The economics of Covid-19 liability

The more you are interested in test, track, and trace, the more you should favor at least partial liability waivers for business, at least that is how I see it.  Here is an excerpt from a new paper by Daniel Jacob Hemel and Daniel B. Rodriguez:

Ex ante (before an exposure), the specter of liability generates incentives for businesses to take precautions that reduce the risk of virus transmission. Ex post (after an exposure), fear of liability may deter businesses from proactively informing customers and workers that they have been exposed to the virus through the business’s operations. The desire on the part of businesses to spare themselves from litigation may interfere with comprehensive contact-tracing efforts. To minimize the potentially perverse ex-post consequences of liability without sacrificing significant ex-ante benefits, the article proposes a limited safe harbor from liability for businesses that promptly contact customers and workers after learning about a possible exposure.

Again, here is my short liability study with Trace Mitchell of Mercatus.

Are faculty myopic?

Facing devastating financial losses related to the coronavirus pandemic, colleges and universities are cutting costs just about everywhere they can. Increasingly, that includes faculty and staff retirement benefits.

Duke, Georgetown, Northwestern and Texas Christian Universities are some of the institutions to announce cuts to retirement contributions in recent days. Some of these decisions have been more severe and more controversial than others…

Georgetown president John J. DeGioia also announced that the university will suspend all contributions to its employee retirement plan for the coming year, starting next month.

Does this mean they think their faculty are myopic, and also liquidity-constrained low savers?  Are the faculty myopic?  Especially if faculty are myopic, isn’t this worse for faculty welfare than just cutting nominal wages a bit?  What would Cass Sunstein say?  How should we model this response in terms of an underlying dynamic for admin.-faculty relations?  If this “works,” what will the next move of admin. be, with or without coronavirus in the world?

What might this possible myopia imply about the associated defects of faculty research and teaching?

I thank Bryan for an underlying conversation relevant to this post.  Here is the full article.

Thursday assorted links

How will Fairfax County evolve?

That is the topic of my latest Bloomberg column, here is one excerpt:

The immediate future of my region thus appears to be a major demand shock to the stores, acceptable continuing employment for the upper middle class, and economic devastation for lower-income individuals. The traditional mix of government-connected employment and retail will swing heavily in the direction of government. In essence, the federal government will pay its employees to click on Amazon while working from home.

And:

The ethnic dimension of Covid-19 in Fairfax County is especially noteworthy. Latinos make up 16.8% of the county’s population, but account for 62.7% of the diagnosed Covid-19 cases. And if you assume that perhaps lower-income Latinos are less willing or able to go to a doctor, the true percentage of the Latino cases may be higher yet.

I thus foresee a future where people are more reluctant to hire Latino immigrants for housework or for child care, and thus additional home responsibilities will fall on parents, probably disproportionately on women. In turn, I expect many Latinos to leave the area, at least temporarily, unable to afford the higher rents when there is little work. There may also be greater employer discrimination against Latino applicants, as unfair or unjust as that would be.

Those developments will lead to Fairfax County becoming whiter. (If you are wondering, blacks are a slightly lower Covid-19 case share in the county than population share).

Recommended, for all those who care.

My (second) Conversation with Paul Romer

Interesting throughout, here is the audio and transcript.  Here is the summary:

Paul Romer makes his second appearance to discuss the failings of economics, how his mass testing plan for COVID-19 would work, what aspect of epidemiology concern him, how the FDA is slowing a better response, his ideas for reopening schools and Major League Baseball, where he agrees with Weyl’s test plan, why charter cities need a new name, what went wrong with Honduras, the development trajectory for sub-Saharan Africa, how he’d reform the World Bank, the underrated benefits of a culture of science, his heartening takeaway about human nature from his experience at Burning Man, and more.

I liked the parts about charter cities and the World Bank the best, here is one excerpt:

COWEN: How optimistic are you more generally about the developmental trajectory for sub-Saharan Africa?

ROMER: There’s a saying I picked up from Gordon Brown, that in establishing the rule of law, the first five centuries are always the hardest. I think some parts of this development process are just very slow. If you look around the world, all the efforts since World War II that’s gone into trying to build strong, effective states, to establish the rule of law in a functioning state, I think the external investments in building states have yielded very little.

So we need to think about ways to transfer the functioning of existing states rather than just build them from scratch in existing places. That’s a lot of the impetus behind this charter cities idea. It’s both — you select people coming in who have a particular set of norms that then become the dominant norms in this new place, but you also protect those norms by certain kinds of administrative structures, state functions that reinforce them.

And this:

COWEN: If you could reform the World Bank, what would you do?

ROMER: Oh, that’s an interesting question. I think the Bank is trying to serve two missions, and it can’t do both. One is a diplomatic function, which I think is very important. The World Bank is a place where somebody who represents the government of China and somebody who represents the government of the United States sit in a conference room and argue, “Should we do A or B?” Not just argue, but discuss, negotiate. On a regular basis, they make decisions.

And it isn’t just China and the US. It’s a bunch of countries. I think it’s very good for personal relationships, for the careers of people who will go on to have other positions in these governments, to have that kind of experience of, basically, diplomatic negotiation over a bunch of relatively small items because it’s a confidence-building measure that makes it possible for countries to make bigger diplomatic decisions when they have to.

That, I think, is the value of the World Bank right now. The problem is that that diplomatic function is inconsistent with the function of being a provider of scientific insight. The scientific endeavor has to be committed to truth, no matter whose feathers get ruffled. There’s certain convenient fictions that are required for diplomacy to work. You start accepting convenient fictions in science, and science is just dead.

So the Bank’s got to decide: is it engaged in diplomacy or science? I think the diplomacy is its unique comparative advantage. Therefore, I think it’s got to get out of the scientific business. It should just outsource its research. It shouldn’t try and be a research organization, and it should just be transparent about what it can be good at and is good at.

And toward the end:

COWEN: Last question thread, what did you learn at Burning Man?

ROMER: Sometimes physical presence is necessary to appreciate something like scale. The scale of everything at Burning Man was just totally unexpected, a total surprise for me, even having looked at all of these pictures and so forth. That was one.

Another thing that really stood out, which is not exactly a surprise, but maybe it was the surprise in that group — if you ask, what do people do if you put them in a setting where there’s supposed to be no compensation, no quid pro quo, and you just give them a chance to be there for a week. What do they do?

They work.

For purposes of contrast, here is my first Conversation with Paul Romer.

Wednesday assorted links

1. How much do you need in the way of masks to stop an epidemic?

2. Robot dog herds sheep on a New Zealand farm.

3. Community labs and DIY biology (New Yorker, interesting piece).

4. John Cochrane talk on reopening.

5. Are airplanes actually pretty safe for Covid-19 risk?  (Not endorsing this piece or offering it up as advice, I do not myself know one way or the other.  Any opinions here?)

6. “More generally, the entire Yemeni monetary system has split on the basis of banknote age.”  The older notes of course no longer can be increased in supply and thus, if priced separately, are more stable in value.

7. Sweden is not getting to herd immunity very quickly.  This also seems to imply Swedish policy does not matter very much.

8. On the clustering of coronaviruses, recommended, important.  And more here.

9. How Hong Kong avoided nursing home deaths.

Incentivizing Plasma Donation for Convalescent Therapy

Kominers, Pathak, Sonmez, and Unver apply market design tools to incentivize convalescent therapy:

COVID-19 convalescent plasma (CCP) therapy is currently a leading treatment for COVID-19. At present, there is a shortage of CCP relative to demand. We develop and analyze a model of centralized CCP allocation that incorporates both donation and distribution. In order to increase CCP supply, we introduce a mechanism that utilizes two incentive schemes, respectively based on principles of “paying it backward” and “paying it forward.” Under the first scheme, CCP donors obtain treatment vouchers that can be transferred to patients of their choosing. Under the latter scheme, patients obtain priority for CCP therapy in exchange for a future pledge to donate CCP if possible. We show that in steady-state, both principles generally increase overall treatment rates for all patients|not just those who are voucher-prioritized or pledged to donate. Our results also hold under certain conditions if a fraction of CCP is reserved for patients who participate in clinical trials. Finally, we examine the implications of pooling blood types on the efficiency and equity of CCP distribution.

The idea is quite similar to the “no give, no take” rule for organ donation that I have promoted for many years. Namely, if you don’t sign your organ donor card you go to the back of the queue should you ever need an organ donation. Israel adopted the idea some years ago by giving points to people who signed their organ donor card. As with no-give, no-take, the point of the rules that Kominers et al. promote isn’t fairness per se but rather as an incentive to increase donations and thus increase the supply of plasma.

Covid career advice for young workers

Given COVID-19 and its accompanying economic issues, what do you think people in their early-mid 20s should be doing or thinking about right now in terms of saving, spending, career planning, etc.? What’s overlooked or wrong in the most obvious or common advice? (I.e., “sit tight”, “spend some money at local businesses”, “give to charity”, “learn a new skill”, etc.) Obviously, employment status matters and different skillsets, talents, etc. affect what one can and should do. Candidly, I’m not sure how best to disaggregate young workers in relation to my questions.

That is an email from Gregory Irving.  I am not sure my point here is “overlooked,” but if I had to offer one piece of advice it would be this:

“Right now it is harder than usual to build out your “soft network” of acquaintances, loose ties, and other people who could help you or become your future partners.  You just can’t go out and meet people in the old ways.  Yet in spite of this greater difficulty, virtually everyone’s allocation of time has shifted pretty dramatically.  So there ought to be entrepreneurial opportunities to build up soft networks in ways that would not have been possible pre-Covid.  Try to take advantage of those opportunities.”

What do you all say?

The new economics of chess

I just finished watching one of Chess24.com’s Magnus Carlsen-affiliated rapid on-line chess tournaments, when today (a day later?) I see that another tournament has started.  And with Magnus himself playing, as well as other world-class players.  Note that Magnus both plays in these tournaments as the #1 attraction, and he owns an equity share in them, albeit with other investors.

So I’ve been trying to model the production of chess services in my mind.

I start with the point that viewers care much more about live, fresh games than games from a week ago.  Many sports of course operate on this same basis.

The second point is that most chess players have a relatively low opportunity cost of time, Rogoff and Kasparov excepted, plus some chess players can substitute into poker for profit (and may have quit chess already).  In fact what they do in their spare time is to…play chess!  Often with each other, and often on-line.  So if you offer to pay them some amount for doing basically the same, they will sign up.  Especially during a pandemic when many of them are trapped under relatively severe quarantines.

It is also the case that a chess player can play many days in the year, perhaps not every day, but you really can play a lot without tearing your rotator cuff.

It then seems the equilibrium is a much higher supply of chess tournaments, especially since on-line play removes some of the previous barriers to entry, such as needing a venue and some physical infrastructure.

You might even end up with a kind of Malthusian equilibrium, where the supply keeps on expanding to meet a fairly low marginal cost.

But this is a “superstars” kind of competition, and so the returns will go to the scarce factor.  That scarce factor is Carlsen himself, who garners far more attention than any other player.  And as noted he is an equity holder in this venture and as a player he has been winning the #1 prize money.  Over time, you might expect the returns of some of the other players — maybe in the top ten but not so famous or glamorous — to approach the Malthusian level.  Perhaps much of the public doesn’t care if Magnus plays #9 or #16, who in any case are only a small number of rating points apart.

Notice how well Magnus Carlsen understands reputation and internet production.  He keeps on posting “Banter Blitz” videos on YouTube, which show him playing speed chess on-line and commenting on the games as they proceed.  He dramatically expanded the supply of chess tournaments, which he earns income from.  He already was “the scarce factor,” and he has dramatically expanded the supply of attention aimed his way.  He understands that successful internet production is frequent production.

On-line chess viewing is way up (NYT) with the pandemic, and also because of these efforts.

Do not underestimate Magnus Carlsen.  He has been #1 in classical chess, rapid, and blitz, all at the same time.  He is a huge YouTube star in chess.  He has won a tournament about chess trivia, and he has been #1 in fantasy football for the whole world (not an easy feat).

And now he is bringing an economic revolution to chess, with himself as the #1 labor and equity earner at the same time.

Will Covid-19 expose the ghost firms?

That is the topic of my latest Bloomberg column, here is one excerpt:

Demand for in-restaurant dining is likely to fall as well, though estimates vary. Since the average small business carries less than a month’s worth of liquid reserves, and the wait for a vaccine is likely to be at least a year, many restaurants will simply be unable to survive the shrinking of the market.

I call these places ghost restaurants because they are still walking around, so to speak, visible to us and listed on Yelp, but not really alive and without much of a future.

In a few months’ time, a significant number of these ghost enterprises will be gone. My drive around Northern Virginia, rather than being rich with culinary choice, will soon become fairly desolate — and the overall economic landscape will indeed be much emptier.

What else in our current capital structure might qualify as “ghost”?

And this:

And while an all-but-certain death awaits some businesses, others can look forward to mere stagnation. If you are a 23-year-old entrepreneur, how easy will it be to build up the network of “soft ties” that will help you launch the next phase of your career?

As many marginal businesses are going under, it is quite possible that the public-health situation will improve. Civic spaces will repopulate as commercial ones depopulate, giving urban landscapes a confusing feel. And because there will be fewer businesses to choose from, it will be all the harder for those remaining to enforce social distancing.

Many Americans have been clamoring lately for more freedom, and those desires are understandable. But as they emerge from lockdown, they might well be disappointed to discover that, above all else, what people will be exercising is the freedom to go out of business.

If you start by using the word “ghost” (better than zombie, in this setting), don’t be surprised if the column turns out a bit gloomy!

Tuesday assorted links

Does coronavirus mean the end of traditional education?

I will debating/discussing the topic “Does coronavirus mean the end of traditional education?” @ the Cambridge Union. A bit disappointing not to be in the hallowed hall but should be interesting nonetheless. The debate will be live-streamed at 2pm ET on Wednesday.

Will a move towards digital, decentralised teaching transform a model that once seemed so entrenched? Will the loss of exams become permanent for many? In an online panel with the Cambridge Union, four world-renowned figures share their perspective on what the future holds for education in the wake of the coronavirus pandemic.

Speakers:

Justine Greening served as Secretary of State for Education under Theresa May, following stints at International Development and Transport. Having left Parliament, Greening now chairs the Social Mobility Pledge.

Stephen Toope is Vice-Chancellor of the University of Cambridge. He previously held the same position at the University of British Columbia, and is perhaps best known for his regular emails to the Cambridge student body.

Alex Tabarrok is a Professor of Economics at George Mason University. Together with Tyler Cowen, he is best known as the co-founder of Marginal Revolution University, a free online platform for studying economics.

Shirley M. Tilghman was the nineteenth President of Princeton University, serving for twelve years until 2013. She is globally recognised for her scholarship in molecular biology.

Lord David Willetts, former Minister of State for Universities and Science under David Cameron in the UK.

Early distancing can be very potent

Finally a rainfall paper that perhaps you can believe in!?:

We test whether earlier social distancing affects the progression of a local COVID-19 out-break. We exploit county-level rainfall on the last weekend before statewide lockdown. After controlling for state fixed-effects, temperature, and historical rainfall, current rainfall is a plausibly exogenous instrument for social distancing. Early distancing causes a reduction in cases and deaths that persists for weeks. The effect is driven by a reduction in the chance of a very large outbreak. The result suggests early distancing may have sizable returns, and that random events early in an outbreak can have persistent effects on its course.

Here is more from Rolly Kapoor, et.al.  Here is a relevant Twitter thread, via Gaurav Sood.

A charter city finally in Honduras? (from Mark Lutter)

Prospera, Honduras just launched on the island of Roatan. It is a ZEDE (Zona de Empleo y Desarollo Economico), the legacy of Paul Romer’s time in Honduras promoting charter cities. It has substantial autonomy, different taxes, different courts, different labor law, and more. It is one of the most innovative jurisdictions in the world.

First, a bit of history. The ZEDE legislation was passed in 2013. It allows for the creation of a special jurisdiction with an almost unprecedented amount of autonomy. The only recent comparison is the Dubai International Financial Center, which, as the name suggests, focuses exclusively on finance. The ZEDE legislation allows for different labor law, environmental law, business registration, dispute resolution, and more. It is more analogous to Hong Kong, or at least the Hong Kong ideal, of one country, two systems.

In 2013 and 2014 rumors swirled about ZEDE projects, including a port in the Gulf of Fonseca, but nothing materialized. I even moved to Honduras in 2014, at the time the murder capital of the world, to be closer to the action. As late as 2017, the Honduran government was saying projects were about to begin.

The ZEDE legislation is the successor to the RED (Regiones Especiales de Desarrollo) legislation, which Romer helped introduce to build charter cities. Romer had a falling out with the Honduran government in 2012. Shortly after his departure, the RED legislation was declared unconstitutional. The ZEDE legislation was passed to address the constitutional shortcomings of the RED legislation, though it also benefitted from seeing the Supreme Court judges who ruled against the RED legislation fired. To be fair, the government claims they were fired for a ruling on a police brutality case, which I am wont to believe. If there was sufficient government support behind ZEDEs to fire Supreme Court justices, it would not have taken seven years for the first ZEDE to be launched.

I worked with much of the Prospera team under the previous incarnation, NeWAY Capital (I’m not sure of the formal relationship between the two). I left around the time they pivoted to Honduras, 2.5 years ago. I was skeptical, as Honduras was the place projects went to die. Years had gone by without projects gaining meaningful traction and I expected them to run out of funding before launching. I’m happy to have been proven wrong.

Congratulations to Erick Brimen and the team. It is a lot of work to create a new jurisdiction, especially one as innovative as Prospera. The Charter Cities Institute has two team members spending approximately two thirds of their time on developing a “Governance Handbook,” a guide to the governance of a new jurisdiction. It will likely take about 9 months to complete, and that is just for the handbook, not implementation…

Residency costs $1300 annually, unless you’re Honduran, in which case it costs $260. Becoming a resident also requires signing an “Agreement of Coexistence,” a legally binding contract between Prospera and the resident. Prospera, therefore, cannot change the terms without exposing itself to legal liability. Most governments have sovereign immunity, this goes a step beyond removing that, with a contract that clearly defines the rights and obligations on both sides.

After signing the Agreement of Coexistence, all residents are required to buy general liability insurance which will ensure themselves against both civil and criminal liability. General liability insurance, as well as criminal liability insurance, has been proposed by economist Robin Hanson, among others.

That is from an email by Mark Lutter, Founder and Executive Director of the Charter Cities Institute. I thank Massimo for drawing my attention to this.