Results for “reciprocity”
35 found

Yglesias on Occupational Licensing

I am outsourcing this post entirely to Matt Yglesias because it's awesome and it made me very happy to see how public choice has moved out in the world:

A number of people, including many commenters here and even alleged
conservative James Joyner think you should need a professional license to become
a barber because you might hurt
someone with a straight razor
. Uh huh. At best this would be an argument for
regulating people who do shaves with a straight razor, which would be
considerably narrower than current comprehensive regulation of hair

Meanwhile, though “torts and the free market will take care of it” isn’t the
answer to everything, it’s surely the answer to some things. Getting
some kind of training before you shave a dude with a straight razor is obviously
desirable in terms of strict self-interest. If you screw it up in a serious way,
you’ll face serious personal consequences and the only way to make money doing
it–and we’re talking about a very modest sum of money–is to do it properly.
People also ought to try to think twice about whether their views are being
driven by pure status quo bias. Barbers are totally unregulated in
the United Kingdom
, is there some social crisis resulting
from this? Barber regulations differ from state to state, are the stricter
states experiencing some kind of important public health gains?

Last you really do need to look at how these things play out in practice. If
you just assume optimal implementation of regulation, then regulation always
looks good. But as I noted
in the initial post
the way this works in practice is the boards are
dominated by incumbent practitioners looking to limit supply. One result is that
in Michigan (and perhaps elsewhere) it’s hard for
ex-convicts to get barber licenses
which harms the public interest not only
by raising the cost of haircuts, but by preventing people from making a
legitimate living. States generally don’t grant reciprocity to other states’
licensing boards, which limits supply even though no rational person worries
about state-to-state variance in barber licensing when they move to a New Place.
In New Jersey, you need to take the
straight razor shaving test to cut women’s hair
because they’re thinking up
arbitrary ways to incrementally raise the barrier to entry.

In principle, you could deal with all these problems piecemeal. But
realistically this sort of problem is inevitably going to arise when you pit the
concentrated interest of incumbent haircutters against the diffuse interest of
consumers. It’s hard enough to make sure that really important regulatory
functions related to environmental protection, public safety, and financial
stability are done properly.

The symmetry thesis

The thesis is simple, and almost everyone disagrees with it upon first hearing.

The symmetry thesis: A given person likes (loves) you as much as you like (love) him or her.

I have encountered many apparent refutations of the symmetry thesis,
but with time most have turned out to be spurious.  I find the symmetry
thesis a surprisingly strong predictor of human behavior and

Do I want to know how much you like me?  It is simple.  I imagine
how much I like you.  (If you do the same, are we circular?  Or does
some kind of fixed point theorem apply?)

Let me rule out or explain some obvious "counterexamples."  If a guy
stalks you, and you can’t stand him, the reality is that he is probably
more hostile to you than loving.  The thesis fits.

Break-ups are tricky and they provide the best counterexamples.  But
who really left whom is not always obvious; it can take several years
to figure out what was going on.  Often the leaving party is the one
who first develops a narrative of how things might be different; this
is distinct from liking or loving the other person less.  Other people
leave pre-emptively.

Unilateral crushes are possible and indeed common, although with
repeated contact they usually collapse into symmetry, one way or the

I can imagine several (non-exclusive) mechanisms in support of the
symmetry thesis.  Perhaps "having a connection" — which is mutual by
nature — is the key to true liking and attraction.  That is my favored
view.  Note that it creates a possible exception for people who can
like or love others without having any real connection with them.  I
tend to think of such likes as delusional.

Alternatively, perhaps at least one person is a "fraidy cat," and
won’t let himself or herself fall for the other, or even like the
other, without witnessing signs of reciprocity.  The two people then
lead each other down the pathway of like, in a kind of low-key
intertemporal seduction, sans the sex.  Or with it.

Perhaps we like other people for their intrinsic qualities less than
we pretend.  Mostly we like people for liking (loving) us. 

Yes I know that most of you don’t believe it, and have plenty of
counterexamples to offer.  But keep it in the back of your mind, and
see if it proves useful over the next few years.

The hot new papers in Industrial Organization

Hart, Oliver and Holmstrom, Bengt. “A Theory of Firm Size and Scope,” available at

Mullainathan, Sendil, and Scharfstein, David. “Do the Boundaries of the Firm Matter?” American Economic Review (May 2002) available at

Rotemberg, Julio. “Altruism, Reciprocity, and Cooperation in the Workplace,” 2002, available at

Rotemberg, Julio. “Fair Pricing,” available at

Baker, Malcolm and Wurgler, Jeffrey. “A Catering Theory of Dividends,” Journal of Finance (2004), available at

Baker, Malcolm and Ruback, Richard. “Behavioral Corporate Finance: A Survey,” found at

Hall, Brian and Murphy, Kevin J, “The Trouble with Stock Options,” Journal of Economic Perspectives, Summer 2003, also at

Murphy, Kevin J. and Zaboznik, Jan. “CEO Pay and Appointments,” American Economic Review, May 2004, also at

Jense, Michael, Murphy, Kevin J., and Eric Wruck. “Remuneration: Where We’ve Been, How We Got to Here, What are the Problems, and How to Fix Them,” available at

Crandall, Robert W. “An End to Economic Regulation?” available at

Crandall, Robert and Whinston, Clifford, “Does Antitrust Improve Consumer Welfare?: Assessing the Evidence,” Journal of Economic Perspectives (Fall 2003 ), 3-26, available at

Happy reading…!

Neuroeconomics and trust

Today’s Financial Times runs a feature article on neuroeconomics, an offshoot of experimental economics.

Why do people cooperate in experimental games?

…during the games, Prof Smith’s team scanned players’ brains using functional magnetic resonance imaging. The FMRI scan showed that players who co-operated were using parts of their brain called Brodman’s areas 8 and 10. These areas had previously been associated with thinking about the mental activities and the motivations of others, and of delaying gratification to receive higher rewards later. Non-cooperative players did not use these parts of the brain, and neither did those who knew they were playing against computers instead of human opponents.

This, argues Prof Smith, is consistent with the reciprocity explanation: players are thinking about the likely responses of other players and deciding to trust them.

Brain scans are not the only tool of neuro-economists. Other approaches include measuring pulse rates, skin conductivity and hormone levels. And as a result of such experiments, neuroeconomics boasts an eclectic collection of findings – one of them being that ovulating women are less trustworthy than the rest of us…

Would you like to hear more about ovulating women?

Prof [Paul] Zak has also found that women who take part in the trust game while they are ovulating send back substantially less money to their fellow player than other women or than men – crudely, they are less trustworthy. He explains: “The physiological reason is that progesterone suppresses the effect of oxytocin. The evolutionary biological reason is that is that if you’re about to get pregnant, you should be very careful about overreacting to the social signals you receive. In addition, you don’t want to be giving away resources.” Prof Zak points out that since trust is fundamental to economic development, a better understanding of the oxytocin and the physiology of trust could be fundamental for promoting development. The Bangkok Post has already picked up on his work: the newspaper says that since the oxytocin stimulants massage, food and sex are much beloved of Thais, Thailand’s economic development is assured.

For those interested, GMU researcher Kevin McCabe has started a fledgling neuroeconomics blog.

Are student evaluations a good idea?

Here is Michael Huemer’s very interesting critique of student evaluations of professors, full of cites and links. Yes, student evaluations correlate positively with other measures of teaching effectiveness. Take multiple sections of the same course and give a common final exam, the correlation is in the neighborhood of 0.4 to 0.5.

On the other hand, a professor gets a much better evaluations if students think they will get good grades. The statistical correlations are strong and hard to deny. And in one study 70 percent of students admitted that their evaluation was influenced by the grade they expected to get. See this game theory article on how one-shot reciprocity can work.

In one survey, 38 percent of professors admitted to dumbing down their courses to get better evaluations.

Cosmetic factors such as appearance have a big influence on evaluations.

Huemer offers no policy conclusion. He does note that ratings by colleagues and other observers do not agree with each other very much and thus cannot stand as a serious alternative.

If you are curious, I could not find Huemer’s student evaluations through a web search.