Corporate Law Before the FCA (or SEC)
In the late nineteenth century Britain had almost no mandatory shareholder protections, but had very developed financial markets. We argue that private contracting between shareholders and corporations meant that the absence of statutory protections was immaterial. Using approximately 500 articles of association from before 1900, we code the protections offered to shareholders in these private contracts. We find that firms voluntarily offered shareholders many of the protections that were subsequently included in statutory corporate law. We also find that companies offering better protection to shareholders had less concentrated ownership.
Acheson, Campbell and Turner writing in the Review of Financial Studies. Interesting implications for the US system of competitive federalism in corporate law.
Hat tip: Kevin Lewis.
Screening
Academic jobs are notorious for long, convoluted hiring processes, but becoming a school bus driver, at least in the county where I work, isn’t much easier. For an academic position, applicants submit a dossier (often packed with repetitive material), survive a screening interview (with a committee larded by ulterior motives), and visit the prospective employer for at least a day, during which they’ll be tested and measured by dozens of gatekeepers, before negotiating a complex employment package and earning the governing board’s rubber stamp, all of which can take over a year. Aspiring drivers attend an orientation, watch dozens of online videos, solicit moral references, pass a physical (including a drug screening), get a commercial learner’s permit (a laborious process that requires extensive testing and hours at the DMV), finish classroom and road training (at least 200 hours), sit for various written exams (failure of a single exam can mean removal from the program), complete a half-day CDL test (which includes a daunting pre-trip bus check), and undertake at least two weeks of on-the-job training before showing up at the intake office to request a route that probably isn’t available. Trainees are paid once they reach the classroom. I finished everything in about six months.
That is from Steve Salaita, who was forced to leave academia after several times making inappropriate remarks. Here is another bit from the same essay:
You hear ex-professors say it all the time and I’ll add to the chorus: despite nagging precariousness, there’s something profoundly liberating about leaving academe, whereupon you are no longer obliged to give a shit about fashionable thinkers, network at the planet’s most boring parties, or quantify self-worth for scurrilous committees (and whereupon you are free to ignore the latest same-old controversy), for even when you know at the time that the place is toxic, only after you exit (spiritually, not physically) and write an essay or read a novel or complete some other task without considering its relevance to the fascist gods of assessment, or its irrelevance to a gang of cynical senior colleagues, do you realize exactly how insidious and pervasive is the industry’s culture of social control.
Wordy at times, but mostly interesting throughout.
Monday assorted links
2. “Contrary to conventional wisdom, movements in the outflow rate account for most of the variation of the labor force participation rate: the LFPR increases in tight labor markets because fewer workers leave the labor force, not because more nonparticipants enter.” Link here.
3. “Yes, and the best part of it is that most of my studies were actually in philosophy, and I never put that on my CV—that I have a degree in philosophy—at all.” Norway’s sovereign wealth fund manager.
4. How Steph Curry learned how to shoot. An excellent look at how many dimensions of training are required for excellence. And pulling data from Reddit threads about NBA players, including about discrimination.
5. Only male movie stars matter for box office.
6. Economist Donald Harris is upset and the Jamaican media is all over it.
Reducing Discrimination with More Information
From Cui, Li and Zhang:
We conduct four randomized field experiments among 1,801 hosts on Airbnb by creating fictitious guest accounts and sending accommodation requests to them. We find that requests from guests with African American-sounding names are 19.2 percentage points less likely to be accepted than those with white-sounding names. However, a positive review posted on a guest’s page significantly reduces discrimination: When guest accounts receive a positive review, the acceptance rates of guest accounts with white-sounding and African American-sounding names are statistically indistinguishable.
In other words, taste based discrimination is weak but statistical discrimination is common. Statistical discrimination happens when legitimate demands for trust are frustrated by too little information. Statistical discrimination is a second-best solution to a problem of trust that both owners/sellers/employers and renters/buyers/workers want to solve. Unfortunately, many people try to solve statistical discrimination problems as if they were problems of invidious prejudice.
If you think the problem is invidious prejudice, it’s natural to try to punish and prevent with penalties and bans. Information bans and penalties, however, often have negative and unintended consequences. Airbnb, for example, chose to hide guest photos until after the booking. But this doesn’t address the real demands of owners for trust. As a result, owners may start to discriminate based on other cues such as names. Instead market designers and regulators should approach issues of discrimination by looking for ways to increase mutually profitable exchanges. From this perspective, providing more information is often the better approach. As Cui, Li, and Zhang write in a HBR op-ed:
Our recommendation is for the platform companies to build a credible, easy-to-use online reputation and communication system. Bringing information to light, rather than trying to hide it from users, is more likely to be a successful approach to tackling discrimination in the sharing economy.
Addendum: See also Tyler and I in The End of Asymmetric Information. We need to work with information abundance rather than try to push against the tide.
*VC: An American History*, by Tom Nicholas
An excellent and original economic history of venture capital, with lots of new material, brought together in a convenient and readable form. Here is one excerpt:
…nineteenth century whaling can be compared to modern venture capital in at least three respects. First, whaling was the archetypical skewed-distribution business, sustained by highly lucrative but low-probability payoff events. Voyages often lasted several years and and covered geographic areas in the search for elusive whale pod. The long-tailed distribution of profits held the same allure for funders of whaling voyages as it does for a venture capital industry reliant on extreme returns from a very small subset of investments. Although other industries across history, such as gold exploration and oil wildcatting, have been characterized by long-tail outcomes, no industry gets quite as close as whaling does to matching the organization and distribution of returns associated with the VC sector.
The book also covers VC in the Industrial Revolution, to what extent Mellon and Morgan can be thought of as venture capitalists, the institutionalization of venture capital in the 1950s, how the limited partnership structure came to VC, the roles of Intel and Genentech, Sequoia Capital, and the growth of a true Silicon Valley ecosystem.
How about this?:
During the 1970s, San Jose State University was graduating more scientists and engineers than Stanford or Berkeley, while local community colleges within the California system provided crucial access to technical training programs.
Recommended to anyone with an interest in the topic, you can pre-order here.
What will Singapore do with its NIRC?
‘NIRC’ – it’s a uniquely Singaporean economic abbreviation that stands for net investment returns contribution…
The total size of Singapore’s total reserves is a state secret, but estimates by most analysts put it at well above S$500 billion (US$370 billion)…
The Temasek Holdings chief executive wrote about how returns from the firm she leads, as well as GIC Private Limited, and the foreign reserves held by the central bank were the “single largest contributor” to the Singapore budget.
“Without tapping on the dividends or returns from GIC, [the Monetary Authority of Singapore], and Temasek, the government would have had to raise taxes long ago for social spending,” Ho wrote.
Without the NIRC, the Pioneer Generation Package – a S$9 billion programme unveiled in 2014 to help cover the health care costs of citizens born before 1949 – would probably have been funded by “higher taxes or cuts to other essential programmes”, according to Ho.
Here is the full story, via a loyal MR reader. If you wish to understand Singapore’s relatively low rates of taxation, you also need to understand NIRC. Here is my earlier post Singapore as financial corporation.
Mormon missionaries can now call and text home on a regular basis
Missionaries for The Church of Jesus Christ of Latter-day Saints can now call, text or video chat weekly, the First Presidency announced Friday.
This update to guidelines regarding communication between full-time missionaries and their families follows a decades-long tradition of missionaries only calling home twice a year — on Christmas and on Mother’s Day.
Effective immediately, the Church’s 65,000 missionaries are authorized to communicate with their families each week on preparation day by text messages, online messaging, phone calls and video chats, in addition to letters and emails.
What brought us to this new equilibrium? The older approach, and its transformative cultural isolation, seems quite attractive to me. Here is the full story, via Market Power.
Sunday assorted links
1. Who gets banned from Twitter?
2. The economics of solar panels.
3. The war against dollar stores.
4. reasons for typing in lower case
5. Robin Hanson overlooks Kg6. And Kg8.
6. Compare transit levels across cities.
7. India’s counterforce temptations with Pakistan (very important reading right now).
How do you teach writing in a scalable manner to third- and fourth-graders?
This is a bleg, so please leave your sagacious answers in the comments. Kelly Smith, of Prenda, writes me:
To summarize, I want kids to love writing, to see themselves as writers, and to improve their skill. I’d love to know about anyone who has done that systematically.
Are you able to help? Rest assured that your answers will be put to good use.
Do most Americans not want to live near tall buildings?
Here is an email I received from James Liu:
I think metropolitan geography was underdiscussed in the Amazon-NYC breakup. If you look at the Seattle, DC, and NYC areas, the main-city–secondary-city dynamic explains quite a bit.
Apparently, Americans don’t like living near tall buildings. In DC, the tall buildings were banished to the suburbs, and so it seems not unsuitable for a 25,000 person office campus to be built in Crystal City. In NYC, the tall buildings have been banished to Manhattan. When I lived in Brooklyn, they were planning the complex where the Nets would wind up. I watched a great deal of rage about plans to have 30-story buildings put up in downtown Brooklyn. This even though Brooklyn was a city of a million people but had fewer towers than, say, Milwaukee, or Jersey City, or take your pick. The argument was that tall buildings were appropriate for Manhattan, but not Brooklyn.
And in the Seattle metro, there is a cluster of tall buildings in Bellevue, just across a lake from Seattle, which is home to some tech firms (Zillow, Expedia, companies you’ve heard of). I don’t know how the city government was prevailed upon to allow it, but anyway it is there. I don’t think Amazon has much presence there, but Microsoft does, I think to compete with Amazon for transit-preferring workers. In some ways, Bellevue is like a bridge-and-tunnel borough more than it is like a suburb (Jersey City is a borough too, in that sense). Those who prefer to see it that way call Seattle the West Side and Bellevue (maybe Bellevue/Kirkland/Redmond) the East Side.
So it was not beyond imagining by a Seattle company that it was possible to build a tech campus in an outer borough. I don’t know how in the world NY’s city government would have imagined that such a thing was possible. Perhaps because De Blasio drives to work. A subway mayor like Bloomberg or Koch would have insisted on Hudson Yard. And New York would still have an HQ2.5. But that is another story for another email.
Saturday assorted links
1. Cat ladders the culture that is Swiss (good photos, recommended).
2. Quecca, ronna, and yotta: new prefixes are needed! Micro and nano ain’t enough.
3. How the conservative revolution stalled in the states (powerpoints, also recommended, strongly, for anyone working on social change). Matt Grossman and his work should be much, much better known.
4. What does touch mean in China?
6. “Vodka firm loses valuable iceberg water in apparent heist.”
7. Forget the Academy Awards, here is the 2019 European Tree of the Year contest.
The political culture that is China
News from the Middle Kingdom seems to be coming out systematically worse than what you might have been expecting, at least these days. Here is an update on censorship and content control:
The platform has been designed with a built-in “Xi Study Points” system (学习积分系统) that allows users to accumulate points on the basis of habitual use of the platform, from reading and viewing of content to the posting of comments and other forms of engagement. It has been widely promoted by local governments and ministries and departments across China, and there have also been reports that some work units have ordered employees to attain specified point levels, with disciplinary measures to be imposed for those who fail to comply…
The app defines several periods of activity as “lively intervals,” or huoyue shiduan (活跃时段), during which users engaging with the platform can earn double points — 0.2 for each article or video, 2 points for a full 30 minutes of use, and so on. The intervals are Monday through Friday from 8:30 PM to 10 PM, and on Saturdays and Sundays from 9:30 AM to 10:30 AM, and 3:30 PM to 4:30 PM. The system, then, incentivises Party members, once home from the office and done with family dinner, to spend golden hours of otherwise discretionary personal time engaging with “Xi Jinping Thought.”
Interesting and frightening throughout, via Comrade Balding.
Unicorns Found!
Dr. Jorge Pérez, an evolutionary biologist from the University of La Paz, and several companions, were exploring the Andes Mountains when they found a small valley, with no other animals or humans. Pérez noticed that the valley had what appeared to be a natural fountain, surrounded by two peaks of rock and silver snow.
Pérez and the others then ventured further into the valley. “By the time we reached the top of one peak, the water looked blue, with some crystals on top,” said Pérez.
Pérez and his friends were astonished to see the unicorn herd. These creatures could be seen from the air without having to move too much to see them – they were so close they could touch their horns.
While examining these bizarre creatures the scientists discovered that the creatures also spoke some fairly regular English. Pérez stated, “We can see, for example, that they have a common ‘language,’ something like a dialect or dialectic.”
Dr. Pérez believes that the unicorns may have originated in Argentina, where the animals were believed to be descendants of a lost race of people who lived there before the arrival of humans in those parts of South America.
While their origins are still unclear, some believe that perhaps the creatures were created when a human and a unicorn met each other in a time before human civilization. According to Pérez, “In South America, such incidents seem to be quite common.”
However, Pérez also pointed out that it is likely that the only way of knowing for sure if unicorns are indeed the descendants of a lost alien race is through DNA. “But they seem to be able to communicate in English quite well, which I believe is a sign of evolution, or at least a change in social organization,” said the scientist.
Click here for the rest of the story.
Why should blackmail be illegal?
David Henderson raises this question in a recent blog post, and here is Robin Hanson from 2011. I would suggest a few reasons why blackmail should be against the law in traditional ways:
1. The law serves a primary purpose of publicity, and advertising for a polity, and also the law serves symbolic functions. People still don’t give Singapore a break for making chewing gum illegal and the like, even though this restriction is not in fact a big source of tyranny there. I don’t see it as good for the United States and its reputation to make blackmail legal, even if the “legalize blackmail” arguments are perfectly sound in a Steve Landsburg kind of way. It’s just not worth the bad publicity.
2. As Coase pointed out long ago, blackmail typically involves an exchange setting with bilateral monopoly. And the material in question is often emotionally fraught, such as knowledge of a crime, of an affair, photos of private body parts, and so on. The process of the trading is painful and stressful for many people. Limiting that process could produce welfare gains, or at the very least legalizing that process, and thus producing more of it, won’t involve huge benefits. When the process of trade and bargaining is itself painful, some of the welfare theorems need to be rethought a bit. Of course the unilateral release of gossip can be terrible too, but perhaps it involves less potential for drawn-out situations and painful bargaining because the transacting it not allowed in the first place.
3. As Scott Sumner points out: “In practice, I suspect that most blackmail involves issues of sex, gender and drugs. (Soon we’ll have to add race to this list.) I don’t expect to convince others of my views here, but let me just say that I believe that our society is unable to think rationally in these areas. Thus I don’t see any great value in legalizing blackmail.”
4. Sometimes the efficient blackmailers are your immediate family, not strangers. Outlawing blackmail from outsiders gives them a semi-monopoly for an efficient, do-it-yourself at home, low transactions cost Coasean deal (“Darling, someone needs to take out the garbage…”). Let’s do blackmail right! And privately, out of the public eye, to avoid the problems discussed under #1. And as a matter of justice, shouldn’t it be the aggrieved spouse getting the gains here, not the National Enquirer?
Lint Barrage on climate change and capital taxation
I show that decentralizing the optimal allocation requires not only high carbon prices but also fundamental changes to tax policy: If the government discounts the future less than households, implementing the optimal allocation requires an effective capital income subsidy (a negative intertemporal wedge), and, in a setting with distortionary taxation, an effective labor-consumption tax wedge that is decreasing over time. Second, if the government cannot subsidize capital income, the constrained-optimal carbon tax may be up to 50% below the present value of marginal damages (the social cost of carbon) due to the general equilibrium effects of climate policy on household savings. Third, given the choice to optimize either carbon, capital, or labor income taxes, the socially discounting planner’s welfare ranking is ambiguous over a standard range of parameters. Overall, in general equilibrium, a policy-maker’s choice to adopt differential social discounting may thus overturn conventional recommendations for both environmental and fiscal policy.
That is from her discount rate paper. The broader lesson here is that all your intuitions about climate change, discount rates, and taxes might not hang together. Do not follow mood affiliation, rather think the issues through carefully.
For the pointer I thank the excellent KL. Here are other papers by Lint Barrage.