Ronald H. Coase, Founding Scholar in Law and Economics, 1910-2013

by Sarah Galer and Jeremy Manier

University Of Chicago News Office
September 2, 2013

Ronald H. Coase helped create the field of law and economics, through groundbreaking scholarship that earned him the 1991 Nobel Memorial Prize in Economics and through his far-reaching influence as a journal editor.

Coase, who spent most of his academic career at the University of Chicago Law School, died at the age of 102 on Sept. 2 at St. Joseph’s Hospital in Chicago. He was the oldest living Nobel laureate, according to the Nobel Foundation.

Coase, the Clifton R. Musser Professor Emeritus of Economics, is best known for his 1937 paper, “The Nature of the Firm,” which offered groundbreaking insights about why firms exist and established the field of transaction cost economics, and “The Problem of Social Cost,” published in 1960, which is widely considered to be the seminal work in the field of law and economics. The latter set out what is now known as the Coase Theorem, which holds that under conditions of perfect competition, private and social costs are equal.

“That Ronald Coase is among the most influential and best-cited economists in the past 50 years is not debatable,” said Law School Professor Emeritus William M. Landes and Sonia Lahr-Pastor, JD '13, in “Measuring Coase’s Influence.” They presented the paper at a 2009 conference titled “Markets, Firms and Property Rights: A Celebration of the Research of Ronald Coase.”

“Among the highest aspirations of the University of Chicago is the drive to create new fields of study that change our world for the better,” said University of Chicago President Robert J. Zimmer. “Ronald Coase embodied that ideal. His groundbreaking scholarship made impacts on law and policy that people around the globe continue to feel today. As a scholar, a colleague and a mentor, his historic contributions enriched our intellectual community and the world at large.”

“Ronald Coase achieved what most academics can only dream of – immortality,” said Michael H. Schill, dean of the University of Chicago Law School. “His scholarship fundamentally changed the way lawyers approach issues of when and how government should intervene in the economy, and when and how private contracts should govern. His work could not be more relevant to many of the debates we are enmeshed in today.

“Our great law school has contributed much to the world of law and jurisprudence,” Schill said. “Ronald’s contributions were among the most important.”

His intellectual impact continued late into his life, when at the age of 101, he published his final book, How China Became Capitalist, co-authored with former student Ning Wang, PhD’02.

Coase’s enduring legacy at the University of Chicago is reflected in the Law School’s Coase-Sandor Institute for Law and Economics, named in honor of Coase and donors Richard and Ellen Sandor, who gave UChicago $10 million in support of law and economics scholarship.

"Ronald Coase inspired a new way of thinking about law and about the application of economics," said Omri Ben-Shahar, the Leo and Eileen Herzel Professor of Law and Kearney Director of the Coase-Sandor Institute. "His insights are simple but at the same time profound. They are accessible to first-year students, and their implications continue to provoke cutting-edge research. We will continue to develop the field that he inspired, and to build on the vitality of his ideas."

“Professor Coase’s research on property rights provided the academic underpinning for the establishment of the Acid Rain Program in the United States in the early 1990s, which virtually eliminated acid rain pollution in America,” said Richard Sandor, chairman and chief executive officer of Environmental Financial Products, LLC. “Personally, he has been a source of inspiration and mentoring to me for over 40 years. Professor Coase provided me with unwavering intellectual support to carry on my ideas as both an academic and a practitioner.

“The Coase-Sandor Institute for Law and Economics at the University of Chicago will continue to support and expand Coase's legacy in areas such as the environment, health care and education,” Sandor said.

More

A Celebration of the Mind and Work of Ronald Coase

Once in a Lifetime: Ronald Coase's 100th Birthday Celebration

Publications by and about Ronald Coase

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1991: Ronald H. Coase

R.H. Coase, "The Nature of the Firm", Economica, N.S. 4(16): 386-405 (1937)
R.H. Coase, "The Problem of Social Cost", Journal of Law & Economics 3: 1-44 (1960)

R.H. Coase, "The Task of the Society", Opening Address to the Annual Conference of the International Society of New Institutional Economics, Washington, DC, September 17, 1999

Interview with Ronald Coase at the Inaugural Conference of the International Society for New Institutional Economics, St. Louis, Missouri, September 17, 1997

"Coase on Externalities, the Firm, and the State of Economics", EconTalk interview to Russ Roberts (May 21, 2012)

Interview to Wang Ning (December 2010)

"Looking for Results: Nobel laureate Ronald Coase on rights, resources, and regulation", interview to Thomas Hazlett, Reason (January 1997)

Conference: "Markets, Firms and Property Rights: A Celebration of the Research of Ronald Coase"

"Coase's Journey", by Douglas Baird, Lecture (February 7, 2006)
"Ronald Coase, The Unexpected Economist" by Pedro Schwartz, (Library of Economics & Liberty, October 7, 2013)
"How a 1930s theory explains the economics of the internet" by John Naughton (The Observer, September 8, 2013)
"Ronald Coase showed how free markets help the environment", The Times (September 5, 2013)
"On Coase's Two Famous Theorems", by Kevin Bryan, A Fine Theorem (September 3, 2013)
"Ronald Coase and the Misuse of Economics" by John Cassidy (New Yorker, September 3, 2013)

Aristides Hatzis on Coase (in Greek)
Αριστείδης Χατζής, "Το Δίκαιο ως Εργαλείο Μείωσης του Κόστους των Συναλλαγών: Το Θεώρημα του Coase και η Οικονομική Ανάλυση του Δικαίου" (2012)
Αριστείδης Χατζής, "Ελεύθερες Αγορές ή Μιζέρια;" (2013)

The Coase-Sandor Institute for Law and Economics

                

The 17th annual Coase Lecture
presented by Ronald Coaseon April 1, 2003 (University of Chicago Law School)

Ronald Coase: "Markets, Firms and Property Rights"

This address by Ronald Coase (Clifton R. Musser Professor Emeritus of Economics at the University of Chicago Law School) to the conference "Markets, Firms and Property Rights: A Celebration of the Research of Ronald Coase" was recorded November 23, 2009.

It Captures Your Mind

by Cass R. Sunstein

New York Review of Books
September 26, 2013

There is a great deal of unlovely jargon within the federal government. The product of an activity is called “the deliverable.” A task that follows a meeting is called a “do-out.” A request for action is described as “the ask.” If someone needs to continue a discussion with a colleague, he will promise to “circle back.” If a project must be abandoned or put on hold because of competing demands on people’s time and attention, the problem is one of “bandwidth.” Of course such terms can be found in many other places, including in businesses, but they are used with particular regularity in Washington, D.C.

Of the various unlovely terms, “bandwidth” is the most useful and the most interesting. The central idea is that public officials have the capacity to focus on, and to promote and implement, only a subset of the universe of good ideas. Bandwidth is limited partly for political reasons. In any particular period, members of Congress, executive branch officials, and the public itself may be unwilling to support more than a small set of proposals. But much of the problem involves the limits of time and attention. A proposed reform might seem excellent, and it might even be able to attract considerable political support, but the minds of the people who might pursue it are occupied, and they do not have the time to learn about it and to explore its merits. Within government, some good ideas fail to go anywhere, not because anyone opposes them, but because the system lacks the bandwidth to investigate them.

Economists focus on the problem of scarcity—on how people allocate their resources (including both time and money) in the face of many competing demands. In their extraordinarily illuminating book, the behavioral economist Sendhil Mullainathan and the cognitive psychologist Eldar Shafir explore something quite different, which is the feeling of scarcity, and the psychological and behavioral consequences of that feeling. They know that the feeling of scarcity differs across various kinds of experiences and that people can feel “poor” with respect to money, time, or relationships with others.

But their striking claim, based on careful empirical research, is that across all of those categories, the feeling of scarcity has quite similar effects. It puts people in a kind of cognitive tunnel, limiting what they are able to see. It depletes their self-control. It makes them more impulsive and sometimes a bit dumb. What we often consider a part of people’s basic character—an inability to learn, a propensity to anger or impatience—may well be a product of their feeling of scarcity. If any of us were similarly situated, we might end up with a character a lot like theirs. An insidious problem is that scarcity produces more scarcity. It creates its own trap.

Because they lack money, poor people must focus intensely on the economic consequences of expenditures that wealthy people consider trivial and not worth worrying over. Those without a lot of time have to hoard their minutes, and they may have trouble planning for the long term. The cash-poor and the time-poor have much in common with lonely people, for whom relationships with others are scarce. When people struggle with scarcity, their minds are intensely occupied, even taken over, by what they lack.

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Ελεύθερες Αγορές ή Μιζέρια;

του Αριστείδη Χατζή*

Τα Νέα
9 Σεπτεμβρίου 2013

Σε πρόσφατο άρθρο του ο Economist υπολογίζει ότι τα τελευταία 20 χρόνια τα άτομα που ζουν σε συνθήκες ακραίας φτώχειας μειώθηκαν κατά 1 δισ. Από το 1990 έως το 2010 το ποσοστό των ανθρώπων που ζουν σε άθλιες συνθήκες ανέχειας στις αναπτυσσόμενες χώρες μειώθηκε από το 43% στο 21%. Αυτή η ταχύτατη βελτίωση των συνθηκών ζωής οφείλεται κυρίως στην παγκοσμιοποίηση και στο άνοιγμα των αγορών. Οι αναπτυσσόμενες χώρες αύξησαν τους ρυθμούς ανάπτυξής τους και αυτό οδήγησε σε κάθε περίπτωση σε μείωση της φτώχειας. Όσες χώρες έδωσαν ταυτόχρονα έμφαση και στην κοινωνική αλληλεγγύη, περιορίζοντας την ανισότητα, κατάφεραν να μειώσουν πολύ περισσότερο τη φτώχεια από τις υπόλοιπες. Έτσι, διαπιστώνει ο Economist τα 2/3 της μείωσης της φτώχειας οφείλονται στην ελεύθερη αγορά και την οικονομική ανάπτυξη και το 1/3 στη μείωση της ανισότητας.

Θεωρείται πλέον δεδομένο και μη αμφισβητήσιμο – τουλάχιστον σε όσους δεν είναι οικονομικά αναλφάβητοι ή αθεράπευτα παρωπιδικοί - ότι μόνο οι ελεύθερες αγορές μπορούν να δημιουργήσουν πλούτο, να οδηγήσουν σε οικονομική ανάπτυξη και να κάνουν μια χώρα και τους κατοίκους της πλουσιότερους. Όπως θεωρείται επίσης δεδομένο ότι η αγορά δημιουργεί περισσότερο πλούτο μακροπρόθεσμα εφόσον ρυθμίζεται έτσι ώστε να είναι ανταγωνιστική και όχι έρμαιο ισχυρών οικονομικών και πολιτικών ομάδων συμφερόντων. Ταυτόχρονα είναι πλέον κοινώς αποδεκτό πως η περιορισμένη (για να μη δημιουργεί αντικίνητρα) αναδιανομή του πλούτου και η στοχευμένη κοινωνική πολιτική μπορεί να βελτιώσουν σημαντικά το βιοτικό επίπεδο και να διασφαλίσουν την κοινωνική συνοχή και την πολιτική ομαλότητα. Το δίλημμα λοιπόν (αν υποθέσουμε πως υπάρχει) είναι «αγορές ή μιζέρια», καταλήγει ο Economist.

Μια από τις σημαντικότερες συμβολές στη συζήτηση για τις προϋποθέσεις λειτουργίας της αγοράς με τον καλύτερο δυνατό τρόπο για μια κοινωνία οφείλεται στον Ronald Coase (Ρόναλντ Κόουζ), ο οποίος πέθανε την προηγούμενη εβδομάδα πλήρης ημερών (1910-2013). Ο Coase εντόπισε ένα σοβαρό πρόβλημα στην ελεύθερη αγορά: κάθε συναλλαγή έχει κόστος. Είναι το κόστος που οφείλεται στην έρευνα των συναλλασσομένων για να βρουν μια καλή ευκαιρία ή ένα έξυπνο επιχειρηματικό σχέδιο, το κόστος που δημιουργεί η διαπραγμάτευση που κάθε συναλλαγή απαιτεί αλλά και το κόστος εφαρμογής μιας συμφωνίας. Αυτό το κόστος των συναλλαγών, παρατήρησε ο Coase, είναι ενδογενές στην αγορά και πολλές φορές εμποδίζει τα άτομα να συνάψουν αμοιβαίως επωφελείς συμβάσεις που αυξάνουν τον κοινωνικό πλούτο.

Ευτυχώς το κόστος αυτό μπορεί να μειωθεί με διάφορους τρόπους. Οι επιχειρήσεις προσπαθούν να το μειώσουν με την καθετοποίηση της παραγωγής, το κράτος μπορεί να το μειώσει σε κάποιες περιπτώσεις με τις κατάλληλες ρυθμίσεις αλλά τις περισσότερες φορές αυτό το κόστος το μειώνουν τα ίδια τα άτομα που ανακαλύπτουν ιδιοφυείς τρόπους που κανένας κεντρικός σχεδιαστής δεν μπορεί να φανταστεί.

Βέβαια ο Coase και όσοι συνέχισαν το έργο του δεν άργησαν να επισημάνουν ότι το μεγαλύτερο μέρος του κόστους συναλλαγών δημιουργείται από το κράτος. Η Ελλάδα είναι ένα από τα διαβόητα πλέον παραδείγματα διεθνώς. Έως και τις πρόσφατες άτολμες μεταρρυθμίσεις, τις οποίες υποχρεώθηκε η χώρα μας να εφαρμόσει υπό τον κίνδυνο της χρεοκοπίας, το κόστος συναλλαγών για πολλές οικονομικές δραστηριότητες ήταν από τα υψηλότερα (ή και το υψηλότερο) στην ΕΕ. Το πλέον χαρακτηριστικό παράδειγμα αποτελεί το κόστος συναλλαγών που δημιουργεί εμπόδια στις επενδύσεις και ειδικά στην ίδρυση μιας επιχείρησης. Έτσι, μέχρι και το 2008-9 η θέση της Ελλάδας στην κατάταξη της Παγκόσμιας Τράπεζας ως προς την «φιλικότητα» έναντι των επιχειρήσεων ήταν γειτονική με χώρες όπως η Γκάνα, η Ναμίμπια και η Υεμένη. Άλλα παραδείγματα είναι το απαράδεκτα υψηλό κόστος μεταβίβασης ακινήτων, τα κλειστά επαγγέλματα τα οποία αυξάνουν το κόστος παροχής υπηρεσιών και το άθλιο φορολογικό σύστημα. Μια ιδιαίτερα σημαντική αιτία δημιουργίας εμποδίων στις συναλλαγές είναι η έλλειψη εμπιστοσύνης σε μία χώρα που κυριαρχεί η διαφθορά ενώ το κοινωνικό κεφάλαιο είναι ελλειμματικό. Δεν είναι τυχαίο ότι οι παγκόσμιοι δείκτες οικονομικής ελευθερίας κατατάσσουν την Ελλάδα στις χώρες με περιορισμένη οικονομική ελευθερία.

Μια χώρα που ακόμα και σήμερα δεν τολμά να απελευθερώσει την αγορά της για να δημιουργηθεί επιτέλους πραγματικός πλούτος (όχι αυτός που προέρχεται από επιδοτήσεις και δανεισμό) ώστε να μπορέσει να χρηματοδοτήσει ένα αξιοπρεπές κοινωνικό κράτος, είναι καταδικασμένη στη φτώχεια και τη μιζέρια, οικονομική και πολιτική.

* Ο Αριστείδης Χατζής είναι αναπληρωτής καθηγητής Φιλοσοφίας Δικαίου και Θεωρίας Θεσμών στο Πανεπιστήμιο Αθηνών.

Εδώ θα βρεις το άρθρο σε μορφή PDF όπως δημοσιεύθηκε στα Νέα

Εδώ θα βρεις το άρθρο στην ιστοσελίδα των Νέων (μόνο για συνδρομητές)

Εδώ θα βρεις το άρθρο του Economist

Εδώ θα βρεις ένα κείμενό μου για το θεώρημα του Coase και την οικονομική ανάλυση του δικαίου

Εδώ θα βρεις ένα κείμενο για τη ζωή και το έργο του Ronald Coase

                

Το «Catch 22» και οι πλειστηριασμοί της πρώτης κατοικίας

του Ανδρλέα Δρυμιώτη

Καθημερινή
8 Σεπτεμβρίου 2013

Το Catch 22 έγινε γνωστό από την ομώνυμη αντιπολεμική ταινία του 1970, η οποία βασίστηκε στο βιβλίο του Joseph Heller που πρωτοεκδόθηκε το 1961. Με λίγα λόγια, το «Catch 22» είναι μια κατάσταση που στα ελληνικά την αποδίδουμε καλύτερα με τον όρο «φαύλος κύκλος». Ο κεντρικός ήρωας Yossarian Orr ήθελε να σταματήσει να πετάει για να βομβαρδίζει με το αεροπλάνο. Ο μοναδικός τρόπος για να σταματήσει να πετάει ήταν να δηλώσει ότι είναι παράφρων. Δηλώνοντας όμως παράφρων, σήμαινε ότι ήταν σε θέση να κρίνει τον εαυτό του σωστά και κατά συνέπεια δεν ήταν παράφρων, άρα μπορούσε να πετάει και να βομβαρδίζει. Ουσιαστικά δεν υπήρχε τρόπος να επιτύχει τον σκοπό του.

Η ιστορία με την απαγόρευση των πλειστηριασμών της πρώτης κατοικίας είναι ένα διπλό «Catch 22», τόσο για την κυβέρνηση όσο και για τις τράπεζες. Ολο τον Αύγουστο διαβάσαμε πολλά για το θέμα αυτό, αλλά πολύ λίγα δημοσιεύματα μπήκαν στην ουσία. Δημιουργήθηκε μάλιστα ένα τέτοιο κλίμα, το οποίο ουσιαστικά δρομολογούσε την πτώση της κυβέρνησης και τη διεξαγωγή εκλογών, οι οποίες φυσικά μόνο καλό δεν θα έκαναν στον τόπο και τις οποίες δεν τις θέλει ούτε η πλειονότητα των πολιτών. Ο πρωθυπουργός πήρε προσωπικά το θέμα και έβαλε μερικές προϋποθέσεις ώστε να κατευνάσει τα πνεύματα για να αποφύγουμε το ατύχημα.

Ελάτε, όμως, να αναλύσουμε αυτό το θέμα. Ας ξεκινήσουμε με τους πολιτικούς. Πρώτη, κάποια βουλευτής της Ν.Δ. μάς δήλωσε ότι «καλύτερα να καταρρεύσει η αγορά ακινήτων, παρά να γίνει πρώτα εμφύλιος». Το οποίο ερμηνεύεται ότι αν επιτραπούν οι πλειστηριασμοί της πρώτης κατοικίας, θα γίνει εμφύλιος. Ζήλεψε τη δόξα της συναδέλφου της κάποια άλλη βουλευτής του ΠΑΣΟΚ και υπερθεμάτισε με την απίθανη δήλωση ότι «εάν το δίλημμα είναι ένα εκατομμύριο ξεσπιτωμένοι ή εκλογές, τότε είναι εύκολο δίλημμα. Δεν πρέπει κανείς να φοβάται τις εκλογές». Και οι δύο δηλώσεις δεν έχουν καμία σχέση με την πραγματικότητα και έχουν γίνει μόνο για να δείξουν οι πολιτικοί τη λαϊκή ευαισθησία τους. Ως συνήθως, όμως, παρασυρόμενοι από τον λαϊκισμό τους, αντί να σκέφτονται τους πολλούς, χαϊδεύουν τα αυτιά των ολίγων.

Περισσότερα

Statistics Shed Little Light on Rape Rates

by Carl Bialik

Wall Street Journal
August 30, 2013

Recent media reports of horrific rapes in India depict a country where every woman is in danger of being assaulted at any time. Official crime statistics tell a very different story.

Last year, there were 24,923 cases of rape in India, according to the government's official statistics. That's about two per 100,000 Indians. The per capita rate in the U.S. is more than 13 times higher.

According to criminologists, these surprising numbers are among many that suggest a need for, well, better numbers. Official figures include only crimes reported to police. What criminologists call the "dark figure" of unreported crime isn't captured, and those missing incidents can greatly outnumber reported ones, especially for rape. The rate of underreporting can also vary sharply by country. And a nation that makes headway in encouraging more victims to come forward will appear, in its official stats, to have a worsening rape problem.

"Comparing countries can be very misleading, particularly for a crime like rape," said Angela Me, chief of the Vienna-based research and trend-analysis branch of the United Nations Office on Drugs and Crime. Murder is easier to analyze, she said, because "it is hard to cover up homicide."

Criminologists have long been aware of the need to supplement official stats. The usual method is to survey people about crimes they've experienced. Such surveys typically yield much higher numbers. But they can be very expensive.

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Public policy: Are we safer now?

Financial Times
July 17, 2013

Five years ago, residents of Heathfield Crescent in the northeastern English city of Newcastle were woken by an exploding petrol bomb. A feud was raging once again on the Cowgate estate, an area notorious for violent altercations where police had logged 632 thefts, attacks and other crimes in just 12 months.

Cowgate’s street names, such as Whitethorn, Deepdale and Meadowdale, evoke the beauty of the Northumbrian countryside, but in reality the estate is a drab, claustrophobic group of red-brick houses. The closure of the school, the estate’s garage and its grocery shops give the place a forgotten feel. Desperate families sometimes stole presents from under their neighbours’ Christmas trees, and disputes between residents would quickly turn rough.

Yet there is reason for optimism at Cowgate. Order has been restored on the estate and crime in and around Newcastle is down 54 per cent over the past decade. Lindsay Boyle, 35, has lived in Cowgate all her life, and says she never expected such a dramatic change.

“It had the reputation where nobody wanted to come and live here and when people even heard the name Cowgate they were scared off,” she says. “One bad family would move into an area and that would start to bring the whole street down.”

Today, with “barely any crime”, everything is different. “There’s actually a waiting list for people to come here,” Ms Boyle says. Her parents, who had moved off the estate decades ago when it became too edgy, have even moved back to spend their retirement there.

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In Reckoning a Law's Cost, Final Score Unclear

by Carl Bialik

Wall Street Journal
June 28, 2013

The official scorers of federal legislation gave backers of a sweeping immigration bill major support with the recent finding that the proposed law would cut the deficit and boost the economy. The Senate voted Thursday to approve the legislation, 68-32, with the House of Representatives still to vote on it.

But to some critics and even some supporters of the bill, as well as independent economists and policy analysts, the precise forecasts made by the Congressional Budget Office of the bill's fiscal and economic impact are fresh signs that the agency projects too much confidence. A little humility could go a long way toward boosting its credibility, they say.

For example, the CBO says that in 10 years, the immigration bill—which is expected to expand the flow of immigrants into the country and provide a path to citizenship for those who have already come illegally—would, if enacted, lift gross domestic product by 3.3% in a decade and by 5.4% in two decades. Allowing for wiggle room, though, the CBO says the 20-year boost may be as small as 5.1% or as big as 5.7%.

"The actual effects could be well outside CBO's ranges," the report said. But the agency doesn't say by how much. And for other numbers, such as the effect on the federal deficit, it doesn't provide any range.

That modest admission of potential fallibility doesn't come close to reflecting the true uncertainty of long-run economic forecasts, economists say. Even the CBO's one-year and five-year estimates for the budget surplus or deficit are frequently inaccurate. Yet the CBO's immigration numbers were cited in many media reports as certain predictions.

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How Do Societies Avoid Collapse?

Property & Environment Research Center
June 7, 2013

Economic research has long been subject to a pitfall: it lacks a laboratory in which to carry out simple experiments. Unlike sciences such as physics or chemistry, economic data are messy, imperfectly measured, and affected by any number of unknown variables. This makes it difficult to understand how humans and markets actually work.

The field of experimental economics attempts to address these challenges. Using controlled laboratory experiments and computer programs, researchers are able to take a more scientific approach to understand human behavior, and they are often uncovering new revelations about the way human societies work. Long-time friend of PERC and former board member Vernon Smith won the 2002 Nobel Prize in economics for his experimental economics research, which sought to go beyond mathematical abstractions and understand the role human institutions play in creating social rules and order.

Bart Wilson is a colleague and coauthor of Vernon Smith at the Economic Science Institute at Chapman University and a 2013 PERC Lone Mountain Fellow. This week, Bart visited PERC to explore how societies form rules and order. He even tested a laboratory experiment on the PERC staff to further demonstrate how human institutions emerge and how those institutions respond to sudden and dramatic changes. The experiment reveals something about how societies avoid collapse.

Here’s how it worked: Each PERC participant was provided a laptop and given instructions on how to navigate a virtual world resembling early human agricultural settlements. Players must harvest renewable resources—either green or yellow patches—to maintain a health rating. Each colored patch has a numerical value. The more health earned throughout the game, the more reward paid at the end of the experiment. The game is divided into “weeks” in which players can harvest and consume one resource per week.

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The Economic Sense in Game of Thrones

by Matt McCaffrey and Carmen Dorobăț

Mises Daily
June 7, 2013

[Editor's Note: This article is spoiler-free.]

The popular HBO series Game of Thrones is ending its third season this Sunday, amid fan concerns over its rapidly dwindling cast of characters. The show is based on George R.R. Martin’s intricate fantasy series, A Song of Ice and Fire, which has become an inspiration for commentary of all stripes. And while its complex and morally ambiguous characters have attracted many political and literary analysts, there are important economic lessons to be learned from the books as well.

Martin’s story touches on a variety of economic issues, from the implications of not having an economic system at all, to the problems of money and public finance. In another article (and in an interview), we have discussed these latter problems, and explained how the rulers of the continent of Westeros resort to the traditional methods of public finance: taxation, borrowing, and inflation.

The Political and Economic Means

In this article we will be discussing some of the other economic implications of the series, especially ideas about the social order and the role that peaceful cooperation, trade, and money play in the organization of society. Franz Oppenheimer famously distinguished between the “political means” and the “economic means” of organizing society. The former involves the forcible redistribution of wealth; wealth, however, is only created by those involved in the economic means of organization, which consists of peaceful production, trade, and exchange (1926, pp. 24-27).

This distinction shines through quite clearly in A Song of Ice and Fire. For instance, peoples as different as the Dothraki and the ironmen are stark examples (no pun intended) of the political means. Both societies produce little or nothing of their own, instead thriving on violence and plunder. A perfect illustration is found in the “words” (motto) of House Greyjoy, which proclaim, “We Do Not Sow.” The implication of course is that the men of the Iron Islands only reap the fruits of what others have sown.[1] The Greyjoy words are a very apt description of the state, which is a fundamentally parasitic institution depending for its survival on the plundering of a productive populace.

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Why Turkey is Rebelling

by Sebnem Kalemli-Ozcan

Project Syndicate
June 4, 2013

Turkey’s economy has been booming for a decade, earning praise not only from financial markets, but also from development economists like Jeffrey Sachs. Why, then, have peaceful demonstrations that began in Istanbul’s landmark Taksim Square turned into a nationwide protest movement, with hundreds of thousands of people taking to the streets in opposition to Prime Minister Recep Tayyip Erdoğan’s government?

Sachs, and others, have rightly acknowledged and praised the Erdoğan government for its economic policies, which have led to a higher growth rate. But the question is whether a developing country like Turkey can sustain rapid economic growth if the same government is undermining basic liberties and impeding the advance of key institutions needed for long-term success.

The Erdoğan government’s brutal response to the protests highlights this dilemma. Initially, fewer than 200 peaceful demonstrators gathered in an effort to protect Taksim Square – the last green space left in central Istanbul – against the construction of yet another shopping mall. As the government cracked down, with Erdoğan adopting an uncompromising position in defiant speeches, the protests grew – and continue to grow, despite (or perhaps because of) the use of excessive police force. Unofficial figures indicate that more than 1,000 people have been injured so far, and more than 1,000 have been arrested.

True, Turkey’s annual GDP growth has averaged 5% over the last decade of rule by Erdoğan’s Justice and Development Party (AKP). But this should not lead anyone to conclude that Turkey is a development success story. If we have learned anything from the extensive research on growth and development that now exists, the key to sustainable progress lies in a country’s institutional design.

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We, the Corporations?

by Luigi Zingales

Project Syndicate
May 31, 2013

You would think that 600,000 comments on a petition would be sufficient to bring an issue to the top of the US Securities and Exchange Commission’s agenda. But public opinion does not seem to matter if the issue is mandatory disclosure of political spending by corporations.

Denying rumors that such a rule will be promulgated soon, SEC Chair Mary Jo White recently told lawmakers that this issue is not at the top of her list of priorities. But it is at the forefront of the Republican Party’s concerns, reflecting its leaders’ determination to prevent any such requirement from taking effect. In April, Ann Wagner, a Republican congresswoman, introduced a bill “to prohibit the Securities and Exchange Commission from issuing rules requiring the disclosure of an issuer’s expenditures for political activities.”

The reason why such an apparently minor issue is gaining so much attention is that it transcends corporate governance and goes to the very essence of America’s democratic system. For this reason, it is important to understand what is at stake.

Freedom of expression is a core democratic principle. Integral to this freedom is the right to spend money to disseminate speech. Any limitation on spending is a limitation on freedom of speech itself.

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Privacy is overrated

by Richard A. Posner

New York Daily News
April 28, 2013

This past Monday, Mayor Bloomberg said that in the wake of the Boston Marathon bombings, the country’s interpretation of the Constitution “will have to change” in order to enable more effective prevention of and response to terrorist attacks and other violence, such as attacks on schoolchildren.

In particular, he wants a more welcoming attitude toward surveillance cameras, which played a crucial role in the apprehension of the Boston Marathon bombers — and would have been crucial had Tamerlan and Dzhokhar Tsarnaev come to New York to detonate a bomb in Times Square, as they apparently planned to. (Bloomberg has also announced a “Domain Awareness System” that will consolidate and distribute information received by the cameras and other tracking devices.)

All of which is to say that he wants concerns with privacy to take second place to concerns with security.

I strongly agree, though I’m not sure that the Constitution will have to be reinterpreted in order to enable the shift of emphasis that he (and I) favor. Neither the word “privacy” nor even the concept appears anywhere in the Constitution, and the current Supreme Court is highly sensitive, as it should be, to security needs. The Court can and doubtless will adjust the balance between privacy and security to reflect the increase in long-run threats to the lives of Americans.

There is a tendency to exaggerate the social value of privacy. I value my privacy as much as the next person, but there is a difference between what is valuable to an individual and what is valuable to society. Thirty-five years ago, when I was a law professor rather than a judge, I published an article called “The Right of Privacy,” in which I pointed out that “privacy” is really just a euphemism for concealment, for hiding specific things about ourselves from others.

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Η Γραφειοκρατική Τανάλια

του Αθαν. Χ. Παπανδρόπουλου

European Business Review
2 Απριλίου 2013

Το γραφειοκρατικό τέρας δεν παίζεται, στην Ελλάδα και χλευάζει κυριολεκτικά υπουργικές δηλώσεις και κενά περιεχομένου νομοθετήματα. Την ώρα που πολύς λόγος γίνεται για fast track και άλλα παρόμοια, το τέρας γελάει σαρκαστικά και περιμένει τους αφελείς που πιστεύουν υπουργικές εξαγγελίες.

Έτσι, σήμερα, για να ανοίξει μία επιχείρηση αποθήκη ή να προεκτείνει ήδη υπάρχουσα, η ταλαιπωρία δεν έχει προηγούμενο. Ο ενδιαφερόμενος επιχειρηματίας θα χρειαστεί περίπου 90 ημέρες για να εξασφαλίσει άδεια εγκατάστασης, 45 ημέρες για να συνδεθεί με το δίκτυο της ΔΕΗ, ενάμιση μήνα για να συνδεθεί με την εταιρεία ύδρευσης, μία εβδομάδα για να αποκτήσει αποχέτευση και τηλέφωνο και τρεις ημέρες για να λάβει τις απαιτούμενες άδειες από την αστυνομία και τις δημοτικές αρχές. Μέσα από την οδύσσεια αυτή, ο επιχειρηματίας έρχεται σε επαφή με όλο το μεγαλείο της ελληνικής δημόσιας διοίκησης, καθώς γνωρίζει από κοντά τον δικηγορικό σύλλογο της περιοχής του, το οικείο επιμελητήριο και υποθηκοφυλακείο, την τοπική τράπεζα, την εφορία, το ΙΚΑ, τον ΟΑΕΔ, την νομαρχία, τον δήμο, μέχρι και την πυροσβεστική υπηρεσία. Σε κάποιες δε περιπτώσεις δεν αποκλείεται να χρειαστεί να περάσει και ιατρικές εξετάσεις.

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The Science on Same-Sex Marriage

by Ronald Bailey

Wall Street Journal
April 3, 2013

Last week, the U.S. Supreme Court heard oral arguments in two cases challenging legal restrictions on same-sex marriage. Proponents and opponents sought to cudgel one another with sociological and psychological studies aiming to prove that science is on their side. Well, what does the science say?

Impact on Traditional Marriage

Some opponents told the court that same-sex marriage will undermine conventional marriage among heterosexuals. So what do the data say about how legalizing gay marriages affects conventional marriages?

A 2009 study by University of Sherbrooke economist Mircea Trandafir investigated the effect of the legalization of same-sex marriage in the Netherlands, the first country to recognize same-sex marriage. In 1998, the Dutch created registered partnerships, which are open to all couples, and in 2001 a law allowing full same-sex marriages. His analysis found that same-sex marriage leads to a decline in the different-sex marriage rate, but not in the different-sex union (marriage plus registered partnership) rate. In other words, Dutch heterosexual couples are taking advantage of the “marriage lite” registered partnership alternative.

At the time of Prof. Trandafir’s study, the chief difference between registered partnerships and marriage was that the former could be dissolved at the civil registry by mutual agreement. In a 2012 West Virginia Law Review article, Mercer School of Law professor Scott Titshaw shows that the political compromises provoked by the initial refusals to extend full marriage rights to same-sex couples result in a proliferation of civil union alternatives. Prof. Titshaw agrees with Prof. Trandafir that different-sex couples increasingly find the new marriage alternatives attractive; in effect, refusing to give full legal recognition to same-sex couples ends up diminishing the status and benefits associated with conventional marriage for everyone. Ironically, conservatives, by opposing the extension of full marriage rights to gay people, have ended up weakening the institution they sought to defend.

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Brain Scans Predict Who’s Likely to Commit Crime

by Daniel Akst

Wall Street Journal
April 3, 2013

Researchers using magnetic resonance imaging have found that they can predict which inmates are likeliest to break the law again after they’re released.

In a study of 96 male offenders in New Mexico, scientists found during a four-year follow-up that those with low activity in the anterior cingulate cortex were twice as likely to commit another offense as those who had high activity in this brain region. The researchers figured this out by asking participants to take a “go/no go” test that involved pressing a button every time they saw the letter X on screen, but being careful not to press when they saw the letter K. MRIs performed during this test mapped brain activity.

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Read the Paper

What do the numbers say? A cost-benefit analysis of love and sex

by Zosia Bielski

The Globe and Mail
February 28, 2013

How’s your marriage portfolio doing?

In her book Dollars And Sex: How Economics Influences Sex and Love, University of British Columbia economics professor Marina Adshade suggests that almost every option, decision and outcome in love and sex is better understood when you look at matters through an economic lens.

Adshade reveals how economics trickle down to our most intimate moments, affecting everything from teen pregnancy rates to child care. While people don’t consciously do the “promiscuity math” every time they fall into bed with someone, she reveals how economic factors shift consequences in our lives, and how this shapes the way men and women behave. Adshade spoke to The Globe and Mail from Vancouver.

Is it politically incorrect to view sex and love via economics – unless you’re talking about straight-up prostitution, where value is easily measured? It makes everything people do seem opportunistic.

Somebody said to me the other day that this is a very cold perspective. The value of the economic approach is to offer some clarity on the decisions that we ourselves make. These are decisions that we can measure: how people match on income or education or political beliefs and how long those marriages last and how happy those people are.

Let’s turn to some of your counterintuitive findings: Birth control has actually increased unintended pregnancy rates outside of marriage. How?

The rate planet-wide is surprisingly high, given how much technology we have to control our own fertility. The unintended consequence of access to contraceptives is that you get more unintended pregnancies because social norms have evolved in a way that allow people to more freely express their sexuality. When more people have sex outside of marriage, you’re bound to get more pregnancy and child birth outside of marriage.

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An Economist Who Made the Science Less Dismal

by David R. Henderson

Wall Street Journal
February 19, 2013

In 1975, I attended a week-long conference in Connecticut at which the star attraction was Friedrich Hayek. Hayek, who had shared the 1974 Nobel Prize in economics with Swedish economist Gunnar Myrdal, was doing a kind of victory tour of the United States. I told him that I thought Armen Alchian, one of my mentors when I earned a Ph.D. at UCLA, also deserved the Nobel Prize. I asked Hayek what he thought.

Hayek gave his characteristic wince, paused, and said, "There are two economists who deserve the Nobel prize because their work is important but won't get it because they didn't do a lot of work: Ronald Coase and Armen Alchian."

Sixteen years later, in 1991, Ronald Coase did win the Nobel Prize. When I got the news, I called Armen and told him the story. He got a kick out of it and seemed to have a new hope that he would win. He didn't, and now he can't. Armen Alchian died on Tuesday at the fine age of 98.

What was so important about Alchian's work? There were three aspects. First, he was one of the last economists of his generation to communicate mainly in words and not equations. Second, although economists often use the word "unrigorous" to refer to communication in words rather than math, Alchian was profoundly rigorous, writing clearly and carefully and using basic logic to reach sometimes-startling conclusions. As a result, many of Alchian's papers, even those from the 1950s, are still widely cited.

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Armen Alchian (April 12, 1914 – February 19, 2013)

Armen A. Alchian

by Robert Higgs

Independent Institute
February 19, 2013

Arline Alchian Hoel reports that her father, Armen Alchian, “passed away peacefully in his sleep early this morning at his home in Los Angeles.” He was 98 years old.

Armen Alchian was a major figure in the economics profession for more than half a century. At UCLA, where he spent his academic career as a faculty member in the department of economics, he was a legend to generations of graduate students, who were required to take the price theory course he taught in the first year of the program. He used the Socratic method: he simply walked into the class each day and asked a student a question. From that point, the discussion went back and forth between teacher and students. Woe to any student who had arrived unprepared—and sometimes to those who had prepared. Public embarrassment was the price such students had to pay. But in the end, the students came away from the course with a healthy measure of their teacher’s mastery of applied price theory.

And master he was. Besides having a knack for making sense of countless aspects of economic and social life by viewing them as relative-price problems, Alchian helped to blaze trails toward extremely valuable improvements in microeconomic analysis by bringing into the analysis careful treatments of information, uncertainty, transaction costs, and property rights. For him, little difference existed between micro and macro; both were to be understood by using the same basic economic analysis of individual choice.

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Give Me Your Tired, Your Poor and Your Economists, Too

by N. Gregory Mankiw

New York Times
February 9, 2013

All the recent talk in Washington about reforming immigration policy brings to mind Pat Paulsen, the comedian who, every four years, conducted faux campaigns for president.

“All the problems we face in the United States today,” Mr. Paulsen would say, “can be traced to an unenlightened immigration policy on the part of the American Indian.”

That quip contains a deep truth. Almost all Americans today are beneficiaries of a policy that welcomed our ancestors when they arrived at the border.

As an economist, I am often surprised at the hostility that some segments of the population express toward immigration. Most members of my profession are far more receptive to it, and for three main reasons.

First, many economists, especially conservative ones, have a libertarian streak. Ever since Adam Smith taught us about the wonders of free markets and the magic of the invisible hand, we have been loath to prohibit mutually advantageous trades between consenting adults. If an American farmer wants to hire a worker to pick fruits and vegetables, the fact that the worker happens to have been born in Mexico does not seem a compelling reason to stop the transaction.

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The Tyranny of Political Economy

by Dani Rodrik

Project Syndicate
February 8, 2013

There was a time when we economists steered clear of politics. We viewed our job as describing how market economies work, when they fail, and how well-designed policies can enhance efficiency. We analyzed trade-offs between competing objectives (say, equity versus efficiency), and prescribed policies to meet desired economic outcomes, including redistribution. It was up to politicians to take our advice (or not), and to bureaucrats to implement it.

Then some of us became more ambitious. Frustrated by the reality that much of our advice went unheeded (so many free-market solutions still waiting to be taken up!), we turned our analytical toolkit on the behavior of politicians and bureaucrats themselves. We began to examine political behavior using the same conceptual framework that we use for consumer and producer decisions in a market economy. Politicians became income-maximizing suppliers of policy favors; citizens became rent-seeking lobbies and special interests; and political systems became marketplaces in which votes and political influence are traded for economic benefits.

Thus was born the field of rational-choice political economy, and a style of theorizing that many political scientists readily emulated. The apparent payoff was that we could now explain why politicians did so many things that violated economic rationality. Indeed, there was no economic malfunction that the two words “vested interests” could not account for.

Why are so many industries closed off to real competition? Because politicians are in the pockets of the incumbents who reap the rents. Why do governments erect barriers to international trade? Because the beneficiaries of trade protection are concentrated and politically influential, while consumers are diffuse and disorganized. Why do political elites block reforms that would spur economic growth and development? Because growth and development would undermine their hold on political power. Why are there financial crises? Because banks capture the policymaking process so that they can take excessive risks at the expense of the general public.

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