Law & Econ Prof Blog

U.S. Prison Population

Cooter and I have remarked, in the fifth edition of our text, on the fact that the U.S. prison population increased four-fold from 1980 to 2002 -- from 500,000 to 2 million.  This is an extraordinarily interesting story in today's New York Times about this matter.  See here.   

The article begins with the observation that although the U.S. has only 5 percent of the world's population, it has 25 percent of the world's incarcerated population.  By comparison, China, the most populous nation, has only 1.6 million prisoners.  At the other end of the spectrum, San Marino, with a population of 30,000, has 1 prisoner. 

The U.S. prison population works out to be 751 prisoners per 100,000 population.  Counting only adults, 1 in 100 U.S. citizens is in prison.  Among the developed countries, only Russia has remotely similar figures, incarcerating 627 for every 100,000 population.  England is 151; Germany, 88; and Japan, 63.  The median figure for all nations is 125. 

Interestingly, the U.S. reliance on incarceration is relatively recent.  From 1925 to 1975 the U.S. incarcerated 110 people per 100,000 population. 

Why are the imprisonment figures so high in the U.S.?  The article speculates that it has to do with our higher violent crime rates.  But that sounds unlikely.  Yes, we do have more violent crime than most other developed countries, but that form of crime has been declining for almost 20 years.  The article also notes that we tend to incarcerate people for longer periods for the same crime than do other countries.  But that too sounds as if it is not likely to be the central explanation.  We simply seem to be quicker to put people in prison than do other countries.  And I'm not entirely sure what factors would help to explain that predisposition. 

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Conference on Debt

On May 2-3, 2008, the University of Illinois College of Law, in cooperation with the American Bankruptcy Institute (ABI), is presenting a two-day conference geared to debt counselors, scholars, bankruptcy judges, attorneys, and financial representatives entitled “A Debtor World: Interdisciplinary Academic Symposium on Debt” focusing on the deepening debt crisis in America. Practicing attorneys can earn CLE credit by attending this conference at a cost of just $395. Non-profit agencies and faculty members can register for just $ 195. Online registration and information is available at the official web page, http://www.abiworld.org/Debt08/index.htm.

Perhaps the most common American experience today is debt. While debt can enable individuals and companies to do useful things they would otherwise be unable to do, excessive debt can cause serious financial problems for individuals, businesses and society at large.  

Debt is pervasive in the U.S. today. According to the latest figures from the Federal Reserve, there is almost $30,000 outstanding in consumer credit and home mortgages for every man, woman, and child in the United States. Even on an inflation-adjusted basis, that represents a thirteen-fold increase since 1946 when the figure was only $2,200. There are 900 million credit cards in circulation in the United   States. Debt growth has not been restricted to consumers. Business debt is nine times as large as it was in 1946. Put simply, Americans have committed their future cash flows at an unprecedented rate.

Increasing debt loads are not just an American trend. Other countries have experienced burgeoning levels of private debt. In the past decade, the United States consumer credit model has been exported to other countries.  Japan, Korea, nd many western European countries have seen consumer debt levels skyrocket. Globalization surely will see high consumer debt levels spread to many other countries.

This conference will explore debt as neither a problem nor solution but as a phenomenon. Many different academic disciplines can make important contributions to help us understand why consumers and businesses decide to borrow money, what happens to businesses and consumers under a heavy debt load, and what norms and institutions societies need to encourage the efficient use of debt. Renowned lecturers from a variety of disciplines will headline this conference, , including Terry Halliday (American Bankruptcy Institute), Heidi Hurd (Illinois, Philosophy & Law), Brian Knutson (Stanford, Neuroscience), Stephen Lea (Exeter, Psychology), Gerry McNamara (Michigan State, Management), Craig Muldrew (Queens’ College of Cambridge, History), George Ritzer (Maryland, Sociology), Amir Sufi (Chicago, Finance), Teresa Sullivan (Michigan, Sociology), Paul Vaaler (Minnesota, Management), Elizabeth Warren (Harvard, Law), and Rich Wiener (Nebraska, Psychology).

In addition, the Conference will welcome acclaimed producer James Scurlock, the producer of the popular documentary film Maxed Out, as the keynote speaker. And, Mr. Scurlock’s film will be shown to a campus and community audience at historic Foellinger Auditorium on the UI Quadrangle on May 1, with commentary to follow by the producer.

For information, contact: Dave Johnson, Assistant Dean for Communications, University of Illinois College of Law, djhnsn1@law.uiuc.edu, (217) 244-4014. 

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Prediction Markets, Again

I am a great fan of the literature on prediction markets and of their potential for policy innovation.  Two recent articles are well worth reading for their insights on prediction markets.  The first is an article from The New York Times: "Betting to Improve the Odds," available here.  The second is a working paper from the University of Chicago Law School: Todd Henderson, Justin Wolfers, & Eric Zitzewitz, "Predicting Crime," available from SSRN here.  Here's an abstract of the Henderson, Wolfers, & Zitzewitz article:

    Prediction markets have been proposed for a variety of public policy purposes, but no one has considered their application in perhaps the most obvious policy area: crime. This paper proposes and examines the use of prediction markets to forecast crime rates and the impact on crime from changes to crime policy, such as resource allocation, policing strategies, sentencing, postconviction treatment, and so on. We make several contributions to the prediction markets and crime forecasting literature.
    First, we argue that prediction markets are especially useful in crime rate forecasting and criminal policy analysis, because information relevant to decisionmakers is voluminous, dispersed, and difficult to process efficiently. After surveying the current forecasting practices and techniques, we examine the use of standard prediction markets—such as those being used to predict everything from the weather to political elections to flu outbreaks—as a method of forecasting crime rates of various kinds.
    Second, we introduce some theoretical improvements to existing prediction markets that are designed to address specific issues that arise in policy-making applications, such as crime rate forecasting. Specifically, we develop the idea of prediction market event studies that can be used to test the influence of policy changes, both real and hypothetical, on crime rates. Given the high costs of changing policies, say issuing a moratorium on the death penalty or lowering mandatory minimum sentences for certain crimes, these markets provide a useful tool for policy makers operating under uncertainty.
    These event studies and the other policy markets we propose face a big hurdle, however, because predictions about the future imbed assumptions about the very policy choices they are designed to measure. We offer a method by which policy makers can interpret market forecasts in a way that isolates or unpacks underlying crime factors from expected policy responses, even when the responses are dependent on the crime factors.
    Finally, we discuss some practical issues about designing these markets, such as how to ensure liquidity, how to structure contracts, and the optimal market scope. We conclude with a modest proposal for experimenting with markets in this policy area. 

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Cell Phones and Poverty

I'm teaching a course this semester on "Law and Economic Development."  It's an area in which scholarship is booming.  There are lots of exciting new ideas about how to explain development and the lack of development and some interesting proposals for improving the lives of the poor.  One of the most interesting of those ideas is contained in a wonderful article in today's New York Times Sunday Magazine: "Can the Cellphone Help End Global Poverty?"  The article is available here. 

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Defaults

Jagdeep and I have been otherwise occupied for a while -- he with health issues; I with a dean search.  But we're both eager to get back to regular blogging.  There will be some changes coming in the near future. 

I've just read a wonderful short article on the power of different default rules: Eric J. Johnson & Daniel Goldstein, "Do Defaults Save Lives?," 302 Science 1338 (21 November 2003).  The subject of the article is the power of opt-in and opt-out rules for organ donation.  For example, in Denmark, the Netherlands, the United Kingdom, and Germany the default rule is opt-in: your organs are not to be donated unless you affirmatively take steps to indicate that intent (by, for instance, signing the back of your driver's license in front of two witnesses -- the rule in the State of Illinois).  The rate of donation in each of those four countries is 4.25, 27.5, 17.17, and 12. 

In contrast, in Austria, Belgium, France, Hungary, Poland, Portugal, and Sweden the default rule for organ donation is an opt-out rule: your organs are presumed to be donatable unless you affirmatively take steps to indicate that they are not available.  Here are the rates of donation in those seven countries: 99.98, 98, 99.91, 99.97. 99.5, 99.64, and 85.9. 

The graphics in the article indicated these and other differences are very powerful.  I intend to use them in my law-and-economics course next year. 

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New Developments in Economics

David Leonhardt's weekly "Economic Scene" column in The New York Times has, today, a wonderful report on what he thinks is the most exciting development in economics -- the Jameel Poverty Action Lab at MIT.  See the article here.  Note that the article has links to the work of Esther Duflo, Abhijit Banerjee, and others. 
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Bill Gates on Creative Capitalism

Bill Gates's talk at the Davos meeting is well worth pondering.  You can find the Wall Street Journal's extensive coverage here. 
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More on the Treasury Plan

James Surowiecki's "Financial Page" column in The New Yorker, available here, discusses the Treasury scheme for dealing with the current problem of defaulting subprime mortgage loans and the near future problem of further defaults as the rates for many of those loans reset to higher levels next year.  Surowiecki's take on the plan is very much like that I noted earlier in The Economist's comments on the plan.  The interesting point made by both Surowiecki and The Economist is that the plan could have been devised by the lending industry but for the costs of putting together and enforcing such a plan and the external costs that widespread financial distress might impose on the economy.  I must say that the plan to divide those whose rates are to be reset next year into three groups, only the middle of which will receive aid, raises all sorts of problems.  Inevitably, some will be inappropriately classified.
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Subprime Solutions

Last week's Economist magazine, in its "Economics Focus" column, gave a marvelous analysis of why the Treasury, led by my Dartmouth classmate, Hank Paulson, is involved in proposing solutions to the subprime mortgage problem.  See here. 

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NYT Magazine -- 70 Great Ideas

This Sunday's New York Times Magazine has its annual survey of great new ideas, available here.  This is astonishingly good fun and fascinating.  Here's just one little taste: scientists have figured out what the appendix is for.  (For those of you, like me, who don't have one anymore, don't worry.  You don't need it.)  Don't miss this delightful issue. 
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