39 posts categorized "Misc Ideas"

November 13, 2007

Gift Giving and other Transfers

As the Holiday season approaches, Consumer Reports has placed advertisements warning consumers of the waste associated with gift cards, a growing and popular means of getting through birthdays, bar-mitzvahs and now, the Christmas season. Retailers (and some banks) love gift cards because a sizeable fraction are lost or allowed to expire, and many go unused while the vendor enjoys the interest. The value of unused cards has been estimated at $8 billion (though that number appears to be a cumulative stock rather than an annual flow), and there are retailers enjoying millions of dollars in annual income because of unused cards. Note that competition does not reduce the price of cards because of a kind of arbitrage and adverse selection; if $95 gave the recipient a card that could be exchanged for $100 worth of goods, then customers ready to make normal cash purchased would buy cards and quickly redeem them.

From the gift giver’s point of view, the primary alternatives to these cards are (1) “real” and let us assume returnable gifts, (2), cash and (3) no gift at all. Joel Waldfogel’s well-known work on the deadweight loss associated with Christmas has received plenty of attention, and has perhaps encouraged sophisticated readers to prefer gift cards over option (1). I may pretty good at knowing what my kids and their friends will like, and I may even be good enough at this so that gift cards will confer more utility than cash. I may be able to open up a new source of pleasure with a gift. At times, kids know to prefer gift cards over cash, because it removes their parents’ ability to restrict the purchase of video games, for example; at other times, a gift card from Borders, say, simply substitutes for what many parents would gladly provide.

For acquaintances, Waldfogel estimates the deadweight loss, or the extent of the giver’s misestimate, at between 10-33% of the price of the gift. If the rate of gift card disuse is much less than that – and if the cards are used for items that the recipient wants without much additional deadweight loss, then gift cards are pretty good, and the warning from Consumer Reports misses much of their value. Indeed, as a matter of efficiency, we should probably prefer unused gift cards to sweaters that sit in the drawer, because the former is a “mere” wealth transfer, while the latter require energy and other resources to manufacture and distribute. To be sure, if we encourage bridal registries and Christmas wish lists, then we might improve the efficiency of traditional gift giving. But again, these methods do not allow for the fact that a giver might expand a recipient's horizons with a gift; nor do they advance the utility that comes from a pleasant surprise. Waldfogel's analysis and surveys leave the reader with an unfair comparison because many recipients would spend cash in ways they regretted later on. I may value the sweater Aunt Sally gave me at $75, though she spent $100 to acquire it (and the returns process would cost me $26), but had she given me $100 in cash I might have bought a video game that I would report as worth $65 to me in three weeks if Waldfogel would only ask me then what I thought of my homemade purchases.

I would like to see gift cards that increased in value over time. The vendor might be encouraged to reason that it can afford to share (or even exceed) the time value of money because as time ticks by the probability of loss or disuse will also increase. The recipient meanwhile may gain utility because the longer the option period, the more likely the buyer will use the card for something the buyer really wants. The card might also teach something about savings. Unfortunately, it might also teach something about income tax evasion, because in theory a card purchased for $100 that was worth $110 in a year would burden the recipient with $10 of income to report.

Once we see gift cards in this light, we see not only new gifts to give but also new policies for governments and employers. I can set aside $100 now that my intended recipient can cash in for $200 some years from now but use only for education, books, or vacation. The longer the option period, the smaller the deadweight loss is likely to be (and non-use is more of a reverse wealth transfer than an efficiency loss). The benefactor is encouraging a preference, perhaps, but the gift encourages savings, or at least one version of savings.

It was once common to give U.S. Savings bonds as gifts, especially to children, and these matured many years in the future. With that gift, the giver helped to pay for the beneficiary's adult life or education. Such a gift made one feel wealthier, but no one I know jumped for joy when receiving such deferred happiness. It is not just that the gift seemed paternalistic or less utility-enhancing than the cash alternative, because that is true of most non-cash, unrequested gifts. Most gifts, like most government transfers, generate excitement when consumption can be immediate. The recipient shrieks with delight when unwrapping the new bicycle (even though it is a durable good with some pleasure deferred), but is unlikely to do so when unwrapping a promise of a bike to be given in two years.

One lesson to be derived from this is that the way we give gifts is not so different from the way governments bestow benefits to interest groups as well as to beneficiaries of presumed altruism.  We give food stamps (present gift) but we also give public housing (durable good, so there is some deferral) with a presumption that the recipient has the right to remain in the unit. We might often encourage behavior best by giving a completely deferred benefit (that is larger because of deferral), but that is rarely the path law or legislation takes.

If Consumer Reports means to encourage gift cards that do not expire and that do not come with hidden fees, then it is hard to argue with that message. But if they mean to say that conventional gifts are superior, or that cash gifts are to be preferred, then the matter is much more complicated. Gift cards are a compromise between the two (perfectly defensible form of gifts), and the inefficiencies or transfers they generate are not so different from those produced by these other forms of gifts. I hope that when interest-bearing gift cards appear, critics will refrain from complaining too much - without comparing the new gift form to its alternatives.

Continue reading "Gift Giving and other Transfers" »

October 20, 2007

Awards for the Justices

Who are the activists on the Supreme Court? Which justices show the most partisan voting patterns? Such questions are usually answered anecdotally. Thomas Miles and I have tried to approach them more systematically, with some simple statistical methods. We have compiled and analyzed a large number of the justices' votes over an extensive period, and we now have some answers, in the form of awards for Judicial Neutrality and Judicial Restraint -- and less desirable awards for Partisan Voting and Judicial Activism.

Those answers are scheduled to appear in an oped in the Los Angeles Times this Monday. (Guesses are welcome.) A small preview: One member of the current Court has the honor of finishing second for both Judicial Neutrality and Judicial Restraint. That is, one member of the Court upholds conservative decisions (from federal agencies) and liberal decisions (ditto) at about the same rate, and thus fails to show a partisan tilt -- while also showing a high level of restraint, defined for purposes of analysis as a high level of willingness to uphold the decisions of a coordinate branch of government (the executive branch, where we have a lot of data). 

The member of the Court who finishes second for both neutrality and restraint is: Justice David Souter.

September 06, 2007

Are Appointed Judges Better Than Elected Judges?

Everyone assumes that the answer is yes, but the evidence suggests (maybe) otherwise.  See this paper, and the abstract below.

Professionals or Politicians: The Uncertain Empirical Case for an Elected Rather than Appointed Judiciary

New York University - School of Law
Duke University - School of Law
University of Chicago Law School; University of Chicago Press

August 2007
Although federal judges are appointed with life tenure, most state judges are elected for short terms. Conventional wisdom holds that appointed judges are superior to elected judges because appointed judges are less vulnerable to political pressure. However, there is little empirical evidence for this view. Using a dataset of state high court opinions, we construct objective measures for three aspects of judicial performance: effort, skill and independence. The measures permit a test of the relationship between performance and the four primary methods of state high court judge selection: partisan election, non-partisan election, merit plan, and appointment. The empirical results do not show appointed judges performing at a higher level than their elected counterparts. Appointed judges write higher quality opinions than elected judges do, but elected judges write many more opinions, and the evidence suggests that the large quantity difference makes up for the small quality difference. In addition, elected judges do not appear less independent than appointed judges. The results suggest that elected judges are more focused on providing service to the voters (that is, they behave like politicians), whereas appointed judges are more focused on their long-term legacy as creators of precedent (that is, they behave like professionals).

July 31, 2007

The Obama Lottery

The Obama Campaign has a new and clever offer to encourage donations. The candidate promises to sit down for a "relaxing" dinner with four ordinary Americans/donors in order hear their views and concerns. We are all now encouraged to send a contribution before a given deadline in order to get a chance to be invited to the next intimate dinner with the candidate. The lucky winners will have their trips and meals paid for by the Campaign. The advertisement, if that is the right word, is careful not to say this is a lottery. I do not mean to turn this blog post into a campaign site, especially because we at Chicago take (justifiable) pride in Senator Obama, and also because to link here to the site, might violate some campaign finance rule, but you can see the offer for yourself by Googling the candidate's name and "dinner" or by navigating through the campaign website.

Continue reading "The Obama Lottery" »

June 25, 2007

Sicko and Health Care Reform

The new Michael Moore movie is provocative. It reminds me of Al Gore's "An Inconvenient Truth" and then also Morgan Spurlock's "Super Size Me." These are manipulative movies with single-minded aims and characters. They can be very annoying to watch, especially as the enthusiastic audience, in attendance at the sneak preview of Sicko that I patronized, cheers for the sorry citizens who have bad results under our current health care system and gasps in horror at the evil insurers. The policy argument could be much, much better. Moore makes very little of the enormous cost of our system. He loves showing the audience that there is no billing department in the French and Canadian hospitals he visits, but does not bother to point out that a substantial fraction of our costs goes to administration, including billing. The insurance carriers are made out to be evil when they deny coverage, but it would have been much more interesting to try and see whether the "experimental" treatments denied would indeed have been undertaken in France or Canada. Part of the movie makes us out to be ungenerous, but then then the better part begins to get at the fact that we have poor overall performace for the resources we do spend. The funniest and most provocative part of the movie comes toward the end, when Moore takes some of the sad cases from the U.S. and seeks help in Cuba. For an annoying, anti-intellectual, biased, and manipulative documentary, it is finally entertaining and provocative. It is hardly the best thing that could have been done in favor of universal health care but, like the Al Gore movie, it just might make more Americans care about the subject, and begin to ask the right questions.

Continue reading "Sicko and Health Care Reform" »

February 13, 2007

Nussbaum on Political Philosophy

Chicago's own Martha Nussbaum is one of the contributors to this illuminating new set of interviews with leading political philosophers, who discuss the major issues in the field, their contributions to it, as well as the issues that will be most important for the future.  The book's web site includes many interesting excerpts from the interviews, including Professor Nussbaum's own observations about neglected topics in political philosophy.  One such topic, she says, is religion:

Good writing in political philosophy about religion is relatively rare. Again, there is a strong tradition here in Western thought, including Roger Williams, Thomas Hobbes, John Locke, Spinoza, David Hume, Immanuel Kant, Moses Mendelssohn (whose writings ought to be much better known than they are), and John Rawls.  But we need to start working on this topic with an eye to the problems that vex our world today, problems of religious fear and loathing spawned by the fear of global terrorism.  To do this work well, we need to learn much more about non-Judeo-Christian religions, and, most obviously, about Islam. We ought to be teaching every undergraduate philosophy major courses on Islamic philosophy, but to do that we first have to educate ourselves! I would like to see a vigorous conversation about religion and political philosophy across national, cultural, and religious lines. 

A similar volume on the problems of legal philosophy, which might be of interest to law students and legal scholars, will be available later this year; look for excerpts from those interviews at the book's site later this Spring.  Finally, students of law and economics may find the excerpts from interviews with leading game theorists of interest.

February 07, 2007

Nelson Polsby, 1934-2007

Nelson Polsby has just passed away. Nelson was a giant of American political science, a leading academic authority on presidential elections, Congress, political party reform, and a host of other topics.  His PhD thesis was one of political science's path-altering works, demolishing the intellectual underpinnings of the community power literature, which was then all the rage in the academy.  He was also the greatest teacher I ever had and an extraordinarily sweet, generous, and funny man. 

During my freshman year at Berkeley in 1992, I was lucky enough to gain a spot in Nelson's freshman seminar on Presidential Elections.  Nelson taught the seminar once every four years, so I was in the right place at the right time.  He ran the freshman seminar as though he was leading a graduate student seminar - expecting the best out of his young students, leading us toward genuine insights, and gently demanding intellectual rigor.  He brought in some of the leading academics, journalists, and politicos of the day to talk with us, and somehow always managed to keep their egos in check, so that they would talk with us instead of at us.  Nelson was a pragmatist, but a charismatic one, and by the seminar's conclusion, we  had become his groupies.  During the next three years of my undergraduate education, my legal education, and my academic career, I always tried to tackle problems in the clear-headed, intellectually honest way that Nelson did, not always succeeding, but doing far better than I'd have done without him as a role model.   

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January 23, 2007

Privatizing the Lottery - and other Things

Assume state run lotteries. (We do have them after all, so it is not as if we need always start from first principles. If there were a good reason to prefer the privatization of Illinois's or another state's lottery, then of course we should proceed even if the first-best world had been one with no state-sponsored lottery. Besides, there are some good arguments for a lottery, and indeed for one that does not have a thin profit margin. Even a good libertarian could say that inasmuch as the government is not coercing persons to play the lottery, and there are many private alternatives for gamblers, a state lottery is not the worst of all evils. Some people might actually like playing it, and that must count for something, just as some small investors seem to like paying for stock market advice.)

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January 20, 2007

Libertarian Paternalism

For several years, Richard Thaler and I have been working on the topic of "libertarian paternalism." The basic idea is that private and public institutions might nudge people in directions that will make their lives go better, without eliminating freedom of choice. The paternalism consists in the nudge; the libertarianism consists in the insistence on freedom, and on imposing little or no cost on those who seek to go their own way. (Our principal paper, Libertarian Paternalism Is Not an Oxymoron, can be found in the University of Chicago Law Review, on the website of the AEI-Brookings Joint Center on Regulatory Policy, and on ssrn.com.) A core example of libertarian paternalism is Thaler's Save More Tomorrow plan, by which workers can sign up to devote some of their future wage increases to savings. Another example is the automatic enrollment plan, by which workers are automatically enrolled in a savings plan, but can opt out with no trouble and at no expense if they choose to do so. We could easily imagine a Give More Tomorrow plan, for charitable giving, or automatic enrollment for the same purpose (with costless opt-out).

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January 08, 2007

Title IX and Women Practicing with Men

Last week's NY Times had an article centered around a practice known to most observers of women's sports, that some women's teams practice against or with men, often ex-high school athletes who could not quite make the college men's team. But apparently some college conferences, and eventually the NCAA, may bar women's teams from this practice of using men either because it is regarded as somehow demeaning for women or, more concretely perhaps, because of the likelihood that college women's teams would then need fewer women. Indeed, some schools are not using the full complement of scholarships, and some have teams with rosters smaller than those allowed by the governing rules of the sport. But is there really a Title IX or other problem?

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December 14, 2006

Free agency in baseball and law

The interesting division of the pie between the Boston Red Sox, Daisuke Matsuzaka, and Japan's Seibu Lions (for those who follow baseball) is a good reminder of the oddities of baseball's contractual and legally sanctioned rules. Players can find the teams willing to pay them the most, more or less - at least at episodic points in their careers - and the deals are enforced by the enterprise (of professional baseball and the players' union) though, again, within limits. And so what emerges are many multi-year contracts, and one question is why we do not find similar contracts for law professors, say, or star associates at law firms. Why not "we really like you and instead of paying you $200,000 for the next year at our firm (with perhaps a bonus based on billed hours), let's lock each other in for 5 years and $2 million. One possibility is that liquidated damages would be needed, in order to serve the function that major league baseball, as a unified organization, plays in the other setting (preventing players from jumping in mid-contract to another team), and such contracts are stymied by our traditional disinclination to enforce them if they look (even ex post sometimes) like penalties. There is of course some attempt, especially at universities, to lock in "players" with forgivable loans, but rarely do these discourage negotiations with other universities.

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November 11, 2006

China and Climate Change

With all the attention devoted to the elections, a remarkable story has been neglected: By 2009, China is now expected to be the world's leading emitter of greenhouse gases, surpassing the United States. This is a stunning finding, because even recent estimates had seen the United States as no. 1, and China as no. 2, as late as 2020 or 2025.

In terms of international controls on greenhouse gases, the explosive emissions growth in China raises enormous challenges. Both the United States and China have resisted such controls -- and apparently China's resistance has been even firmer than that of the U.S. It is certainly imaginable that the U.S. will accept an international accord of some kind within the next five years -- at least if China and other developing countries can be persuaded to participate. But will China participate? Its economic interest suggests otherwise. As China's economic growth becomes increasingly dependent on fossil fuels, the costs of stabilizing its emissions will remain very high, at least in the absence of some kind of technological breakthrough.

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November 07, 2006

Immigration Law Reform

A lively and interesting debate on immigration law reform has dispiritingly concluded with a new law that provides for, but does not fund, the construction of a wall along a portion of the border with Mexico.  Left unenacted were proposals to establish a guest worker program, to extend criminal penalties for unlawful presence on U.S. territory, to strengthen sanctions for employers who hire undocumented workers, and to amnesty noncitizens who have illegally lived and worked in the U.S. for many years.  Much of the debate has proceeded as though the answers to these questions depended on first principles.  We should either welcome immigrants or close our borders.  If we want to welcome them, then we should (for example) not create criminal penalties for unlawful presence.  If we want to close our borders, then we should not issue amnesties.  But this is all mistaken.  Whatever the right first principles, they do not cut between such low level policy alternatives.  A liberal immigration policy could welcome many people by raising quotas or reducing admission criteria while still criminalizing those who enter unlawfully; a strict immigration policy could simply reduce the quotas while offering an amnesty to those who are already here and cannot realistically be expelled.

Good immigration law and policy at the level being debated today depends much more on second-order issues of institutional design than first-order principles.  Good law depends on such empirical and institutional issues as whether it is cheaper to stop people at the border or pick them up in the interior; whether the type of immigrant we want to admit can be readily determined at the border (for example, academic credentials and work experience) or is better determined after a few years living in this country (for example, degree of assimilability); how important it is for immigrants to learn English and become assimilated; whether the government needs flexibility to remove people in light of changed economic and security circumstances; and so forth.

For a paper that provides a theoretical framework for addressing these issues, drawing on the economic literature on job market signaling, and the law and economics literature on ex ante versus ex post adjudication, go here.  The abstract is below.

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October 22, 2006

Playing Google Jeopardy

We know how Jeopardy works: they give you the answer and you have to supply the question. Google Jeopardy is a variant on that: the answer is the University of Chicago Faculty Blog, but what is the question? With Sitemeter’s help, you can often see exactly what search led someone to the faculty blog. Click on our Sitemeter indicator—perhaps during a slow workshop—and look around a little. Try the following searches:

· Google for “mills view of sex-selective abortion” 

· Google for “barack obama”

· Google UK site for “my sweet lord chiffons”


October 21, 2006

The $40 Entree: Have You Been Framed?

This morning’s New York Times reported on the breach of a new price-point in restaurants: the $40 entree. As a parent with three kids at home, I read stories of this sort for the same reason that I read National Geographic when I was a kid: to learn about exotic locations that I am not likely to visit anytime soon.

For me, the interesting point of the story is the framing effect of the $40 entree: putting a $40 entree on the menu makes it much easier for diners to order the $35 entree and that pushes up average checks. A restaurant won’t necessarily sell much of its highest price item, but that isn’t the point, if diners are perfectly comfortable ordering the second or third most expensive item on the menu, but will decline to order the most expensive item. Standard economics says that the existence of a choice that you would reject anyhow shouldn’t influence choices that you actually make, but the evidence on framing suggests that is wrong. (If you are looking for more on this, read Barry Schwartz’s The Paradox of Choice.)


October 11, 2006

Barack Obama

Now that the school year is well underway, it might be worth noting that a new book is about to appear from a member of the faculty. But against all odds, his last name isn't Posner (though the Judge and the Professor do have recent books out). It's Obama.

There is a lot to say about Senator Obama and his time at the University of Chicago Law School. (He remains affiliated with the law school, and he has an office on the fifth floor -- though the list of faculty members notes, in a way that seems at once proud and forlorn, that he is now "out of residence.") He was, and is, widely admired by students and faculty alike -- and entirely across political divisions. How well I remember past elections in which faculty members, who disagreed on a great deal, agreed that Obama would be a magnificent addition to the United States Congress. I think their agreement resulted from Obama's character (he's a genuinely wonderful guy), his evident ability and sheer excellence (for example, he's a terrific teacher, and we tried to convince him to join the faculty full-time on several occasions), and his independence and unpredictability (he toes no party line; he knows how markets work, and how government can make things worse).

To say the least, it has been extraordinary to see what has happened to our colleague, not long ago teaching early am classes and asking us to join him for breakfast, in the last few years. Will his next few years be extraordinary too? Stay tuned. For now, congratulations to Illinois' junior senator on his new book.

September 28, 2006

Are Feeder Judges Unusually Ideological? If So, Why?

In the latest issue of the Green Bag, David Garrow has a very interesting discussion of the ideological leanings of feeder judges and the impact they may have on the internal workings of the Supreme Court.  (Feeder judges, for those unfamiliar with the term, are lower court judges whose clerks often go on to clerk for the Supreme Court.)  Garrow notes that many feeder judges are considerably more ideological -- that is, less politically centrist -- than is typical for appellate judges.  Garrow writes:

[I]n recent decades virtually every [feeder judge] has been either exceptionally liberal or highly conservative and almost none have been politically difficult to pigeonhole.

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September 25, 2006

The Credible Executive

The recent riots in Hungary apparently occurred because the prime minister admitted that he (as well as other members of the governing elite) lied to the public about the health of the economy.  It is an odd feature of public life that everyone seems to think that politicians lie and yet are surprised when their lies are exposed (e.g., Clinton).  Extreme suspicion about the president’s truthfulness can undermine his ability to act, and even the super-powerful American presidency can be undermined by public distrust as virtually every recent president has experienced (Johnson, Nixon, Reagan and Iran-Contra, Bush I and “no new taxes,” Clinton, Bush II and WMD).  Is there any way for the president to enhance his credibility so that the public will support his policies and enable him to get things done?  In this paper, Adrian Vermeule and I discuss some mechanisms.  The abstract is below.

September 14, 2006

Google's For-Profit Charity

In a rare instance of real world experience confirming an academic hypothesis, Google has announced that it is setting up a for-profit charity.  In this paper, which I discussed a few days ago (below), my coauthor and I argue that the for-profit charity might be a sensible, underexploited institution.  In the course of the discussion, we ask why, if we are correct, there are no for-profit charities and we provide the obvious answer that the reason is tax discrimination.  But Google’s plan suggest that the advantages of the for-profit form are strong enough to outweigh the tax disadvantages.  The next step is for the government to recognize that tax discrimination on the basis of corporate form is unwise and to change the law.

September 10, 2006

For-Profit Charities

The recent Red Cross scandal is a reminder that charitable nonprofit organizations sometimes act poorly.  Meanwhile, many for-profit commercial organizations try to do good—by helping poor coffee growers, or providing hurricane relief, or supporting schools.  Yet the good-doing nonprofits enjoy tax benefits denied to the good-doing for-profits.  Why should this be the case?  It turns out that there is no reason for discriminating against commercial operations that provide charitable benefits.  Indeed, the incentive structures of a profit-making business could be used to enhance the efficiency of charities.  Hence the case for the “for-profit charity.”  Click here for the argument (an abstract of the paper is below).

Nonprofit firms may not distribute profits to owners but instead must retain them or reinvest them. Nonprofits that are “charitable organizations” under Section 501(c)(3) of the tax code may receive donations from individuals who are allowed to deduct their donations from their income for tax purposes. We argue that the law should not link tax benefits to corporate form in this way. There may be good arguments for recognizing the nonprofit form and good arguments for providing tax subsidies to charities or donors to charities, but there is no good argument for making those tax subsidies available only to charities that adopt the nonprofit form. Consequently, the “for-profit charity” may well be a desirable institution. Currently, no such entity exists, but the reason is surely discriminatory tax treatment; the charitable activities of many commercial firms suggest that in the absence of discriminatory tax treatment for-profit charities would flourish. Current tax benefits for charitable nonprofits should be extended to for-profit charities, and to the charitable activities of for-profit commercial firms.

August 11, 2006

Gambling Laws

Cass Sunstein and I have begun thinking about how prediction markets might be regulated.  (Here is a pitch for his new book "Infotopia: How Many Minds Produce Knowledge" (Oxford Press 2006) which can help you get enthusiastic about prediction markets and other uses of aggregated knowledge and wisdom.  Additionally, or if you like the occasional podcast, try my "The Wisdom of Groups and the Use of Experts" from November 2005 and available here.)   On the way there is the interesting question of whether we can distinguish between gambling (and its illegality in most places) and prediction markets, or at least some useful prediction markets. I don't think so, but then I don't think we can really distinguish gambling from many securities markets, but that is not the point of this post. Instead, I'd like to focus on the pervasiveness of "illegal" gambling.

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July 27, 2006

Chicago's Big Box Minimum Wage Plan

Chicago has made news by passing an ordinance requiring large stores that are part of billion dollar companies to pay a higher minimum wage than is applicable to other employers.  Even the structure of the wage is compulsory; of the $13 required to be paid per hour by 2010, $3 must be in benefits. One conventional way to understand the legislation is that it serves the interests of a number of fairly well organized groups. These include groups that would prefer for Walmart and Home Depot to stay away.  Meanwhile, it imposes costs on consumers who might be more difficult to organize and who find it difficult to assess the impact of such legislation on prices, on the level of service that will be provided when these stores do open within the city limits, and on the cost of traveling to stores outside the jurisdiction.

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May 31, 2006

Organ Donations: Sorting or Queuing?

The centerpiece of the United States organ policy is a flat prohibition against the use of “valuable consideration” to purchase a live or cadaveric organ. One obvious consequence of this (indefensible) decision is the creation of chronic organ shortages that result in the death of thousands of individuals per year. As happens in all other markets where prices are capped or exchanges are prohibited, queues form. The money that would have been a simple transfer payment between buyer and seller can no longer be paid. Instead, frustrated buyers invest in time by waiting in line for the goods or services that they so desperately need. The upshot is that the buyers have to pay in time, not cash. But their outlays in time are deadweight losses, not simple transfer payments. Organs are no exception to the general behavioral response to maximum prices, here set at zero.

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April 26, 2006

Jane Jacobs

Jane Jacobs, author of The Death and Life of Great American Cities, died yesterday. Jacobs' great book is full of implications for various fields, including law. Her work has many themes and nuances, but it can be taken as a celebration of the diversity, the spontaneity, and even the wildness of the great cities -- where you might encounter, on any given day, people and activities that surprise and even astonish you, and where the diversity itself provides a kind of commonality for people from all walks of life. Among other things, Jacobs' book helps to illuminate the public forum doctrine in first amendment law, which says that parks and streets must be left open for expressive activity: Parks and streets provide unanticipated, unchosen encounters at the same time that they offer common experiences for heterogeneous people. Both the unanticipated encounter and the common experiences are valuable for a democracy. In fact democracy itself seems to me one of Jacobs' basic topics.

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April 05, 2006

Barry Bonds II

In yesterday's post, I tried to take up the question of the degree to which Baseball's actions would be influenced by the threat of litigation, or the sort of thinking lawyers engage in. The Comments were provocative and much appreciated. Today's post addresses the likelihood of settlement and, in passing, addresses the Comments and inclination of many readers to take the high moral, or deterrence, ground.

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April 04, 2006

Barry Bonds

I doubt that law should have much to do with how major league baseball runs its show, how basketball games are refereed, how universities are run, and so forth, though of course law intervenes frequently and in strange places, especially where legislators are eager to tread, where governments can influence through expenditures, or where some interest groups care to encourage governmental or judicial involvement.  Still, I don’t think it terribly likely that Congress or any judge will much influence the question of whether Barry Bonds is denied the records he has set thus far, or the lifetime homerun record he is likely to reach soon enough.  If he were found to have used illegal substances (whether illegal under law or under his sport’s rules) he might be denied a formal record, put into the history books with an asterisk (though that seems silly in this case), or kept out of the Hall of Fame (like the gambler, Pete Rose), but these steps are more likely to be generated by the politics and economics of baseball than to be the product of a statute or judicial decision.  It is a bit like asking whether a court or Congress is likely to determine the winner of an Academy Award.

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March 07, 2006

Valuing Laws as Local Amenities

I recently started a paper which argues that the value of a law should be judged by the extent to which it raises housing prices and lowers wages.   This may seem an odd way to assess the welfare effect of a law.  After all, higher housing prices and lower wages are thought to be bad outcomes, not good ones.  But the proper way to understand these changes is as signals of positive outcomes, not positive outcomes themselves.  They indicate that something good has happened in the community.  Housing prices go up because more people want to live there.  Wages go down because more people want to work there.  Phrased more formally, higher housing prices and lower wages are how markets ration an attractive local amenity.  Indeed, the increase in housing prices combined with the reduction in wages provides a measure how much people are willing to give up to enjoy the amenity.  Conventional economic thinking recognizes this when it comes to estimating the social value of a new park or a better school.  The same logic, I argue, applies when the amenity is anything from a better tort system to smarter rules regarding capital punishment.

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February 21, 2006

Financing Lawsuits

Today's NY Times mentions that hedge funds have entered the business of financing (purchasing advances from) companies that finance plaintiffs' lawsuits.  One such company (the only one the article mentions), LawCash, came to my attention some time ago when a NY court went out of its way to question a transacion in which LawCash received a nice return on a "loan" to, or investment in, a plaintiff named Echeverria.   The decision was criticized by Anthony Sebok.  The essential idea is that plaintiffs' attorneys can finance lawsuits through contingent fees, but third-party financiers can do even better by investing in the claim; LawCash gives plaintiff up to 10% of the claim in advance, collects a very high interest rate (plus fees) plus principal if P wins, but inasmuch as it is structured as a non-recourse investment, the investor receives nothing if P loses. Sebok argued that the arrangement did not amount to the dreaded champerty because inasmuch as the suit had already been filed, the investor could not be said to have encouraged the lawsuit.  I guess a doctrinal decision deserves a doctrinal parry. LawCash insists it is an investor, not a lender, because of NY's usury laws.

The good thing about hedge fund or other investment is that the market for this sort of financing will become more competitive. Plaintiffs will get a fair deal if they can shop among third-party financiers who do not guide the litigation or settlement process, by the way.  A neat feature of the business, once it is competitive, is that plaintiffs will have a means, indeed something akin to an information market, of evaluating their own claims.  At present, plaintiffs rely on their attorneys who have mixed incentives about raising or lowering plaintiffs' expectations.  Outside investors have experience with large numbers of lawsuits and as they bid for plaintiff business, plaintiffs will get an idea of what their lawsuits are worth. In turn, both plaintiffs and defendants might be more likely to settle if this "market" gave its opinion as to what the claim was worth.

Is there any reason we should discourage this sort of market?

January 27, 2006

A New Regulatory Threat to Directed Donations

On January 23, 2006, “the OPTN/UNOS Board of Directors requested that HRSA take this action to give OPTN live donor policies the same status as other OPTN policies.” The Federal Register asks that interested parties submit their comments to Dr. James Burdick, Director,Division of Transplanation on or before February 22, 2006. I believe that this action poses a serious threat to one of the few positive developments in the organ transplant area. The substance of my response to Dr. James Burdick, HRSA jburdick@hrsa.gov reads as follows:

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January 10, 2006

Freezing pension plans and then health care?

The big business news of the week is IBM's abandonment of its conventional pension plan so that, going forward, its employees will bear the investment risk previously assumed by the employer-promisor of what had been a defined benefit plan. Viewed over the long term, we have seen a shift from no employer-provided pensions to defined benefit plans (promising retirement income, often in a manner based on final employment income and years of service) and now, apparently, to defined contribution plans (employer promises certain matching payments, perhaps, but employee bears risk of performance). Some of this evolution can be attributed to tax law (or perhaps itself caused changes in tax law); employment places with no pension plans sacrificed an obvious tax benefit, defined benefit plans allowed employers to benefit from appreciated investments and their favored tax treatment, and (now) defined contribution plans make use of 401(k) and other vehicles. But it is not entirely clear why employees would rather bear the risk of poor investment returns. In principle, the more attractive a pension plan is to employees, the lower the wage they need to be paid, so that employers ought simply to provide the best or the most tax-favored plan as viewed by a majority of, or in some industries perhaps marginal, employees. Some easy answers to the question of why we see some changes in the absence of legal change are that wages are sticky or that employees (especially young ones) underestimate the value of pension contributions or that they do not expect pension plans to be solvent when their retirement dates arrive or that they do not expect to stick around at their current jobs.

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January 02, 2006

Minimum Wage, Public Choice, and other Federal-State Standards

The minimum wage is on the front page again and the topic comes with curiosities worth thinking about.  Eighteen jurisdictions have minimum wages above the current federal wage of $5.15 per hour.  In some states, the minimum wage applies to small employers or to employees otherwise exempt from the federal wage law.  The federal minimum has not been raised in some time, and yet in some states the matter continues to generate active political interest and support.  Most interesting, in 2004 two states (Nevada and Florida) raised the minimum wage through ballot initiatives.  Only about half the employees directly affected by minimum wage legislation are under the age of 25, and half of those are teenagers, though it is likely that when the floor rises (apart from any job losses) there is upward pressure on wages of those above the floor.  Who votes for these increases and why?

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December 21, 2005

Three Cheers for Calvin Coolidge

Now that New York City is in a midst of a transit strike that has caused immediate and palpable hardship to millions of its citizens, I think that we should tip our hats in the direction of Calvin Coolidge, who, as governor of Massachusetts said, “there is no right to strike against the public safety by anyone, anywhere, anytime.”

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November 22, 2005

Seventh Circuit Adds Insult to Injury in Teen Sex Tape Case

The Seventh Circuit Court of Appeals, based here in Chicago, has just issued a frustrating opinion in a privacy case, and compounded that opinion with an egregious administrative error that itself invaded the privacy of a young woman.  In Doe v. Smith, the court considered an appeal by the plaintiff, who was a sixteen year old girl when she engaged in sexual intercourse with Jason Smith. According to Doe's complaint, Smith surreptitiously recorded their sexual encounter using a hidden video camera and then emailed copies of the tape to buddies at his high school. One of these friends then allegedly posted a copy of the video on the Internet. Doe sued Smith for invasion of privacy and violations of the federal wiretap act.  The court ruled, quite plausibly, that the district court erred in dismissing the plaintiff's federal cause of action under the wiretap act.  The court followed this holding up with a remand instruction that is, in my view, extremely unfortunate and threatens to undercut legal privacy protections substantially.  Scrutinizing the caption of the case, the court wondered whether the plaintiff should be allowed to proceed as a Jane Doe. 

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November 15, 2005

Chicago’s Policy Initiative on Foster Care

Emily Buss delivered an interesting entry into the Chicago's Best Ideas Series on November 10, 2005. The talk was entitled "Turning Best Ideas into Practice, Chicago’s Policy Initiative on Foster Care." The Law School has several projects known as Policy Initiatives, where the collective work and experience of faculty, students, and alumni are being focused on particular problems with the intent of providing potential solutions. Emily Buss is heading one such project on what happens to children who "age out" of the foster care system. In this talk, Emily discussed not only the specifics of the project, but also the inherent difficulties of doing this kind of empirical work. You can listen to the lecture and discussion here.

As always, instructions for listening and subscribing, should you need them, are available here. The blurb Emily used for the publicity for her talk is below the fold.

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November 13, 2005

White Settlement, Ave Maria, Sex Offenders, and Exclusionary Vibes

The blogospher has been abuzz with critical commentary on plans to develop a conservative Catholic neighborhood surrounding Ave Maria University's new campus in Florida. (See, e.g., this post, this one over here with lots of comments, and this one with an avalanche of comments.)  By and large, bloggers have been incredibly hostile, dubbing the community a "Catholic Jonestown."  There's been less reaction so far to an interesting New York Times story (registration required) on "White Settlement, Texas" and the controversy generated by a mayor who wanted the town's name changed to something less polarizing. His constituents overwhelmingly voted to keep the name unchanged, and some are now trying to remove him from office. Finally, I've blogged before about sex offender-free subdivisions and posed the question of why so much energy has been expended on excluding sex offenders, as opposed to say murderers or burglars, from neighborhoods.

In a forthcoming Michigan Law Review article that I've just posted on SSRN (you can download it for free here), I connect all of these issues. In that paper, I present a partial defense of Ave Maria's efforts to promote residential Catholic homogeneity; I argue that community names like "White Settlement" can be just as bad as blatant, overt, racial exclusion from neighborhoods; and I suggest that information asymmetries explain the rush to ban sex offenders, but not other felons, from new neighborhoods.   

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November 09, 2005

Planning for Catastrophes

Today's newspaper comes with a slick full page ad from Allstate and begins with the headline that "8 out of 10 of the largest U.S. catastrophes have happened in the last four years" (the last 5 words are italicized).  The ad is meant to scare the reader; it even has an illustration of a domino effect crushing a helpless fellow. The ad encourages support for a political agenda that includes increased local police and fire resources, more attention to the purchase of earthquake and other insurance, better building codes, and the creation of integrated reserve funds that would back up insurance companies.

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October 25, 2005

James Loewen's Fascinating New Book and Trying to Shame All-White Enclaves

I've spent the better part of the last two days reading sociologist James W. Loewen's terrific new book, Sundown Towns: A Hidden Dimension of American Racism.  I try to avoid cliches like "must-read," but the adjective seems apt for anyone interested in race and residential segregation.  Loewen's research is exhaustive and interesting, and stands as a powerful refutation of the idea that contemporary racial segregation results from voluntary choices by private actors.  Loewen documents the prevalence of municipal ordinances that prohibited African Americans from residing in particular towns and shows how these ordinances were supplemented by ugly roadsigns at the town limits stating, "Ni--er, Don't let the sun set on you in [this town]."  Many of these signs stayed up during the 1970s and a handful persisted into the 1990s.  Loewen recounts his own investigations of many sundown towns, but perhaps the most chilling is his account of Villa Grove, Illinois, where at 6pm every evening a siren atop the town's water tower rang out, reminding African Americans to get out of town.  Loewen's interviews confirmed that contemporary Villa Grove's residents understood full well the siren's purpose.  The siren-sounding practice continued until 1999[!] when it ceased, not because of shame or belated signs of conscious among the town's residents, but because residents living near the water tower complained about the noise. 

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October 13, 2005

Chicago's Phantom Professors

Larry Solum's Legal Theory Blog links to a new study by David Horowitz and Joseph Light purporting to demonstrate that the nation's elite law and journalism faculties lack ideological diversity. The study, which Cass discussed a couple of days ago, singles out the "supposedly conservative" University of Chicago Law School faculty for criticism after determining that Democrats outnumber Republicans on the faculty 55 to 8. Curiously, the study finds no registered libertarians on the Chicago faculty. Solum expects "this work will provoke a strong reaction." . . . Uh, yeah. My strong reaction is where the heck did all these Chicago law professors come from?  The study claims to exclude clinical faculty and adjunct faculty, but still manages to find 100 full-time law professors at the University Chicago, or 67 more professors than our own web site indicates we have (show "full-time faculty"). According to the table on page five of Horowitz and Light's paper, Chicago has a larger faculty than Harvard, Columbia, and NYU! Perhaps Saul Levmore has finally succeeded in his secret plan to create an army of Cass Sunstein clones. In any event, Chicago's genuine ideological and intellectual diversity among students and faculty is one of its greatest charms, and Horowitz and Light ought to fact check their own work before jumping to conclusions. (I'll leave it to others to debate whether Democrat v. Republican partisan affiliation is a useful measure of ideological diversity on law faculties.)

October 12, 2005

Timing in the Clerkship Market

Law students and judges are well aware of the changes that have come about, at least for now, in the clerkship market. A number of federal judges built a consensus to move the hiring of clerks from the second year (where it had migrated to earlier and earlier dates as one might have expected of those "fishing" from a common pool) to the third year of law school.  Judges and law schools agreed, more or less, that applications and recommendations would be submitted no earlier than Labor Day of the student's third year, after which there would be a reading period of 10 days or so before offers would be extended.  A few judges declined to follow the guidelines, and only time will tell how fast or whether the system will break down; past attempts to control the accelerating market were short-lived.  By its terms, the guidelines excluded Supreme Court clerkships and also excluded applicants who were no longer in law school.  Put differently, those "post-law-school applicants" had three years of grades to present to judges, and so while their presence in the market might have caused a rush to hire them, it could not be said that there was a great gain in waiting for more grades or more time to allow the applicants to make more informed personal decisions regarding where one wished to live.  It might have been difficult to explain a decision to "ban" hiring post-law-school applicants until Labor Day of the third year of their competitors' law school experiences. Judges and law schools also sought to initiate an on-line uniform application ("OSCAR"), and that innovation might be linked to the post-Labor-Day-3L plan because the plan contemplated the bundling of paper application materials and their submission by the law schools, which imposed a substantial cost on schools. The on-line system was not widely accepted and has experienced some startup difficulties.

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