Category: Law

Women’s liberation as a financial innovation

In one of the greatest extensions of property rights in human history, common law countries began giving rights to married women in the 1850s. Before this “women’s liberation,” the doctrine of coverture strongly incentivized parents of daughters to hold real estate, rather than financial assets such as money, stocks, or bonds. We exploit the staggered nature of coverture’s demise across US states to show that women’s rights led to shifts in household portfolios; a positive shock to the supply of credit; and a reallocation of labor towards non-agriculture and capital intensive industries. Investor protection deepened financial markets aiding industrialization.

That is from a recent paper by Moshe Hazan, David Weiss, and Hosny Zoabi, via Jennifer Doleac, who again has a new podcast series on law and economics.

New paper by Donohue and Levitt on abortion and crime

Donohue and Levitt (2001) presented evidence that the legalization of abortion in the early 1970s played an important role in the crime drop of the 1990s. That paper concluded with a strong out-of-sample prediction regarding the next two decades: “When a steady state is reached roughly twenty years from now, the impact of abortion will be roughly twice as great as the impact felt so far. Our results suggest that all else equal, legalized abortion will account for persistent declines of 1 percent a year in crime over the next two decades.” Estimating parallel specifications to the original paper, but using the seventeen years of data generated after that paper was written, we find strong support for the prediction. The estimated coefficient on legalized abortion is actually larger in the latter period than it was in the initial dataset in almost all specifications. We estimate that crime fell roughly 20% between 1997 and 2014 due to legalized abortion. The cumulative impact of legalized abortion on crime is roughly 45%, accounting for a very substantial portion of the roughly 50-55% overall decline from the peak of crime in the early 1990s.

Here is the NBER link, I have not had a chance to read this, but of course there are extensive earlier debates.  The pointer is from Dina Pomeranz.

Dominick Armentano emails me about Standard Oil

Tyler,

Just watched your recent interesting  exchange with Professor Wu on whether the Standard Oil divestiture made public policy sense.

Wu asserted that the decision was good public policy. You said you were not so sure since  the evidence (on competition and consumer welfare) prior to divestiture may have been ambiguous. Wu had a near heart attack at that suggestion which showed me, of course, that he has never read the case, has never read the trial record (it’s 11,000 pages long and the State of Connecticut library in Hartford actually had a copy when I was researching this case back in 1970) and has never read any economist (such as myself) that has done  some of that work so that professors such as Wu can be marginally smarter in policy debates.

This is one of the most misunderstood cases in antitrust history. (Even Bork, who gets much of the revisionist case history correct, totally flinches on this case; he does nearly nothing with it.)

The first misunderstanding in almost all of the law texts is that this is the first “rule of reason”  antitrust case. That implies that the SC must have sifted through all of the conflicting facts and arguments presented at court and determined that Standard had acted “unreasonably.”  Totally False.  A modified rule of reason approach was articulated in the case by Justice White in 1911 but, of course, was never applied to the specifics in Standard.

As any antitrust lawyer can tell you this is a job for a lower court anyway, not for the SC; but this case was never remanded. The SC simply decided that the many mergers by Standard prior to 1890 constituted an attempt to monopolize in violation of the Sherman Act and, notice, divestiture follows logically from that reasoning. But whether Standard ever “restrained trade” (as we now understand the meaning of that phrase, i.e. able to reduce industry output  and raise industry price) was NEVER determined. Thus whether Standard missallocated resources, charged monopoly prices, repressed innovation, etc…was never decided by the SC or any other court.

Which leaves totally open the question of what was actually going on in the oil industry between say 1880 and 1907 (aside from the many mergers). I determined that this industry (crude oil, transportation, refining, marketing was all very small ( this is pre-gasoline after all); that there were few if any legal barriers to entry and that business organizations entered and left with some frequency, typical of a young and innovative industry; that Standard, despite mergers, always had many rivals in refining (Texaco, Pure Oil,  Associated Oil and Gas, Sun Oil, Gulf and many many others) and, of course, there were hundreds of firms in crude oil production and marketing which were never “monopolized”; that  costs and prices decreased throughout the period of alleged monopolization (even Ida Tarbell admits this. Indeed I got much of my cost and price information from her “History of the Standard Oil Company”; that Standard’s market share decreased in the 10 year period prior to the antitrust suit (1907); and that, as John McGee argued long ago, that Standard probably did not engage in predatory pricing.  There is much much more to this story and I tell a good share of that in “Antitrust & Monopoly.”

Perhaps Wu can make the case that the divestiture in 1911 produced a better result (in terms of all of the things that economists measure) than what would have happened if nothing dramatic had been done. That’s counter-factual so good luck with that!! All I know is that his knowledge of the actual history of the oil industry is quite stunning and I fear for the life of his more curious students.

Dom.

As I said in the Wu debate itself, I do not know enough about this case and I am agnostic on the question.  Still, there is a perspective you don’t usually hear, and so I am passing it along.

The internet gang deconversion culture that is Brazil

As gang wars drive Brazil’s homicide rate to historic highs, evangelical pastors — long revered in the nation’s slums and prisons — have come up with a new way to protect members looking for a way out.

Gang leaders say the only way to leave the business alive is to convert to Christianity. So Barros, a televangelist popular here in western Brazil, memorializes a gang member’s embrace of the ancient articles of faith using the most modern of tools: He records the conversion on his smartphone and posts the videos on YouTube, Facebook and WhatsApp. The converts gain immunity against retribution by rival gangs and their own.

Gang leaders and law enforcement officials say it works.

“We aren’t going to go against the will of God,” a local leader of the powerful Comando Vermelho, the gang that was pursuing Viera, told The Washington Post. “God comes first, above everything.”

And there is an enforcement mechanism:

When his attackers saw it [the deconversion video], they dropped their pursuit. But they monitored him for months, checking to see if he was going to church or had contact with his former leaders.

“If I do anything wrong, they will kill me,” Cunha said. “I have to take the video seriously. They don’t tolerate regressions.”

Here is more from Marina Lopes at The Washington Post, interesting throughout.

Harvard and Ronald Sullivan, why Harvard was basically right

I hope your head doesn’t explode, but it seems to me that Harvard and Matt Yglesias are right about the dismissal of Sullivan from his Winthrop House post at Harvard.  Matt explains:

Sullivan isn’t a public defender who’s simply taking the clients assigned to him. He’s not even a full-time criminal defense lawyer who just takes whichever clients happen to come through his door. He’s a busy guy who has classes to teach, a dorm to administer, and various other demands on his time. While it’s obviously true that all criminal defendants have a right to an attorney, it’s equally obvious that criminal defendants don’t have a particular right to Ronald Sullivan’s services.

Now, I don’t doubt that Harvard may have acted for what in part are the wrong reasons, namely asymmetric treatment of left-and right wing causes and cases.  Still, it seems reasonable to me that Harvard insists that its faculty dorm administrators face a minimum of outside distractions, especially controversial distractions, without having to judge whose fault is the controversy (Sullivan’s fault? Harvard’s fault? the fault of the possibly “snowflaky” students?).  Maybe Harvard would have been unfair and inconsistent had another, non-Weinstein defendant been involved, still that does not make Sullivan’s dismissal the wrong decision.

On top of that, having “snowflake” students in the dorm is still a reason to make Sullivan choose either the dorm or the legal case — complainers don’t always have to be correct for their wishes to have some validity.  It really is about helping students focus on their studies, and sometimes that might mean removing distractions which distract for maybe not entirely rational reasons.  Furthermore, in this case maybe the distraction was rational to some extent (I genuinely do not know on that one as I do not have direct information, Matt thinks yes but in my view leaps to quickly to that conclusion).

Let’s say I hired a TA for my Econ 101 class, and then I learned that TA would be defending Edward Snowden in his or her spare time.  Probably I would ask for another TA!  And that has nothing to do with my view of Snowden, one way or the other, or whether my students have rational views of Snowden or not (I genuinely do not know if they do).

With the Sullivan/Weinstein episode, it is not difficult to imagine the media becoming “too interested” in Winthrop House and Sullivan’s role, for media-prurient reasons, and to the detriment of student focus.  It is not crazy for Harvard to choke this off before it gets started, with no animus required toward Sullivan or any particular defendant.

Note also this from Matt:

At least some of the heat around this topic stems from a measure of confusion among the general public as to what the job of faculty dean amounts to. It sounds like a lofty academic post but actually is closer to being a kind of glorified RA — though even this is arguably an overstatement of the role.

Overall, I don’t think this is the right cause for free speech advocates, opponents of PC in universities, etc.  It seems to me like a private institution making an entirely defensible governance decision, on a matter which does quite genuinely fall under its governance purview.

What is the optimal tax rate on restaurants?

bhauth asks me:

What do you think the optimal tax rate on restaurants would be? The current rates seem high to me:

1) The marginal substitution rate between restaurants and cooking at home is high.

2) Cooking at home uses untaxed labor. Cooking in restaurants uses taxed labor, and then customers pay sales taxes on that taxed labor. Those sales taxes are often *higher* than normal sales taxes, because food from restaurants is a “luxury good”.

Putting aside general fiscal considerations (e.g., to which other taxes are we comparing it?), I see a few main questions here:

a. Yes, eating in restaurants contributes to weight gain, but how much is that a self-control problem vs. an internalized decision of cost vs. benefit?

b. How much do cheap restaurants encourage families to have more children, a social positive in my view?

c. How much do cheap restaurants take away the bonding that arises from the family dinner table experience?  And how often is that bonding a net negative with lots of fights and screaming?

d. Will taxing restaurant meals — as opposed to specific taxes on meat — on net lower beef-eating and carbon/methane problems?

e. Do restaurant food suppliers treat farm animals better or worse than do suppliers of home-cooked meals?

I say a-e are mostly hard to measure, so this gives us a common problem in economics: you have one clear, and significant, effect, and a bunch of hard to measure effects which are hard to assign a net value to.  Should you be willing to recommend policy on the basis of the one effect you can clearly see, and then widen the confidence bands?  Or should you just keep your mouth shut altogether?

What if your audience finds a blog post like this one too complicated or too annoying?

The deregulatory polity that is Idaho

Something rather remarkable just happened in Idaho. The state legislature opted to—in essence—repeal the entire state regulatory code. The cause may have been dysfunction across legislative chambers, but the result is serendipitous. A new governor is presented with an unprecedented opportunity to repeal an outdated and burdensome regulatory code and replace it with a more streamlined and sensible set of rules. Other states should be paying close attention.

The situation came about due to the somewhat unconventional nature of Idaho’s regulatory process. Each year, the state’s entire existing body of regulations expires unless reauthorized for an additional year by the legislature. In most years, reauthorization happens smoothly, but not this year.

Instead, the legislature wrapped up an acrimonious session in April without passing a rule-reauthorization bill. As a result, come July 1, some 8,200 pages of regulations containing 736 chapters of state rules will expire. Any rules the governor opts to keep will have to be implemented as emergency regulations, and the legislature will consider them anew when it returns next January.

Here is more from James Broughel at Mercatus.

The cutthroat world of children’s food

It’s all about the data:

After a year-long investigation, a top California exec has been arrested by the FBI for allegedly hacking into a competitor’s website and stealing their customer data in an effort to ruin their business.

There is an unusual twist, however: this isn’t the high-stakes world of big tech or high finance, but American school lunches.

Chief financial officer of Choicelunch, Keith Wesley Cosbey, 40, was collared last month over claims that he illegally grabbed details from competitor The LunchMaster on what precisely youngsters across the San Francisco Bay Area like to eat and are allergic to.

He has been charged with unlawful computer access and fraud, and identity theft. If found guilty, Cosbey faces up to three years behind bars.

According to the criminal complaint against him, filed in San Mateo County, Cosbey stole data on hundreds of students, and then sent it anonymously to the local government department that oversees the school lunch program in an apparent effort to undermine his competitor.

Here is the full story, and here is another story, both via the estimable Chug.

Nick Clegg on breaking up Facebook

The first misunderstanding is about Facebook itself and the competitive dynamics in which we operate. We are a large company made up of many smaller pieces. All of our products and services fight for customers. Each one has at least three or four competitors with hundreds of millions, if not billions, of users. In photo and video-sharing, we compete against services like YouTube, Snapchat, Twitter, Pinterest and TikTok, an emerging competitor.

In messaging, we’re not even the leader in the top three markets — China, Japan and, by our estimate, the United States — where we compete with Apple’s iMessage, WeChat, Line and Microsoft’s Skype. Globally, the context in which social media must be understood, China alone has several large social media companies, including powerhouses like Tencent and Sina. It will seem perverse to people in Europe, and certainly in China, to see American policymakers talking about dismantling one of America’s biggest global players.

In this competitive environment, it is hard to sustain the claim that Facebook is a monopoly. Almost all of our revenue comes from digital advertising, and most estimates say Facebook’s share is about 20 percent of the United States online ad market, which means 80 percent of all digital ads happen off our platforms.

That is in the NYT, to be clear Clegg now works for Facebook.

What should I ask Eric Kaufmann?

I am doing a Conversation with him, no associated public event.  I am a big fan of his book WhiteShift (perhaps the best book of the year so far?), here is my review.  Here is Wikipedia on Eric:

Eric Peter Kaufmann (born 11 May 1970) is a Canadian professor of politics at Birkbeck College, University of London. He is a specialist on Orangeism in Northern Ireland, nationalismpolitical demography and demography of the religious/irreligious.

Eric Kaufmann was born in Hong Kong and raised in Vancouver, British Columbia, Canada. His ancestry is mixed with a quarter Chinese and a quarter Latino. His father is of Jewish descent, the grandfather hailing from Prostejov in the modern Czech Republic. His mother is a lapsed Catholic; he himself attended Catholic school for only a year. He received his BA from the University of Western Ontario in 1991. He received his MA from the London School of Economics in 1994 where he subsequently also completed his PhD in 1998.

Here is Eric’s home page.  He’s also written on what makes the Swiss Swiss, American exceptionalism, and whether the Amish will outbreed us all.

So what should I ask Eric?

Why a U.S.-China trade deal won’t change much

That is the topic of my latest Bloomberg column, here are some bits:

The trade talks are chaotic because a trade deal would be chaotic. By which I mean, it would be difficult to interpret and enforce, not unlike the present situation…

The basic problem is easy enough to state, though it is all but impossible to solve. Many of the U.S. objections to Chinese trade practices, regardless of their merits, are fundamental objections to how the Chinese economy is organized. They are more than mere complaints about easily monitored variables such as tariff rates.

…If a trade agreement is concluded, then, it is likely to have two parts: the parts that are easy to enforce, and the parts that aren’t. To the extent that the U.S. insists on greater Chinese compliance on the easier parts, a self-interested China will respond by shifting more trade onto the difficult-to-enforce parts of the agreement.

The tug of war will never cease. Trump will continue to tweet and move markets. The Chinese will continue to organize their economy to maximize state control. And maybe, over time, we will all recognize the broader truth: In a highly legalistic world, vague and hard-to define-strategies offer a competitive advantage.

Here is a new Reuters piece on how China already had started walking back many of its earlier commitments.

How Much Did Physicians Drive the Opioid Crisis?

It’s well known that the opioid crisis started with prescription abuse but how much abuse was driven by patients who fooled their physicians and how much was driven by physicians who responded to monetary incentives with a nod and a wink? Molly Schnell provides some evidence which even a hard headed rationalist like myself found startling.

In August of 2010, Purdue Pharma replaced old OxyContin with a new, anti-abuse version of OxyContin. The new version was just as good at reducing pain as the old but it was more difficult to turn it into an injectable to produce a high. If physicians are altruists who balance treating their patient’s pain against their fear of patient addiction and downstream abuse then they should increase their prescriptions of new Oxy. From the point of view of health, the new Oxy is simply a better drug and with less abuse to worry about altruistic physicians should be more willing on the margin to prescribe Oxy to reduce pain. So what happened? Prescriptions for Oxy fell immediately and dramatically when the better version was released.

Now, to be fair to the physicians, patients who wanted to abuse Oxy stopped demanding it after the new version was released and physicians might not have realized how many of their prescriptions were being abused or sold on the secondary market. The aggregate data, which is a combination of supply and demand shifts, can mask individual physician behavior. Schnell, however, has data on the prescribing behavior of about 100,000 individual physicians who prescribed opioids.

Schnell finds that nearly a third of physicians behaved exactly as the altruism theory predicts. Namely, when new Oxy was released these altruistic physicians increased their prescriptions of Oxy and they maintained or reduced their prescriptions of other opioids. In fact, the median altruistic physician doubled their prescriptions of the new and improved Oxy. But almost 40% of physicians in Schnell’s sample behaved in a decidedly non-altruistic manner. Beginning in August of 2010, these non-altruistic physicians halved their prescriptions of new and improved Oxy and increased their prescriptions of other opioids. It’s difficult to see how attentive and altruistic physicians could decrease their demand for a better drug.

Schnell also finds that some parts of the country had fewer altruistic physicians and the consequences are evident in mortality statistics:

…. these differences in physician altruism across commuting zones translate into significant differences in mortality across locations…a one standard deviation increase in low-altruism physicians is associated with a 0.33 standard deviation increase in deaths involving drugs per capita. While this association is reduced conditional on observable commuting zone characteristics (including race, age, education, and income profiles), a significant and large association between the share of low-altruism physicians and drug-related mortality remains. Furthermore…this relationship persists even conditional on the number of opioid prescriptions, suggesting that the association is driven by the allocation of prescriptions introduced by low-altruism physicians rather than simply the quantity.

The less-altruistic physicians increased prescriptions for other opioids after new Oxy was introduced but perhaps even this was better than the non-prescription alternatives like heroin and street fentanyl. Indeed, Alpert, Powell and Pacula show that the introduction of improved Oxy led to more deaths because people switched to more dangerous, illegal alternatives. So was it a bad idea to introduce a better drug? Maybe, but if new Oxy had been introduced earlier perhaps fewer people would have been addicted, leading to less demand for illegal markets later. Thus, static and dynamic effects may differ. The economics of dual use goods is complicated.

Do minimum wage hikes get rid of bad restaurants?

We study the impact of the minimum wage on firm exit in the restaurant industry, exploiting recent changes in the minimum wage at the city level. We find that the impact of the minimum wage depends on whether a restaurant was already close to the margin of exit. Restaurants with lower ratings are closer to the margin of exit on average, and are disproportionately driven out of business by increases to the minimum wage. Our point estimates suggest that a one dollar increase in the minimum wage leads to a 10 percent increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating on Yelp), but has no discernible impact for a 5-star restaurant (on a 1 to 5 star scale). We expand the analysis to look at prices using data from delivery orders, and find that lower rated restaurants also increase prices in response to minimum wage increases. Our analysis also highlights how digital data can be used to shed new light on labor policy and the economy.

That is from a new NBER working paper by Dara Lee Luca and Michael Luca.  Obviously this will not be good for jobs, yet part of me believes that creative destruction in the restaurant sector is undersupplied…

Algiers fact of the day

There has not been a single property transaction in the Casbah in 40 years, said Mr. Ben Meriem, the head of the Paris institute. “No buyers, no sellers — for 30 percent of the buildings, we don’t even know who the owners are.”

Among the disused buildings, said Mr. Mebtouche, “eighty percent are owners who have abandoned their properties,” unable to pay for renovations.

Here is the longer NYT story by Adam Nossiter.  An excellent piece, though I would like to know more about the underlying regulations and incentives.