The Faculty Lounge

Carrots, Strings, and Power: The New York Times on Ruth Grant’s Strings Attached

My fabulous colleague, Ruth Grant’s, new book, Strings Attached, is reviewed in yesterday’s New York Times.  As a bit of background, Ruth is a Professor of Political Science at Duke University, specializing in political theory with a particular interest in early modern philosophy and political ethics. She is the author of John Locke's Liberalism and of Hypocrisy and Integrity: Machiavelli, Rousseau and the Ethics of Politics. She is also the editor of two collections of essays; Naming Evil, Judging Evil and In Search of Goodness.

But it is her newest book, Strings Attached, that currently has the NY Times’ attention, and mine as well.  In it, Grant frames the ethics of incentives within a broader framework that I find infinitely richer than most that I have come across recently.  Specifically, Grant frames the ethics of incentives within an analysis of power.  In doing so, Grant insists that incentives are more than just a voluntary bargained-for-exchange.  Instead, they are one of the mechanisms employed to get people to do things that they otherwise would not.  As such, they are – like all kinds of power – subject to abuse. 

One of the things that I particularly appreciate about Grant’s analysis is the triad of coercion, persuasion, and incentives that Ruth sets up – all three are exercises of power and all three entail ethical considerations.   All three are also judged under the same standards of legitimacy of purpose, voluntariness, and effect on the character of the parties involved. 

Ruth is quite a bit more skeptical of incentives, and quite a bit more accepting of persuasion, than I am, but her critique of some of the assumptions regarding incentives is important and, for me at least, eye opening.  For example, her historical treatment of the rise of incentives and the insight that incentives are often employed in the context of an authority relationship – adult/child, employer/employee, and government/citizen, for example – is a helpful means of getting a handle on what it is about some incentives that instinctively rub many people the wrong way. 

I am not yet persuaded by Grant’s preference for persuasion versus incentives as a means of facilitating democratic deliberation and decision-making.  Says Grant:

When incentives are employed, there is no need to convince people that collective goals are good or to motivate them to pursue those goals by appeals to rational argument, personal conviction, or intrinsic motivation.  Experts and powerful elites can thus direct institutions and shape people’s choices without the sort of public discussion and consent that ideally characterize democratic processes and decision-making. 

But when we move away from ideal democratic processes to real ones, I am not so sure that the types of persuasion employed by powerful elites or the decision-making processes of those subject to their influence are so benign, or that they fare so well as compared to incentives. 

One last comment on crowding out, which I think is more complex than one would gather from the book and the Times review.  There is a large literature on crowding out, some of which finds support for the crowding out theory and some of which does not.  Moreover, the findings appear to be very sensitive to experimental conditions, such that it is not always clear what factors are driving the experimental outcomes.  Finally, any crowding out effects can sometimes be overcome through other interventions, such as an option to donate any monetary rewards to charity.  In other words, crowding out appears to be a very complicated phenomenon and, in most settings, at least, it would, to my mind, be premature to conclude that we might predict with confidence the outcome of a well-designed incentive structure.

To illustrate, the Times discusses a study, referenced in Strings Attached, in which women offered cash to donate blood were almost 50% less likely to give blood than women who were offered no money.  Male subjects exhibited no such crowding out.  (The NY Times references a “study of British women,” though I believe they mean this study, which is also the one Ruth cites to in the book).  But there is no mention that the study actually measured the willingness of subjects to undergo a health examination, which was a precondition to donate blood, rather than actual blood donations (a test condition that could operate differently on men and women), that the monetary offer was only about US $7, and that the crowding out effect disappeared when subjects were given the option to donate the proceeds to charity.

A more recent NBER working paper by Nicola Lacetera, et. al., Rewarding Altruism? (released after the book was in press, I believe), a natural field experiment involving nearly 100,000 individuals, contradicts these findings.   Lacetera finds a large, positive effect of economic incentives on blood donations, with limited or no crowding out in both the short and long term. They find no gender effects.  All of this is just to say that crowding out appears a complicated phenomenon, and one that we’re still learning about.

Don’t be fooled into thinking that because Grant is a respected political theorist and the book deals with weighty ethical issues it will be dry or abstract.  Grant’s theories and examples are extraordinarily timely and relevant.  The section on IMF loan conditionality caused me to reframe the entire Greek debt crisis debate in terms of coercion, persuasion, and incentives.  And the sections on recruiting medical research subjects (which, perhaps surprisingly, Grant finds relatively benign) and pleas bargaining will be of interest to those working on medical ethics and the criminal justice system, respectively.  A highly recommended read!

The wisdom of regulating lawyers (vox populi edition)

The New York Times recently published an Op-Ed piece from a fellow at the Brookings Institution extolling the various social miracles that would transpire if we eliminated legal education and bar licensing as a condition to the practice of law.  You can see it here (“Are Law Schools and Bar Exams Necessary?”).  Three Letters to the Editor commenting on the Op-Ed are reproduced here.  Each takes a distinct point of view that is as polemic as the original Op-Ed.  Together they comprise a very good and admirably succinct background to a debate on whether law licensure is necessary, what its costs and benefits are, and how well our existing system takes those costs and benefits into account and appropriately balances any tradeoffs.  Those among us who teach Professional Responsibility may find this a valuable resource to ground class discussion on the subject.

While in my own view there is a great deal more, and a great deal less, to each contributor's position than their statements suggest, I offer only one comment on these materials here.  Conspicuously missing from any of the position pieces (except obliquely in the first Letter to the Editor) is any assessment of the significance of what is in my view the single most salient factor influencing this debate--the fact that it is extremely difficult for nonexperts to determine with any accuracy the quality, efficiency or even need for most of the professional services lawyers provide.  Put slightly differently, the eventual result of and the buyer's satisfaction with professional services are exceptionally noisy quality signals.  It is little short of astonishing that the "economist" from Brookings who gave us the original Op-Ed should have assumed this issue away, and instead assumed that crowd-sourced lay assessments would adequately inform the market and police for quality and competence. 

Law is hardly unique in this regard, of course.   Medicine is another obvious example of professional services whose quality and need are very difficult for lay buyers to judge in most instances, both before and after the services are provided.  And this phenomenon is a matter of degree for any service involving skill and expertise--think of the extent to which most of us are forced to rely on the judgment of our auto mechanics, plumbers and electricians.

Which is not to suggest that our current requirements for law licensure, or our policing of licensees, are currently optimal in any particular respect.  But the world rarely makes any issue of importance as simple as we all might wish.

Bernie

An iPhone Walked Into A Bar...

No, really.

Losing the Art of Cover Art?

A while back I blogged about the differences between browsing real life paper books in bookstores and browsing for good reads on e-readers.  With the recent announcement of the demise of Borders (which pretty much just leaves Barnes and Noble and local libraries in my neck of the woods), I started thinking again about what we're losing with the demise of the brick and mortar bookstore.  One thing I wonder about is what will happen to cover art if we all move to e-readers?  Obviously, most current e-readers (and audiobooks) still rely on cover art to match the hard copy book.  Some e-readers even make the virtual bookshelf appear like a real bookshelf with cover art and all.  However, if we end up losing the physical copy book altogether and everything ultimately becomes electronic, will there be any need for cover art?  How much does cover art influence you in purchasing or reading books?  Might cover art be replaced with something more interactive like mini-videos about the author or the book?

The Lone Star State Might Become the Lone Trust State

Texas House Bill 372 died quietly at the end of the legislative session last month.  The proposed bill would have modifed Texas Property Code § 112.036, -- essentially the common law rule against perpetuities (lives in being plus 21 years -- remember that?) -- in favor of a 200 fixed-year term.  Presently there are only seven U.S. jurisdictions that retain the common law RAP (New York is one of them). 

Texas bankers have been lobbying for years to try to get the state to change its approach.  Their motivation?  Money.  As Rob Sitkoff and Max Schanzenbach have documented (here, e.g.), trust funds flow out of common law RAP states to jurisdictions that have relaxed or eliminated the rule altogether.

It is unlikely that Texas ever will go the perpetual trust route.  Indeed, the Texas Constitution prohibits perpetuities as "contrary to the genius of a free government."  But absent some reform, trust business (and jobs associated with that business) will continue to go elsewhere.  Among law professors, serious debates (see, e.g., here) engage questions about the morality of ultra long-term and perpetual trusts.  "Race to the bottom" is a phrase that comes up frequently.  The fate of the Texas bill makes me think that there's a "race to unemployment" factor that wasn't on the minds of state legislators, though.

Comics, Copyright and Estate Taxation

The heirs of Jacky Kirby -- an artist behind figures such as Captain America, the Fantastic Four and X-Men -- are entangled in a legal dispute with Marvel Comics, as the New York Times reports here.  Mr. Kirby's heirs have sought to terminate copyright licenses allegedly granted by Mr. Kirby during his lifetime to Marvel Comics.  Marvel Comics counters that Mr. Kirby produced "works for hire," and that the heirs thus have no rights in the intellectual property behind these massively successful comic characters.  

One blogger has a good summary of the case here.  The full court docket is here.

It does not appear that Marvel paid Mr. Kirby any royalties during his lifetime.  (See here.) But if the court finds that the heirs indeed have the ability to terminate prior copyright licenses, Marvel will need to pony up some serious cash in order to continue using Mr. Kirby's intellectual property.   The heirs might need to turn around and pay a portion of that money to the federal government.  If the Kirby heirs do, in fact, possess termination rights with respect to Mr. Kirby's intellectual property, then the value of those termination rights should have been included in Mr. Kirby's gross estate for estate tax purposes. Even though Mr. Kirby died in 1994, there is no reason to think that the IRS would be prohibited (by a statute of limitations or otherwise) from attempting to collect.  The tax bill could be in the tens of millions.  

For the tax heads among us, Mitchell Gans and I break down the tax analysis here.  

image source: Jack Kirby Museum

Browsing, Not Buying

Several friends have remarked to me lately about how sad it is to see so many bricks and mortar bookstores going out of business.  It appears that one obvious reason behind this has been the exponential growth of e-publishing businesses.  E-books can be significantly cheaper (although not always) than paper copies, delivery is instant anywhere anytime, books can be read anywhere anytime without having to lug them around in a backpack.  So much for the reading side of the equation.  But what about CHOOSING books to read?  Are e-devices better than physical bookstores for browsing?  I to tend to gravitate towards completely different books depending on whether I'm browsing online or in a bookstore.  I'm often attracted to items in a store that may never show up on a 'recommendations' list on, say, Amazon.  However, like many of us I suspect, if I find something I like in the store I'm probably tempted to just download it to my Kindle rather than purchasing a hard copy.  So is there any economical model under which we could maintain the advantages of bricks and mortar book browsing while retaining the benefits of e-books?  Does it have to be either/or?  Will libraries overtake bookstores as places to browse shelves for new inspiration on what to buy? 

Law Firm Hiring: There's an App for That!

The Benesch law firm has just released an app for iPhones and iPads to notify recent law grads and lawyers potentially interested in lateraling to the firm of upcoming job opportunities.  It will be interesting to see if this mode of recruitment takes off.  And, if it does, will recent grads be downloading multiple apps from multiple firms or will some entrepreneurial aggregator come along and offer a service of aggregating all available law firm jobs and making them available in an app format that notifies potentially interested applicants of job availability?  Is this the future of legal recruiting?

Symposium: Baseball and American Culture

A few days ago the National Baseball Hall of Fame and Museum posted its program for the upcoming symposium on Baseball and American Culture.  Readers interested in the symposium (to be held in Cooperstown on June 1-4) can find a complete schedule here.

Counter Culture Comes To Philadelphia: In Honor Of A Great Cup Of Coffee

Longtime readers know that I love drinking and writing about coffee.  I've pondered how to get fat faster at Starbucks, whether Starbucks will start selling booze, menu mischief at Starbucks drive throughs, Starbucks secret menu, and coffee at the AALS.  Yes, there has been an obsessive focus on Starbucks here - which is an artifact of its ubiquity.  In my own defense, I have advocated for fine alternatives such as California's Graffeo and Philly's La Colombe.

Today I want to make the case for the roaster of the tastiest, brightest java I've had in a very long time: Counter Culture Coffee, out of Durham, NC.  Why am I so moved?  One totally awesome cup of Papua New Guinea coffee which spirited me through an entire exam review session in Criminal Law this morning.  And while I'm in the mood to promote things that bring me joy, let me also mention the best prepared coffee in all of Philadelphia - a little gem named Town Hall Coffee in (gasp!) suburban Merion Station, Pennsylvania. Every cup is prepared via pour-over, with freshly ground coffee.  It takes forever, but the result is spectacular. 

Last class of the term.  Incredible cup of coffee.  Is this a day for Lotto or what?

Check Processing and Overdraft Charges

WARNING:  This post includes a citation to the Uniform Commercial Code.  Viewer discretion is advised.

Assume that a bank is presented on a single day with multiple checks drawn on the customer's account.  No big deal if the account has sufficient funds to cover all of the checks.  But what if the account has a balance insufficient to cover all of the checks?  ("How could this occur?" you might ask.  Perhaps the customer has made an innocent math error in tracking the account balance.  Or perhaps the customer erroneously assumed that certain checks might not be presented for payment until after upcoming payroll deposits would hit the account.)  Now the bank must decide in which order it will pay the checks, creating the possibility that some checks will be dishonored (or perhaps be subject to overdraft charges).

As a general rule, the UCC gives the bank complete discretion in determining the order in which checks will be paid.  (See 4-303(b).)  A few years ago, a student directed my attention to this article in USA Today,  which indicated that eight of the nation's ten largest banks paid same-day checks in the order of largest to smallest.  If we assume that the largest checks we write may be the most important (e.g., monthly mortgage and car note payments), then the policy makes some sense.  The trade-off, though, is that under such a policy the number of checks that may be adversely affected increases.  And as that number increases, so, too, might the various fees.

Now comes word that Citibank will start paying checks in the order of smallest to largest in a few months.

Good idea?  I suppose it depends.  If you keep a minimum balance in your account and avoid jaw-dropping math errors, you probably don't care about the policy because it rarely, if ever, affects you.  But if you're living from paycheck to paycheck and struggling to make ends meet, then maybe you'll see a reduction in those annoying fees.  (But might your chances of a mortgage default or a vehicle repo increase?)

Will other banks follow Citibank's action?  Only time will tell.  My guess?  Don't expect a stampede.

Charlie Sheen's Oprah Problem

Of all of the odd news concerning Charlie Sheen in recent weeks, one particular tidbit caught my tax-professor eye.  The actor is holding a raffle for two tickets to his roadshow in Detroit on March 22, 2011. "Winner and guest will hang out with Charlie at the VIP after-party," the "WINNING for Charities Raffle" site proclaims here.   The site also claims:

• Winner will receive a cash prize in the amount of $907.50 to mitigate the Winner's tax liability that results from winning the raffle. This prize is withheld and paid, on behalf of the Winner, directly to the IRS ($750) and the Commonwealth of Massachusetts ($157.50)

Note the carefully worded statement.  The cash will "mitigate the Winner's tax liability."  The payment of the winner's income tax liability is, itself, additional income.  So the value of the prize is income, and so is the amount paid to the government .  So the contest organizers can "mitigate" but not "eliminate" the associated income tax liability.  This is what I think of as a doom loop of federal income taxation.

Paul Caron has blogged about the similar context of Oprah's televised "giveaways" (see, e.g., here, here, here, here and here). 

H/T Alexis Stevens.

Charles Clotfelter On Big-Time Sports In American Universities

Regular Lounge readers have heard me discuss before my seminar on Taboo Trades and Forbidden Markets.  Although markets in human organs, sex work, commercial surrogacy, and the like are probably more standard fare in a course of this nature, I think that college athletics and amateurism also have a place, and I normally spend some time each semester on college sports (plus, it’s the Durham-Chapel-Hill area, what do you expect?)

This year I struck gold because my colleague, Charles Clotfelter, has a fascinating new book coming out in the next few months with Cambridge University Press, Big-Time Sports in American Universities.  And last week he visited my seminar to discuss his book, which he’s spent years researching.

As a bit of background, Charlie is the Z. Smith Reynolds Professor of Public Policy Studies and a Professor of Economics and Law at Duke University, where he teaches courses on microeconomics and the economics of education. He is also a research associate of the National Bureau of Economic Research.  

From the CUP website:

For almost a century, big-time college sport has been a wildly popular but consistently problematic part of American higher education. The challenges it poses to traditional academic values have been recognized from the start, but they have grown more ominous in recent decades, as cable television has become ubiquitous, commercial opportunities have proliferated and athletic budgets have ballooned. Drawing on new research findings, this book takes a fresh look at the role of commercial sports in American universities. It shows that, rather than being the inconsequential student activity that universities often imply that it is, big-time sport has become a core function of the universities that engage in it. For this reason, the book takes this function seriously and presents evidence necessary for a constructive perspective about its value. Although big-time sport surely creates worrying conflicts in values, it also brings with it some surprising positive consequences.

One such conflict that Charlie discusses in the book is the compromise universities make in the academic realm in order to succeed in the athletic one. For example, there is abundant evidence that universities apply different admission standards to athletes than to the general student body (though Charlie is careful to note that athletes are not the only students to receive favorable admissions treatment).  As just one piece of evidence, a survey of 21 public universities with big-time athletic programs, covering data from various years between 1999 and 2007, found that an average of 4% of all freshmen at those universities were classified as special admits, whereas the corresponding percentage of football players was 49%.

Once admitted, many college athletes, in an attempt to maintain good academic standing in the face of rigorous practice, game, and travel schedules, seek out courses in which they are more likely to succeed. As a result, certain departments or programs at many universities become “the academic home” to a disproportionate share of athletes. At Virginia Tech, for example, 19% of football players were majoring in residential property management, while only 0.4% of all students were. At N.C. State, a third of the football players were sports management majors, compared to only 0.8% of all students.  As an extreme example, the book discusses the physical education course taught by an assistant basketball coach at the University of Georgia, with a multiple-choice test featuring such questions as, “How many points does a three-point field goal account for in a Basketball Game?”

Despite all of this, universities struggle to graduate student-athletes in the revenue sports.  Charlie calculated graduation rates for the 58 universities with big-time athletic programs for all students entering these universities between 1998 and 2001.  The average graduation rate was 72%. But the comparable rate for basketball players was only 42%, and for football it was 56%.

But the book is not intended as an indictment of college sports, so much as a realistic assessment of it.  Charlie also discusses the benefits from college athletics, both to the institution and to society at large.  Chief among these institutional benefits is the potential to increase the applicant pool, allowing the university to be more selective (this evidence – and its limitations – is discussed at length in the book).  But Charlie also discusses a rarely mentioned benefit of college sports -- the enjoyment of fans and spectators, including fans and spectators not part of the university community. As Charlie notes, “American universities, by way of their entertainment function, produce a thing of value that is enjoyed by a population potentially much more numerous than its living alumni, not to mention its current student body.”

As a basketball season ticket holder at a local university that will remain unnamed, I can speak first-hand to such positive spillover effects.  But at the same time, I have to wonder about the extent to which big-time college sports – with the benefit of favorable tax, antitrust, and other benefits not enjoyed by its professional counterparts, including the amateur status of its players – may crowd out other, localized sports enjoyment opportunities.  Many of my European and Asian friends find it distinctly odd that American universities provide the primary sports outlets in many parts of the U.S., as opposed to professional regional or local leagues.  And that Americans (at least in my neck of the woods) are obsessed with the Duke versus UNC basketball game, as compared to India versus Pakistan (cricket) or Netherlands versus Spain (soccer, or football for you euro-types).

It was a lot of fun hearing Charlie discuss the book.  And it was also interesting to hear the lengths to which he went to gather the necessary data, the lack of cooperation from many universities, and his corresponding creativity in gaining the information he needed to complete the project.  Advance praise from the CUP website includes statements from Roger Noll, Daniel Hamermesh, and Nannerl Keohane, among others.

 

Turning Your Handheld Device into a Credit Card Reader

Most of us use a credit card now and then when buying goods or services from a merchant. 

But what about a consumer-to-consumer transaction?  I'm guessing that most of us have yet to purchase or lease a credit card reader, prompting payment by cash, check, PayPal (if available), etc.

The current issue of Fortune magazine has an article on Jack Dorsey (of Twitter fame), who has developed a small rectangular card swiper that will plug into the audio jack of a mobile device.  You'll find the article here, with additional reading here and here, and a video story here.

I think the world is passing me by.  Thank goodness I have young, tech-savvy, children who can help me survive.

Get Fat Faster At Starbucks

 
Starbucks is about to make two significant changes that will help its loyal customers get more calories more quickly.  What could be better?  First, after the smashing success of the company's trademarked Venti size - a 24 ounce format in the cold drink cups, notwithstanding the name - Buckys is unleashing a new Trenta cup.  Curiously (or simply to be extra-generous, or maybe to gain trademark protection) this "30" drink has 31 ounces.  The 31 ounce format, a scanty one ounce short of the 7-11 Big Gulp,  will appeal to drinkers who find that the Iced Peppermint White Chocolate Mocha simply won't do at a pathetic 610 calories.  They need more.

But what good is all this heft if you have to wait forever to pay?  Which is where the second piece of good news comes in.  Very soon, Starbucks will allow you to pay by scanning your smartphone.  And why not?  If a phone scan is good enough for United Airlines - and by extension, TSA - it ought to be fine for Starbucks!

Of course, all these products will sport the new Starbucks logo - rolling out by May 3 - which drops the words "Starbucks Coffee" and gives our favorite mermaid a little more room to spread her fins.

Vaguely related posts:

Return Of The Fern Bar? Starbucks Tiptoes Towards Beer And Wine.

Caught With Pants Down, Starbucks Relents

More Menu Secrets: Drive-Thru Mischief At Starbucks

Coffee At The AALS: An Addict's Guide

 

An Amazon Tax on Black and Brown Dolls?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I'm no economist, but I have a basic understanding of supply, demand and pricing. Still, there's something that sits wrong with me when Amazon.com charges one price for a white doll, another price for an African-American doll and still another for a Latina doll (see here). The "Little Mommy Real Loving Baby Walk & Giggle Doll" with pale skin and blond hair is $64.89.  The same doll with dark hair and dark skin is $100.  The "child" for the set costs $59.99 for an African-American "baby" and $64.99 for what Mattel calls the "Hispanic" baby.

On the Mattel site, the "little mommy" dolls and the "baby" dolls are not price-differentiated by race (image source = Mattel site here). 

A local television station in Texas covered the story (here) and contacted Amazon.

When asked about the prices, a representative with Amazon.com stated, "prices change all the time and prices often vary on different variations of the same model number."

They cited examples like a brand of pots that had a difference of $19 between two colors and a toy learning system that had a difference of $49.20 between a version targeted at boys versus girls.

What is the difference between a pot and a doll?  Lots, if you take seriously the possibility that toys can  impact children's development of racial and gender identities (see, e.g., here, here and here). 

Amazon is not responsible for the toys parents select.  Yet "consumer choice" is a complex product of availability, distribution and pricing, among other factors. 

Now Thatsa Sale! The iPhone 4 for (as low as) $25

We're not converting the Faculty Lounge to Coupon Cabin.  But I would be remiss if I didn't alert readers to this deal: starting today, Radio Shack is offering the iPhone 4 for $150 - and they'll give you a $125 trade-in on your iPhone 3Gs (or $75 on your 3G). 

Wouldn't you want your colleagues in your real faculty lounge to share the news?

FCPA: The Video

My friend Mike Koehler (a/k/a "the FCPA Professor") was one of several witnesses who testified at yesterday's Congressional hearing on the enforcement of the Foreign Corrupt Practices Act.  Readers interested in the testimony can find the C-Span video here.  And newcomers to the topic may wish to bookmark Mike's blog.

Amazon Targets The Textbook & Diaper Crowds

I don't know about other folks, but I always wish I could justify joining Amazon Prime.  I'd love to get two day delivery all the time...but not at the price of the $79 annual fee.  Amazon is now leveraging it's Prime service as a way to win particular segments of the last-minute-shopping public: textbook and diaper buyers.  Or as they call them, students and Amazon Moms.

It makes sense.  Nobody is going to buy diapers at Amazon if they have to wait seven days; even highly organized  new parents don't plan that much.  And college students?  They're last minute shoppers as well, especially when it comes to costly textbooks.

Of course, once you're in the door - all signed up and ready to go - you can get everything else you desire via 2-day delivery.  It almost makes me want to have another child or go back to grad school.

On second thought,  maybe I should just fork out the 79 clams.

Yo-Yo Ma, Stan Musial, Maya Angelou, Warren Buffett, and Jasper Johns: What Do These Individuals Have in Common?

They are five, of fifteen, individuals named today by President Obama as recipients of the Presidential Medal of Freedom, our nation's highest civilian honor.

The White House press release is here.