Wednesday, July 1, 2015

Are carbon taxes a barrier to energy innovation?

Not intended as a rhetorical question.  Toward the end of this interesting Vox piece on new solar technologies, there's a claim by the policy expert that "Policies like renewable portfolio standards or carbon taxes might sound technology-neutral, but they tend to preference mature technologies that are already on the market."  I can see how portfolio standards might protect incumbents, if the portfolio requirements are written in a way that requires, say, wind or silicon-cell solar but omits the possibility of substituting other technologies that might do better on some weighted measure of cleanliness/cost.  But why would carbon taxes "preference mature technologies"?  

The best answer I can think of is that perhaps our expert is assuming that the government sets the price of a carbon tax at the optimal point based on current costs of compliance.  That is, usually the optimal price is the point where the marginal social damage curve crosses the average private marginal cost of mitigation curve (a more detailed explanation is in Part I here).  If we draw the latter curve using the cost of incumbent technologies, we might be allowing more pollution than would be optimal with a newer, cheaper technology.  This would tend to diminish the returns to cost innovation.

This assumes a regulator that does not dynamically adjust prices.  And maybe that's a realistic assumption.  But one can design a system that dynamically adjusts itself, with cap-and-trade being the most obvious example: if I invent a cleaner way of producing energy, I can sell it to folks who will now need fewer permits, allowing them to sell some of their existing supply.  I tend to think of cap-and-trade as just one version of a carbon tax, but maybe Vox's expert just meant to say  that he prefers cap-and-trade to other forms of carbon pricing?

July 1, 2015 | Permalink | Comments (0)

Monday, June 29, 2015

Student Loans and the Bagehot Rule

As Prof Galle noted a few days ago, this blog has had a number of posts on student loans. I'm interested in the 2008 financial crisis, and I've been running across the Bagehot Rule a lot, which says that a central bank ought to make loans only if they will be profitable because the borrower is essentially sound, with good collateral, and is charged a high interest rate. Student loans sound similar--- the government supplies a missing market, and that ought to be profitable.

We do have the problem there, though, that borrowers might shortsightedly use the loans for consumption. I've talked about that in "Internalities and Paternalism: Applying Surplus Maximization to the Various Selves across Time." Social Choice and Welfare, 38(4): 601-615 (2012). It's abstract: One reason to call an activity a vice and suppress it is that it reduces a person's future happiness more than it increases his present happiness. Gruber & Koszegi (2001) show how a vice tax can increase a person's welfare in a model of multiple selves with hyperbolic preferences across time. An interself analogy of the compensation criterion can justify a vice ban whether preferences are hyperbolic or exponential, but subject to the caveat that the person has a binding constraint on borrowing.

  The multiple selves model, however, suggests that the present self, lacking in sufficient altruism, perhaps should not be allowed to mortgage the lives of his future selves by borrowing for consumption.



June 29, 2015 | Permalink | Comments (0)

Wednesday, June 24, 2015

A Solution to the Problem of Naive People Overspending on Law School

This solution is simple. Let's go back to the old days, when all you had to do to practice law was to pass the bar exam. That will solve the problem of law school tuition. All the people who think all you need to be rich is the right to practice law will just take bar prep courses before they're disillusioned. 

  This will only address the information problem. A separate problem is short-sighted college graduates who want to put off work for three years and find the government willing to guarantee loans to them to help them delay adulthood. They'll go to law school even if they could skip it and become lawyers right away. 

Or maybe I'm too pessimistic. Those graduates might be happy with the intermediate stage of apprenticing to a lawyer for three years instead of law school. 

June 24, 2015 | Permalink | Comments (0)

Sunday, June 21, 2015

What is meritocracy?

 There's a new book out called The China Model (Princeton University Press) by Daniel A. Bell, a government professor. I  read a review  after reading a post about it at Marginal Revolution. The attention in the book and review seem to be on autocracy vs. democracy but phrased as being meritocracy v. democracy, something quite different. Either an autocracy  or a democracy can be meritocratic or not, because it's a different dimension. 

   I don’t know about the book, but when I think of meritocracy, I don’t think of choosing the top leader by examination, which I don’t think has ever been done anywhere. It certaintly doesn’t mean oligarchy, with a group of powerful men at the top running things and choosing who will be the titular head of state. Rather, it refers to having a large amount of the state’s power in the hands of civil servants who are chosen by merit, by some non-political means such as blind examination. The top leaders are still chosen by some other means.


Thus, the real question is whether there should be civil service examinations such as the United States used to have before Jimmy Carter ended them because they were thought to be racist, or overt political choice of employees, or choice delegated to existing employees based on whatever criteria they like, which I understand is our current system. Note that the last is not really non political— it just uses the political views of the existing civil servants rather than of the elected leaders. Thus, we get the highly politicized Justice Dept. Civil Rights Division civil servant hiring.

It *is* a very good question how far down in the ranks political hiring should go. 

 

  But am I right? What is a good definition of meritocracy? And what is our current system of government hiring--- is there a limit on discretion? I do recall someone saying that, for example, having a college degree helps, but it doesn't matter whether that degree is from mail order or from Princeton.    

June 21, 2015 | Permalink | Comments (0)

Wednesday, June 17, 2015

Gifts for Law and Econ Profs

PenRRstock

      I was just ordering some Argentine patacon bills as a gift for a govt. prof. and found that stock and bond certificates can be had on the Web for on the order of $10-30.  Frame one, and you've got a good gift for an economist or  a law prof of corporations, securities, or bankruptcy! Lots of them have nice engravings. 

June 17, 2015 | Permalink | Comments (0)

McCarthy & Daren on the Cost of Satisficing in Health Insurance Choice

"Quality Ratings and Premiums in the Medicare Advantage Market" Free Download

IAN M. MCCARTHYEmory University - Department of Economics
MICHAEL DARDENTulane University - Department of Economics

We examine the response of Medicare Advantage contracts to published quality ratings. We identify the effect of star ratings on premiums using a regression discontinuity design that exploits plausibly random variation around rating thresholds. We find that 3, 3.5, and 4-star contracts in 2009 significantly increased their 2010 monthly premiums by $20 or more relative to contracts just below the respective threshold values. High quality contracts also disproportionately dropped $0 premium plans or expanded their offering of positive premium plans. Welfare results suggest that the estimated premium increases reduced consumer welfare by over $250 million among the affected beneficiaries.

[Ed.: This is a promising research design for a wide variety of star ratings, at least if the underlying distribution of scores is available to the researcher.]

June 17, 2015 | Permalink | Comments (0)

Monday, June 15, 2015

Our views on federal profits from student loans: a retrospective

Slate and Leiter's blog (both via Mike Simkovic) have returned lately to the profitability of federal loans to law (and other professional school) students.  Interested readers may note that L&E Prof had a three-part series on that issue: 1. A general theory ("the bake sale theory") of profitable government business; 2. distributional issues specific to student loans; 3. a possible argument for why it would be efficient to do redistribution through a student loan program.  Readers interested in the last question may also want to check out this working paper by Jake Brooks. 

June 15, 2015 | Permalink | Comments (0)

Chu et al.: Evidence for the CYA Theory of Compensation Consultants

"Do Compensation Consultants Enable Higher CEO Pay? New Evidence from Recent Disclosure Rule Changes" Free Download

JENNY CHUUniversity of Cambridge - Judge Business School
JONATHAN FAASSEUniversity of Cambridge - Judge Business School
P. RAGHAVENDRA RAUUniversity of Cambridge

In July 2009, the SEC announced additional disclosure rules requiring firms that purchase other services from their compensation consultants to disclose fees paid for both compensation consulting and other services. ... After the rule change, client firms that switched to specialist consultants paid their chief executive officers (CEOs) 7.4% more in median total compensation than a matched sample of firms that remained with multi-service consultants. Compensation consultants retained solely by the board are associated with 15.1% lower median pay levels than a propensity-score matched sample of firms with management-retained consultants....

June 15, 2015 | Permalink | Comments (0)

Friday, June 12, 2015

Sahm, Shapiro, & Slemrod on Household Responses to Income Shocks

"Balance-Sheet Households and Fiscal Stimulus: Lessons from the Payroll Tax Cut and its Expiration" Free Download 
NBER Working Paper No. w21220

CLAUDIA SAHMFederal Reserve Board
MATTHEW D. SHAPIROUniversity of Michigan at Ann Arbor - Department of Economics, National Bureau of Economic Research (NBER)
JOEL B. SLEMRODUniversity of Michigan, Stephen M. Ross School of Business, National Bureau of Economic Research (NBER)

Balance-sheet repair drove the response of a significant fraction of households to fiscal stimulus following the Great Recession. By combining survey, behavioral, and time-series evidence on the 2011 payroll tax cut and its expiration in 2013, this papers identifies and analyzes households who smooth debt repayment. These “balance-sheet households” are as prevalent as “permanent-income households,” who smooth consumption in response to the temporary tax cut, and outnumber “constrained households,” who temporarily boost spending. The asymmetric spending response of balance-sheet households poses challenges to standard models, but nonetheless appears important for understanding individual and aggregate responses to fiscal stimulus.

[Ed.: One interpretation is that households have a rule of thumb for making debt payments, such as "$50 per month," even though this results in lumpy (and therefore inefficient) consumption.  But this result may be superior to the utility outcome the household would get (bad credit, even less income smoothing) without the rule of thumb in place.  ]

June 12, 2015 | Permalink | Comments (0)

Wednesday, June 10, 2015

Hunt on the L&E of Microfinance

"The Law and Economics of Microfinance" Free Download 
Journal of Law and Commerce, Vol. 33, No. 1, 2014

KATHERINE HELEN MARY HUNTGriffith University

...Previous research has not considered microfinance from a law and economics perspective. ...  This article is the first which considers such an important yet overlooked issue. In order to consider the law and economics of microfinance this article will present a comparison between financial relationship in developed and developing contexts and explore how microfinance completes a credit market failure that has resulted in those who are willing and able to obtain financial services being excluded from the market.

June 10, 2015 | Permalink | Comments (0)

Tuesday, June 2, 2015

Goffman's Conspiracy and Attempted Murder--- the Appropriate Penalty?

 A certain Dr. Goffman wrote a 2014 book about hanging out with young ghetto criminals. I'm on a discussion list that's been talking about a major crime she confesses to in the book. SOmeone asked what the appropriate penalty would be. She's case 1 below. Wouldn't  sentencing guidelines treat these two cases equally--

 
1. A nice anthropologist lady talks with some young men about how they should kill the murderer of their friend, and drives them around looking for the friend for a long time,but they don't know where he is and were unlikely to find him anyway, and she's shown no sign in her life of being willing to help kill someone without flinching and turning the car around at the last minute. 
 
2. A professional hit man (though never convicted) is hired by some sadists to tell them how to catch a child and kill him. He drives them to where the child walks to school each day, but the child is sick that day, so nothing happens. 
 
      There are good reasons for having sentencing guidelines, but as is  a commonplace, the guidelines move all the discretion to the prosecutor. So in case 1, the prosecutor might well think the lady should do some community service and have her criminality on record, but if he can't plead it down to the an offence that gives that penalty, he'll just not prosecute--- and shouldn't, either, given the constraints. And that's not just a matter of trying to be just--- if he goes after her for conspiracy and attempt and a 5-30 year sentence (I'm guessing at the length), it will consume a lot of the office's resources for very little (or negative--- this is revenge for murder, remember) reduction in future crime.  

 

June 2, 2015 | Permalink | Comments (0)

Thursday, May 28, 2015

Will FIFA Get A Red Card?

Here at L&E Prof Blog, we know that we're not your first stop on the internet.  So we assume you know about those crooked, crooked FIFA officials.  We're shocked, too...rumors that the bar in the hotel where the officials were arrested is named "Ricks" are too thematically appropriate to be true.  What you may not know is that FIFA USA is a tax-exempt entity under U.S. law, a so-called "501(c)(4)" organization.  That's an entity that pays no tax but cannot receive deductible contributions (in contrast to 501(c)(3) entities, which can).  

Both c(3) and c(4) organizations face prohibitions on so-called "excess benefit" transactions, which are basically when insiders exploit their position for personal gain.  Ahem.  Typically penalties are limited to fines on the insiders and the organization, but in cases where the corruption is pervasive throughout the organization,  the organization can also potentially lose its exempt status.

Should FIFA be concerned about losing their exemption?  Well, looking at their 2013 tax return, they have more than $1 billion in U.S. revenue, mostly from royalties.  They also report substantial expenses, so perhaps that wouldn't be $350 million in annual taxes, but tens of millions, at least.  Another good nugget from the return: although FIFA does have a conflict of interest policy, it does not require its officers and directors to disclose any conflicts, and it does not "regularly and consistently enforce" the policy.  You don't say.  

{Update 4:37}: A chuckleworthy update: in defending his organization, FIFA President comments, "We, or I, cannot monitor everyone all of the time."  Indeed.  But perhaps they might try monitoring some of them some of the time?   Less snarkily, this seems to be an effort to mount something of an ostrich defense.  Which might work, if believed, for Blatter's personal criminal liability, but isn't guarantee to shield the organization from tax penalties for the self-dealing transactions.  

May 28, 2015 | Permalink | Comments (0)

Tuesday, May 26, 2015

Kuang: The Effect of Yelp on Home Values

"Does Quality Matter in Local Consumption Amenities? An Empirical Investigation with Yelp" Free Download

CHUN KUANGGeorge Washington University, Department of Economics

The possibility that local consumption amenities provided by bars, restaurants, and other retail services improve neighborhood or city attractiveness has received increasing attention in the literature. ... The results demonstrate that both the quantity and quality aspects of consumption amenities matter, and that consumer ratings are more informative about unobservable restaurant amenity than price estimates. Furthermore, comparisons between the results for the pre- and post-Yelp periods show that such capitalization differentials are only observed when information on quality is readily available to and widely used by the public.

May 26, 2015 | Permalink | Comments (0)

Sunday, May 24, 2015

The Income Taxes of the Clinton Foundation and Hillary Clinton

   Here's an interesting tax question. Hillary Clinton is a founder and major supporter of the Clinton Foundation. She has lobbied for various foreign persons at State Department, who have in return given money to the Clinton Foundation. The Clinton Foundation reported these as donations. But they were really income, money provided in return for services, as I imagine could be proved to a jury by preponderance of evidence. This income would be taxable for a New York resident, even if it were earned in Washington DC, but the resident could probably get a credit for Washington DC taxes on his New York tax form.

Continue reading

May 24, 2015 | Permalink | Comments (0)

Thursday, May 21, 2015

Hersch: Should we care that women with "elite" education drop out of the workforce?

"How Opting Out Among Women With Elite Education Contributes to Social Inequality" Free Download 
Indiana Journal of Law and Social Equality 3(2), Spring 2015, 192-215
Vanderbilt Law and Economics Research Paper No. 15-11

JONI HERSCHVanderbilt University - Law School, Vanderbilt University - Owen Graduate School of Management, Vanderbilt University - College of Arts and Science - Department of Economics, Institute for the Study of Labor (IZA)

This paper, written for the 2013-2014 Symposium of the Indiana Journal of Law and Social Equality, expands on my research showing that women who are graduates of elite institutions have lower labor market activity than their counterparts who are graduates of non-selective institutions. I provide new statistics on the relation between status of undergraduate institution and family background, likelihood of earning a professional or graduate degree, earnings, and trends in opting out. These data show that the gap in labor market activity on the basis of educational status was largely unchanged between 2003 and 2010 and that graduation from an elite post-baccalaureate program does not eliminate the pay gap between graduates of elite and non-selective institutions.

I discuss what the greater opting out of women with elite education implies for social inequality on two dimensions: whether increased workplace flexibility would lead to greater retention of women in high-profile careers and competition for limited slots in elite institutions. [...]

[Ed.: See also this Sunday' viral NYT article on the elite-educated wives of the UES.]

May 21, 2015 | Permalink | Comments (1)

Monday, May 18, 2015

Biker Merger Economics.

     What happened in Waco? Several biker gangs met at a large bar. A fight started in the bathroom, and despite the presence of 12 policeman, it became general and 9 people ended up killed.

    My question: Why were so many members of so many  gangs there in the first place, and fully armed?

Conjecture: Merger talks. Leaders wished to talk about consolidating their drug businesses. They did not wish to meet as a small group because they feared murder. Or, perhaps, they wanted a chance for their guys to rub shoulders in a friendly environment--- but in that case, they would have banned guns. They knew the danger of their guys rubbing shoulders together, especially if the leaders were occupied and couldn't supervise them. But they needed Mutually Assured Destruction. No leader would kill a rival leader (and, say, his 3 bodyguards, which could be done simultaneously) without igniting a bloodbath of revenge. To be sure, there was  some possibility of a bloodbath by accident--a "finite tremble"--- but that was worth the risk, ex ante. Ex post, of course, the merger talks have failed and police scrutiny will be intense. But that's just a risk of the MAD strategy. 

May 18, 2015 | Permalink | Comments (0)

Like Spider-Man, Today's Big Federalism Decision Arrived in Disguise

Probably there is nothing I can do to convince you, reader, that you should be interested in today’s decision in Maryland v. Wynne.  Not only is it a tax case, but it is also a dormant commerce clause case, and the decision seems to turn on arcane disputes about the scope of the holdings of earlier, incomprehensible, dormant commerce clause tax cases.  Still, let me try.  For one, it features one of the more unusual lineups you’ll see: Scalia, Thomas, Ginsburg, and Kagan are the dissenters.  Alito and Scalia trade blows, Scalia of course more caustically, calling the majority’s result “fraudulent.” 

Those soap opera elements aside, the bedrock issues for both sides turn on federalism, game theory, and the institutional role of the Supreme Court.  Justice Ginsburg’s dissent claims that the Court denies states the power to require that “those who live or work within the State shoulder their fair share of the costs of government.”  But she’s wrong about that.  What the majority actually decides is that States cannot exercise that power unilaterally. 

Let’s get the tax bits out of the way first. 

Continue reading

May 18, 2015 | Permalink | Comments (0)

Thursday, May 14, 2015

ALEA

We're off to the Annual Meeting of the American Law & Economics Association.  Missing the fun?  The deadline for our northern neighbors is July 1.  

May 14, 2015 | Permalink | Comments (0)

Friday, May 8, 2015

Police Misconduct--- Make Firing Easier, Rather than Criminalizing More Conduct

There's been a discussion on the Crimprof list of whether the wilfulness requirement for federal criminal prosecution of police should be eliminated. I think that would allow malicious prosecutions and not reduce police misconduct at all. 

I think what we really need is to make it very easy to fire an officer for even mildly bad behavior--- say, punching a suspect once and not hurting him much.  Criminal penalties require a lot of cost in prosecution and proof beyond a  reasonable doubt, so making something a criminal offense can actually reduce deterrence by making it  much harder to prove and so expensive for the county that they'll ignore all but the worst offenses. Thus, eliminating police unions and perhaps excluding police officers from normal labor law protections might be the way to go. It would also be interesting to have some kind of citizen-initiated process by which to fire a policeman without  need of the consent of the police chief or prosecutor. 

May 8, 2015 | Permalink | Comments (0)

Wednesday, May 6, 2015

Bertrand & Morse: Inequality Contributes to Status Competition

 

"Trickle-Down Consumption" Fee Download 
CEPR Discussion Paper No. DP10468

MARIANNE BERTRANDUniversity of Chicago - Booth School of Business, National Bureau of Economic Research (NBER), Centre for Economic Policy Research (CEPR)
ADAIR MORSEUniversity of California, Berkeley - Haas School of Business

Using state-level variation over time in the top deciles of the income distribution, we observe that non-rich households consume a larger share of their current income when exposed to a higher top income and consumption levels. We argue that permanent income, wealth effects, and upward local price pressures cannot provide the sole explanation for this finding. Instead we show that the budget shares which non-rich households allocate to more visible goods and services rise with top income levels, consistent with status-maintaining explanations for our primary finding. Non-rich households exposed to higher top income levels self-report more financial duress; moreover, higher top income levels in a state are correlated with more personal bankruptcy filings. Non-rich households might have saved up to 3 percent more annually by the mid-2000s had incomes at the top grown at the same rate as median income since the early 1980s.

May 6, 2015 | Permalink | Comments (0)