I thank Noah Smith, who should not be construed as necessarily endorsing any of these results.
More data on survival during maritime disasters
From Mikael Elinder and Oscar Erixson (pdf, final PNAS gated version here):
It’s a widespread notion that women and children are saved first in maritime disasters. The systematic evidence of this comes primarily from the sinking of RMS Titanic. By analyzing individual level data from MS Estonia – one of the largest maritime disaster in the Northern hemisphere since World War II – a different picture emerges. Estonia sunk in the Baltic Sea with 137 survivors and 852 casualties. Despite equal gender rates on Estonia, 111 men, but only 26 women survived. This striking observation, as well as econometric analyses of survival probabilities, shows that the behavior among passengers and crew was clearly inconsistent with the norm that women should be saved before men. We show that the survival patterns from several maritime disasters, including Titanic, can be explained by the behavior of the captain. Women have a survival advantage only when the captain orders that women should be given priority and threatens disobedience with violence. Otherwise women will have lower survival chances.
This is Competition
Roger Cheng at CNet writes:
Apple pointed to an internal Samsung document highlighting the weakness of the Galaxy S1 vs. the iPhone as further evidence that Samsung has copied its work.
The document, a “relative evaluation report” on the Galaxy S1 and iPhone published in March 2010, highlights where Samsung’s flagship phone fell short of the iPhone. The report looked at several different features, from the call screen to the browsing experience and even the difference in the calculator.
Here is one of the comparisons:
Apple’s layout is clearly more pleasing but patentable? Please. Imitation is also called learning, evolving, improving and it is an important part of the capitalist process.
A Spontaneous Order Firm
Valve’s Chief Economist tries to explain the Valve Model:
A corporation that tries to function as a type of ‘spontaneous order’ (i.e. without an internal system of command/hierarchy) seems like a contradiction in terms. Smith’s and Hayek’s spontaneous orders turn on price signals. As Coase et al explained in the previous section, the whole point about a corporation is that its internal organisation cannot turn on price signals (for if it could, it would not exist as a corporation but would, instead, contract out all the goods and services internally produced). So, if Valve’s own spontaneous order does not turn on price signals, what does it turn on?
The answer is: on time and team allocations. Each employee chooses (a) her partners (or team with which she wants to work) and (b) how much time she wants to devote to various competing projects. In making this decision, each Valve employee takes into account not only the attractiveness of projects and teams competing for their time but, also, the decisions of others. The reason is that, especially when insufficiently informed about projects and teams (e.g. when an employee has recently joined Valve), an employee can gather much useful information about projects and teams simple by observing how popular different projects and teams are (a) with others in general, (b) with others whose interests/talents are closer to their own.
Just like in a marketplace, everything in Valve is in flux. People move about (making use of their desk’s wheels), new teams are formed, new projects are concocted. All this information is observable by the naked eye (one notices an empty spot where David’s desk used to be, and then finds out that David moved to the 4th floor to work with Tom, Dick and Harriet), on the company’s intranet, in cross-team meetings where teams inform each other on what they are working on). People learn constantly, both by observing and by doing, the value to them of different projects and teams. These subjective values keep changing, as the time and team formation signals that are emitted by everyone else are updated.
The idea here is that, through this ever-evolving process, people’s capacities, talents and ideas are given the best chance possible to develop and produce synergies that promote the Common Good. It is as if an invisible hand guides Valve’s individual members to decisions that both unleash each person’s potential and serve the company’s collective interest (which does not necessarily coincide with profit maximisation).
It’s an interesting post, much longer than I have quoted here, although no evidence is given that the time allocation system works anything like an invisible hand–a few good games do not a social revolution make.
Coase’s islands of conscious decision are also often misunderstood. The islands are not cut off from the market sea but are permeated by the sea. Everything that goes on within the firm does so in light of the shadow prices projected from outside. Absent those prices the firm fails into socialist miscalculation.
Still, there is something to be said for how modern technology can coordinate mass action. The phenomena is perhaps most evident in the way that distributed computing coordinates the actions of thousands of computers to solve various problems, each day and each hour drawing on a different set of computers. Coordinating people in this way allows them to quickly participate in joint actions, such as a flash mob. (See also anonymous). Indeed, silicon Valley writ large is not that different from internal Valve, people end and form new firms all the time.
Capitalism allows within itself many alternative social arrangements, to think, however, that one particular such arrangement is the one that must govern the whole is badly to miss the point.
An event study of ACA winners and losers
I have not had the chance to read through this paper, by Jonathan Hartley, but thought I should pass along the abstract and link:
Abstract:
The Patient Protection and Affordable Care Act of 2010 marked a substantial shift in US healthcare policy. We create an event study observing the returns of healthcare stocks in the S&P 500 when on June 28, 2012 the US Supreme Court very unexpectedly ruled that the individual mandate, a provision requiring that Americans maintain a certain level of health insurance or face a monetary penalty, was not unconstitutional. The paper finds that as a result of the upheaval, over two days following the ruling the cumulative average abnormal return of managed care stocks was -6.7% (equal to -$6.9 bn in market capitalization), while the same metric was -1.2% (-$1.5 bn) for biotechnology companies, 3.2% ($0.4 bn) for hospital firms, 1.9% ($1.6 bn) for healthcare service firms, and 0.5% ($4.8 bn) for pharmaceutical companies. Healthcare equipment, distribution, and technology sub-industry stocks had relatively flat cumulative abnormal returns over the period.
Do those results make you more or less favorable toward ACA?
Stephen L. Carter has a new novel out
The Impeachment of Abraham Lincoln. I should teach it next year for my Law and Literature class…
Goldman Sachs Invests in POP Bonds
Goldman Sachs is investing in a New York City pay on performance bond (POP bond also called a social improvement bond). The Pop bond is based on recidivism rates for adolescents, as described by the NYTimes:
The Goldman money will finance a program called Adolescent Behavioral Learning Experience…which seeks to improve prospects for black and Latino adolescents. The jail program, which will offer counseling and education for an estimated 3,400 incarcerated adolescent men each year, will be run by two nonprofit organizations, Osborne Association and Friends of Island Academy, and overseen by MDRC.
…If the program reduces recidivism by 10 percent, Goldman would be repaid the full $9.6 million; if recidivism drops more, Goldman could make as much as $2.1 million in profit; if recidivism does not drop by at least 10 percent, Goldman would lose as much as $2.4 million.
…Currently, nearly 50 percent of young men released from Rikers reoffend within a year.
As I wrote earlier:
For Pop bonds to work it is critical that outcomes be measured and marked to an appropriate, randomized, control group. If not carefully monitored, the private sector will also excel at innovative and creative gaming at the public expense.
The involvement of Goldman Sachs makes me fear that my last sentence will prove prophetic.
Have the French shown that water privatization is dead?
Some time ago, @ModeledBehavior has requested comment on this article. Excerpt:
Across the nation cash-strapped municipalities are considering the sale of their public-utility systems. These moves are intended to raise cash and rid the municipalities of expensive liabilities such as debt service and pension obligations. But officials considering this approach might do well to look to France and other nations that are rapidly moving in the opposite direction with a “remunicipalization” of their utility systems. In 2010, Paris, in the best known case of remunicipalization, ended contracts with the world’s two biggest water service companies, Suez and Veolia, bringing an end to their 100-year private duopoly. The reversal of a century-old practice in Paris was an acceleration of an international movement away from private control.
So what’s up? I see it this way. For advanced water systems, there is no cost advantage to having a privatized system. It is a regulated monopoly and over time it acquires skill in manipulating the political process, most of all its regulators. Why expect lower costs and prices? A wide variety of studies of this topic, including studies by “market-oriented” economists, find no cost advantage for the private sector in this setting.
For very poor countries, very often water privatization would in principle be a good idea, since the public sector is not supplying much piped water at all. Monopoly is better than carrying a bucket on your head, and you still can carry the bucket if you wish. Yet privatization also won’t get very far in many of these cases. One reason is that there is no way to make people — many of whom are non-registered and lacking in assets — pay their water bills, and not enough legal infrastructure to prevent them from cutting into the pipes or otherwise going rogue. You shouldn’t “blame” privatization here, but still it may not be a useful option.
Finally, there is a sweet spot in the middle, often for reforming or middle-income countries. In those cases water privatization can mobilize private capital rapidly and expand water coverage. It often brings higher quality water, higher quality connections, lower rates of unaccounted-for-water, and higher prices. Not all cities desire that trade-off, but it is there for the taking. Some of these privatizations are done fairly well, others are done very poorly, such as in Cochabamba, where the “privatization” gave the company property rights over previously privately held, decentralized water sources of the poor, such as collected rain.
As long as there are countries in this middle income range, water privatization is not dead nor should it be.
Germany fact of the day
Two-thirds of all patent claims in Europe are now filed in Germany, according to the Munich law firm Meissner Bolte, which does patent litigation. In a sense, Germany has become a destination for fast, effective one-stop patent challenges, much as Britain is for libel and the state of Delaware is for registration of American companies.
Here is more, and for the pointer I thank Alex T.
Markets in everything, Indonesian traffic jockeys
To reduce the number of cars on the road, lawmakers have designated several main arteries as what they call “Three in One zones.” During the morning and afternoon rush, you can’t drive there unless you have at least three people on board. That’s why, near the entrances to the zones, men, women and children line up – raising their index finger – offering to rent themselves to commuters in a hurry.
20-year-old Litjak climbs into a black sedan, cradling her 2-month-old daughter Nabilah. Together, they’ll help a college student get to class on time. The baby gives Litjak a competitive advantage, providing two passengers for the price of one.
Litjak says she can make at least two trips in a morning, collecting two or three dollars to help pay for household expenses. She never worries about her safety, and she likes the work. People who can afford to pay have nice cars, so she sits in air conditioned comfort, listening to the radio.
She and others in this line of work are called traffic jockeys. They dress neatly each day and may have regular customers. For some, it’s their only income. Others, like 21-year-old Adik, see this as an easy way to make extra cash when he’s not on the job parking cars.
Here is more, and for the pointer I thank Nick Lawler. It is not legal to work as a traffic jockey in Indonesia.
Pharmaceutical innovation is very, very good
We examine the impact of pharmaceutical innovation, as measured by the vintage of prescription drugs used, on longevity, using longitudinal, country-level data on 30 developing and high-income countries during the period 2000-2009. We control for fixed country and year effects, real per capita income, the unemployment rate, mean years of schooling, the urbanization rate, real per capita health expenditure (public and private), the DPT immunization rate, HIV prevalence and tuberculosis incidence. Life expectancy at all ages and survival rates above age 25 increased faster in countries with larger increases in drug vintage. The increase in drug vintage was the only variable that was significantly related to all of these measures of longevity growth. Controlling for all of the other potential determinants of longevity did not reduce the vintage coefficient by more than 20%. Pharmaceutical innovation is estimated to have accounted for almost three-fourths of the 1.74-year increase in life expectancy at birth in the 30 countries in our sample between 2000 and 2009, and for about one third of the 9.1-year difference in life expectancy at birth in 2009 between the top 5 countries (ranked by drug vintage in 2009) and the bottom 5 countries (ranked by the same criterion).
CBO forecasts Medicaid Wars
In 2022, for example, Medicaid and the Children’s Health Insurance Program (CHIP) are expected to cover about 6 million fewer people than previously estimated, about 3 million more people will be enrolled in exchanges, and about 3 million more people will be uninsured…
Only a portion of the people who will not be eligible for Medicaid as a result of the Court’s decision will be eligible for subsidies through the exchanges. According to CBO and JCT’s estimates, roughly two-thirds of the people previously estimated to become eligible for Medicaid as a result of the ACA will have income too low to qualify for exchange subsidies, and roughly one-third will have income high enough to be eligible for exchange subsidies.
There is more here.
The future of the war on drugs
At the same time, one branch of that thinking has itself evolved into a new project: the notion of creating downloadable chemistry, with the ultimate aim of allowing people to “print” their own pharmaceuticals at home. Cronin’s latest TED talk asked the question: “Could we make a really cool universal chemistry set? Can we ‘app’ chemistry?” “Basically,” he tells me, in his office at the university, with half a grin, “what Apple did for music, I’d like to do for the discovery and distribution of prescription drugs.”
Here is more, hat tip goes to the excellent Eli Dourado.
Honduras may appeal to London courts
Tricky legal dispute in Central America? Sort it out in the London courts. Honduras, the state with the highest homicide rate in the world, is preparing to send appeal cases to the judicial committee of the privy council (JCPC) in Westminster.
The extraordinary expansion of UK legal jurisdiction is being negotiated in an effort to support the development of a pioneering enterprise zone in the crime-scarred republic.
The Honduran government is establishing what amounts to semi-independent city states, hoping that improved governance backed by international partners will attract business investment and create employment.
The complex constitutional agreement under discussion involves Mauritius – an island 10,000 miles away in the Indian Ocean – guaranteeing the legal framework of the courts in the development zones, known locally as La Región Especial de Desarrollo (RED).
Here is more, and for the pointer I thank P.
There Will Be Blood
Economists often reduce complex motivations to simple functions such as profit maximization. Writing in The Economist, Buttonwood ably criticizes such simplifications. Buttonwood is too quick, however, to conclude that simplification falsifies. For example, Buttonwood argues:
If there is a shortage of blood, making payments to blood donors might seem a brilliant idea. But studies show that most donors are motivated by an idea of civic duty and that a monetary reward might actually undermine their sense of altruism.
As loyal readers of this blog know, however, the empirical evidence is that incentives for blood donation actually work quite well. Mario Macis, Nicola Lacetera, and Bob Slonim, the authors of the most important work on this subject (references below), write to me with the details:
The decision to donate blood involves complex motivations including altruism, civic duty and moral responsibility. As a result, we agree with Buttonwood that in theory incentives could reduce the supply of blood. In fact, this claim is often advanced in the popular press as well as in academic publications, and as a consequence, more and more often it is taken for granted.
But what is the effect of incentives when studied in the real world with real donors and actual blood donations?
We are unaware of a single study of real blood donations that shows that offering an incentive reduces the overall quantity or quality of blood donations. From our two studies, both in the United States covering several hundred thousand people, and studies by Goette and Stutzer (Switzerland) and Lacetera and Macis (Italy), a total of 17 distinct incentive items have been studied for the effects on actual blood donations. Incentives have included both small items and gift cards as well as larger items such as jackets and a paid-day off of work. In 16 of the 17 items examined, blood donations significantly increased (and there was no effect for the one other item), and in 16 of the 17 items studied no significant increase in deferrals or disqualifications were found. No study has ever looked at paying cash for actual blood donations, but several of the 17 items in the above studies involve gift cards with clear monetary value.
Although many lab studies and surveys have found differing evidence focusing on other outcomes than actual blood donations (such as stated preferences), the empirical record when looking at actual blood donations is thus far unambiguous: incentives increase donations.
Given the vast and important policy debate regarding addressing shortages for blood, organ and bone marrow in developed as well as less-developed economies, where shortages are especially severe, it is important to not only consider more complex human motivations, but to also provide reliable evidence, and interpret it carefully. The recent ruling by the 9th Circuit Court of Appeals allowing the legal compensation of bone marrow donors further enhances the importance of the debate and the necessity to provide evidence-based insights.
Here is a list of references:
Goette, L., and Stutzer, A., 2011: “Blood Donation and Incentives: Evidence from a Field Experiment,” Working Paper.
Lacetera, N., and Macis, M. 2012. Time for Blood: The Effect of Paid Leave Legislation on Altruistic Behavior. Journal of Law, Economics and Organization, forthcoming.
Lacetera N, Macis M, Slonim R 2012 Will there be Blood? Incentives and Displacement Effects in Pro-Social Behavior. American Economic Journal: Economic Policy 4: 186-223.
Lacetera N, Macis M, Slonim R.: Rewarding Altruism: A natural Field Experiment, NBER working paper.
