President Obama's recent Executive Order regarding cost-benefit analysis and administrative procedure has drawn criticism both for what it does and for what it does not do. The Order provides little new guidance on how administrative agencies and the Office of Information and Regulatory Affairs (OIRA) should conduct cost-benefit analysis, and perhaps unavoidably it leaves many pertinent questions unanswered. But it does issue one significant directive: it requires agencies to formulate plans to perform "retrospective analysis" of existing significant regulations.
Continue reading "Obama's Retrospective" »
Cost-Benefit Analysis (CBA) is the dominant mechanism for weighing the utility of proposed regulation, but it is not without its critics. One major alternative is so-called "feasibility analysis". Eric Posner presented today his current paper (co-authored with fellow Chicago professor Jonathan Masur) which provides the first sustained, comprehensive attack on feasibility analysis. They conclude that feasibility analysis is unacceptably vague and has no substantial normative foundation justifying its use as an alternative to CBA.
Feasibility analysis proceeds in three steps. First, the regulatory agency identifies a risk. Second, it identifies the relevant industry that it will seek to reduce the risk in. And third, it tries to reduce the risk to the greatest degree possible, consistent with two restraints: technological, and economic. Because one of the main justifications for using feasibility analysis is that it can better account for concentrated harms, the sort of economic result that would render a proposed regulation "unfeasible" is often one that causes entire plants to close (as opposed to industry-wide layoffs scattered across every factor). Alternatively, OSHA has adopted a standard which says a regulation cannot cause more than either a 1% drop in revenue or 10% drop in profits.
Continue reading "Student Blogger - Summer WIP: Eric Posner Attacks Feasibility Analysis" »
A die-hard retributivist and an efficiency-obsessed utilitarian walk into a bar... and start discussing punishment theory. Beyond their propensity for the abstruse, what might these two philosophical opponents share in common? If anything, it will be the belief that the intentional harm (punishment) a state inflicts upon its own citizens be calibrated to the perceived severity of the crimes those citizens commit. For the former, proportionality is fundamental; for the latter, the loss of marginal deterrence that follows imposition of disproportionate punishments would be unpalatable. How, then, does punishment affect the subjective well-being of those who are punished? That is the question Professors Jonathan Masur, John Bronsteen, and Christopher Buccafusco set out to answer in their new paper, Happiness and Punishment (forthcoming U Chi L Rev), which they presented at the Crime and Punishment Workshop last week.
Continue reading "Student Blogger - Dispelling the Myth of Punishment Proportionality" »
Update: Audio of this talk is now available, and video is embedded after the jump.
Preventing global warming requires lowering carbon production, and China produces a high level of carbon emissions. China gains a significant advantage to its economic growth from its continued use of fossil fuels, but the harms from global warming will fall disproportionately on other countries. Thus, some writers advocate giving side payments to China as part of an international agreement to reduce global warming. Their analysis treats China as a "black box"; the input is money, the output is reduced carbon emissions. But when we open the box, the situation is not so simple. The box really has two Chinas inside.
In the most recent edition of Chicago's Best Ideas on January 14, Professors Daniel Abebe and Jonathan Masur presented "The Two Chinas and the Problem of Global Warming," based on their paper "Climate Change and Internal Heterogeneity." The first China is Eastern China. Eastern China is prosperous, having experienced a blistering growth rate around 10 percent annually over the past couple decades. Most of China's major cities dot the Eastern coast, and the cities are hubs for finance and manufacturing. The second China is Western China. Western China resembles a developing country and is still mostly agrarian. Per capita GDP is half what it is in the East (9,967 yuan versus 19,813 yuan). The interplay between the two gives the Chinese Communist Party (CCP) incentives to not accept a climate-change treaty.
Continue reading "Student Blogger - Chicago’s Best Ideas: Daniel Abebe and Jonathan Masur, "The Two Chinas and the Problem of Global Warming"" »
Just over a week ago, Nate Silver, the founder of the excellent political blog FiveThirtyEight.com, wrote about potential manipulation of Intrade’s information market on the 2008 presidential race. It’s difficult to gauge whether this manipulation is in fact occurring, in part because it’s hard to imagine that very many traders would be willing to invest thousands of dollars in moving a relatively meaningless information market more than a month before the election. Late last week, however, Intrade’s political market almost certainly fell subject to strategic manipulation, this time with a much more prosaic goal: to exploit overlapping markets in order to turn an easy profit.
Continue reading "Strategic Manipulation of the Information Markets" »
At the moment of this writing, traders on Intrade—probably the most prominent and active information market in the world—have Barack Obama at about 53.5% to win the 2008 election. Meanwhile, over at the Iowa Electronic Markets—maybe the second-most prominent information market in the United States—traders have Senator Obama at approximately 63% to win the election. This type of broad schism is not supposed to occur in information markets (or any other type of market, for that matter). It raises a number of interesting questions about why the divergence has developed, why it has been allowed to persist, and which of the two figures is to be believed.
Continue reading "Peculiar Discrepancies in the Political Markets" »