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)

Monday, May 4, 2015

Web Myths and Public Misinformation

Economist David Friedman has a couple of recent good posts on fraudulent reports that left-handedness is a sin in Judaism and Christianity and that Darwin wrote certain supposed derogatory quotes on races. 

The left hand and Darwin posts raise the question of whether the Web has reduced or increased informativeness. My first thought was that we have a temporary problem, since a little experience would teach everyone that something being written on the web is not only no more reliable than what your friend's mom says, but less reliable, since there is a bigger chance your supposed fact is an outright lie.Plus, of course, with a little googling it's not hard to find out whether a surprising fact is true or false; if one enters the marketplace of ideas, one can manage to buy genuine goods. 

My second thought was that there's not enough feedback to teach most people. Few people are critical thinkers, after all, even among the college educated. Moreover, the web is useful as a rationalization tool, for people who use it to look up the one site out of 1,000 that supports their position and purposely if without admission screen out contrary information. 

Alas.

 

   The end of the Darwin post, though, does point to a silver lining. One of the posters of the fraud is a scholar of gypsy history, and Prof. Friedman notes that the mistaken quote allows us to better evaluate that scholars other work's likely mistakes. As sloppy use of the web becomes pervasive, it will become a useful shibboleth for deciding whose work to discard as junk. 
My second thought was that there's not enough feedback to teach most people. Few people are critical thinkers, after all, even among the college educated. Moreover, the web is useful as a rationalization tool, for people who use it to look up the one site out of 1,000 that supports their position and purposely if without admission screen out contrary information.

 

 

May 4, 2015 | Permalink | Comments (0)

Friday, May 1, 2015

Racial Disparities in Imprisonment across States: Why Are They So Much Greater in Liberal States?

Steve Sailer’s blog reprinted an interesting table on racial disparities in imprisonment rates. Liberal states imprison many more blacks relative to whites. The deep South has the most equal imprisonment rates. And the liberal states not only have high relative rates of black imprisonment; many have high absolute rates. A black is  twice as likely to be in prison in Vermont as in Alabama. Why? 

  Black-white imprisonment

   One commenter at the blog suggested that liberal states are relatively hard on repeat offenders, and blacks are more likely to be repeat offenders. Mr. Sailer wondered whether there is more black specialization in crime, e.g., do blacks go to Vermont to deal drugs but not for other occupations? A third possibility is that liberal states have more generous social benefits and more generous social benefits cause crime. It would be interesting to think of ways to test these against available data--- they all rely on assumptions of fact. 

May 1, 2015 | Permalink | Comments (0)

Tuesday, April 28, 2015

Carlson et al. : Football Players and Lifetime Income

"Bankruptcy Rates Among NFL Players with Short-Lived Income Spikes" Fee Download 
NBER Working Paper No. w21085

KYLE CARLSONCalifornia Institute of Technology - Division of the Humanities and Social Sciences
JOSHUA KIMUniversity of Washington
ANNAMARIA LUSARDIGeorge Washington University - Department of Accountancy, National Bureau of Economic Research (NBER)
COLIN CAMERERCalifornia Institute of Technology - Division of the Humanities and Social Sciences

One of the central predictions of the life cycle hypothesis is that individuals smooth consumption over their economic life cycle; thus, they save when income is high, in order to provide for when income is likely to be low, such as after retirement. We test this prediction in a group of people—players in the National Football League (NFL)—whose income profile does not just gradually rise then fall, as it does for most workers, but rather has a very large spike lasting only a few years. We collected data on all players drafted by NFL teams from 1996 to 2003. Given the difficulty of directly measuring consumption of NFL players, we test whether they have adequate savings by counting how many retired NFL players file for bankruptcy. Contrary to the life-cycle model predictions, we find that initial bankruptcy filings begin very soon after retirement and continue at a substantial rate through at least the first 12 years of retirement. Moreover, bankruptcy rates are not affected by a player’s total earnings or career length. Having played for a long time and been well-paid does not provide much protection against the risk of going bankrupt.

April 28, 2015 | Permalink | Comments (0)

Harassment via Investigation without Criminal Charges in Wisconsin

A recent article in NR is causing some stir (http://www.nationalreview.com/article/417155/wisconsins-shame-i-thought-it-was-home-invasion-david-french). The claim is that in Wisconsin a country prosecutor, in collusion with the police department and a state judge, has been conducting battering-ram raids on   political opponents to terrorize them and steal politically sensitive information such as donor lists, while enjoining them to silence on pain of contempt. And, indeed, the raids have resulted in no arrests. The prosecutor is Mr. Chisholm of the county in which Madison is located. It is relevant that the police union is extremely hostile to the governor and his supporters who are the targets of the raids (http://www.politifact.com/wisconsin/statements/2014/oct/02/wisconsin-professional-police-association/violent-crime-wisconsin-higher-under-scott-walker-/)

Continue reading

April 28, 2015 | Permalink | Comments (0)

Sunday, April 26, 2015

Florian Ederer at Columbia Law School on April 27, 2015

Florian Ederer, Assistant Professor of Economics, Yale School of Management, Cowles Foundation

"Promises and Expectations"

Abstract: We investigate why people keep their promises in the absence of external enforcement mechanisms and reputational effects....

April 26, 2015 | Permalink | Comments (0)

Sunday, April 19, 2015

Deferred Prosecution Agreements: Right Problem, Wrong Fix

Yglesias has a good write-up of the problems with regulating big financial firms, but he (and Elizabeth Warren) get to the wrong solutions.  To paraphrase, the problem is that many regulated firms are effectively judgment proof.  We may threaten sanctions against accounting firms that commit fraud, or chemical firms that dump waste into the river, or banks that swindle their counter-parties.  The problem is that the typical criminal sanction is too big, since indictment triggers a run on the firm by its employees, trading partners, and (eventually) creditors.  Prosecutors have therefore basically stopped indicting, leading to the rise of deferred-prosecution agreements, as nicely chronicled by my law school classmate Brandon Garrett. 

For Yglesias, and to lesser degree Garrett, the deferred prosecution agreement is too wimpy.  Since firms know that the government won’t indict, they have no reason to cave, leading to quite defendant-friendly deals.  This leads to under-deterrence.  Yglesias endorses Sen. Warren’s proposed solution, which is to credibly put the threat of indictment back on the table.

But prosecutors are not wrong to avoid indictment, since that leads to over-deterrence.  Over-deterrence is bad not only for firms that sink too much money into compliance, but also for society.  It’s like the problem of medieval justice: if the sentence for every crime is hanging, bandits have no marginal incentive to avoid killing their victims.

My own view, as I sketch in this new draft, is that the problem is caused by the choice of ex post remedies.  When regulators are facing defendants who are, in effect, judgment proof, the better solution is to switch to other incentives.  So, for example, we might impose a tariff on chemicals that would be hazardous if dumped, or use anti-trust to keep banks too small to impose systemic risks.  Obviously, there’s a tradeoff: not all firms will dump the chemical.  A key part of my argument is that regulators can adjust their ex ante prices to account for expected variations in ex post behavior; firms that are at higher risk of dumping pay more for the chemical.    

April 19, 2015 | Permalink | Comments (1)