On November 3^rd, the president of the United States spoke at the Hotel Lowry in St. Paul, Minnesota, in what was billed repeatedly as a bi-partisan address. The president ridiculed reactionaries in Congress who he claimed represented the wealthy and the powerful, and whose “theory seems to be that if these groups are prosperous, they will pass along some of their prosperity to the rest of us.” The president drew a direct line between prosperity and increased “fairness” in the distribution of wealth: “We know that the country will achieve economic stability and progress only if the benefits of our production are widely distributed among all its citizens.” The president then laid out an ambitious agenda focused on creating jobs, improving education, expanding health care, and ensuring equal rights for all.

Read the full piece here.

 

Fruit trees in a number of cities, including San Francisco, are prevented from bearing fruit in the name of “protecting” pedestrians from slip and falls and keeping away insects and vermin.  In response to these regulations, a group of Guerilla Grafters has emerged to — you guessed it — graft fruit bearing branches onto the non-fruit bearing city trees.

But grafting trees to bear the occasional pear is not all fun and games, apparently.  San Francisco officials consider the renegade arborists to be engaged in a serious offense (San Francisco Examiner):

While the grafters’ activities might seem harmless, Public Works Director Mohammed Nuru said the renegade gardeners are running afoul of the law.

“The trees that are in the right of way, they’re not for grafting,” he said. “The City considers such vandalism a serious offense. There would be fines for damage to city property.”

Nuru had not heard of Guerrilla Grafters, but said he would ask his staff to investigate. Meanwhile, he added, if the grafters have ideas about urban agriculture, they should discuss them with city officials.

NPR embeds one reporter with grafter Tara Hui on a covert grafting operation.  The first thought that crossed my mind as I read the story was skepticism that the costs associated with fallen fruit on city trees could be significant.  The second was hope the story had overestimated the prevalence of this type of regulation.  There is also some interesting law and economics.  The cops and robbers angle in the NPR story with Hui attempting to avoid detection for fear of sanction by the city authorities in the way of fines for vandalism was also interesting.  From the standard Beckerian model of rational criminal behavior we see Hui’s sensitivity to changes in the “price” of engaging in guerilla grafting (that is, the probability of detection weighted by the sanction she will pay if caught) and investments to avoid detection.

But what about the economic benefits?  Here’s Hui’s account:

“If we say where it is, they could come after me,” says Tara Hui, a fruit tree grafter. She’s talking about city officials, who manage the trees and say it’s illegal to have fruit trees on sidewalks.  So let’s just say we’re in some Bay Area city in a working-class neighborhood, at a line of pear trees that bear no pears.

Hui and two assistants pull out a knife, reach into a plastic bag filled with twigs no bigger than your pinkie, and cut from a fruit bearing pear tree. She says it’s an Asian pear, and that she’s grafting it onto a flowering pear tree.  They whittle a wedge into one end of their twig, then cut a groove into a similar-sized twig on the city tree. They join the two, like tongue and groove carpenters. And when their grafted twig eventually grows into a branch.

“There will be a much better looking tree that actually will provide fruit for people that come by,” Hui says.

Hui’s motives to break the law are straightforward.

“We don’t have a supermarket and we have very few produce stores [here],” she says. “What better to alleviate scarcity of healthy produce in an impoverished area than to grow them yourself and to have it available for free.”

For a recent and illuminating paper on the law and economics of criminal behavior which attempts to incorporate conventional critiques of the economic approach — for example, that criminals lack self-control, have non-standard preferences or do not act in their own self-interest — into the standard model, see Murat Mungan’s Law and Economics of Fluctuating Criminal Tendencies.  Mungan’s main goal is to show that the standard economic approach is capable of modification so as to absorb more realistic assumptions and that it gains explanatory power by doing so.

HT goes to Steve Salop for pointing me to the Guerilla Grafter story.

Filed under: behavioral economics, economics, regulation

Today at 11AM PT I will be participating on the live webcast “This Week in Law” along with TechFreedom Senior Adjunct Fellow Larry Downes. Denise Howell will be hosting and we will also be joined by fellow participant Evan Brown. This week we will be discussing various topics in tech policy including Senator Al Franken’s lambast of Facebook and Google, the newly opened antitrust investigation of Motorola Mobility by the European Commission, and the continued problem of spectrum crunch.

This Week in Law is recorded live every Friday at 11:00am PT/2:00pm ET and covers topics primarily in law, technology, and public policy. You do not have to register, just follow this link at 11:00am PT/2:00pm ET to watch.

Filed under: antitrust, general, net neutrality, politics, privacy

On Tuesday the European Commission opened formal proceedings against Motorola Mobility based on its patent licensing practices surrounding some of its core cellular telephony, Internet video and Wi-fi technology. The Commission’s concerns, echoing those raised by Microsoft and Apple, center on Motorola’s allegedly high royalty rates and its efforts to use injunctions to enforce the “standards-essential patents” at issue.

Read the full piece here.

New York Times columnist Gretchen Morgenson is arguing for a “pre-clearance”  approach to regulating new financial products:

The Food and Drug Administration vets new drugs before they reach the market. But imagine if there were a Wall Street version of the F.D.A. — an agency that examined new financial instruments and ensured that they were safe and benefited society, not just bankers.  How different our economy might look today, given the damage done by complex instruments during the financial crisis.

The idea Morgenson is advocating was set forth by law professor Eric Posner (one of my former profs) and economist E. Glen Weyl in this paper.  According to Morgenson,

[Posner and Weyl] contend that new instruments should be approved by a “financial products agency” that would test them for social utility. Ideally, products deemed too costly to society over all — those that serve only to increase speculation, for example — would be rejected, the two professors say.

While I have not yet read the paper, I have some concerns about the proposal, at least as described by Morgenson.

First, there’s the knowledge problem.  Even if we assume that agents of a new “Financial Products Administration” (FPA) would be completely “other-regarding” (altruistic) in performing their duties, how are they to know whether a proposed financial instrument is, on balance, beneficial or detrimental to society?  Morgenson suggests that “financial instruments could be judged by whether they help people hedge risks — which is generally beneficial — or whether they simply allow gambling, which can be costly.”  But it’s certainly not the case that speculative (“gambling”) investments produce no social value.  They generate a tremendous amount of information because they reflect the expectations of hundreds, thousands, or millions of investors who are placing bets with their own money.  Even the much-maligned credit default swaps, instruments Morgenson and the paper authors suggest “have added little to society,” provide a great deal of information about the creditworthiness of insureds.  How is a regulator in the FPA to know whether the benefits a particular financial instrument creates justify its risks? 

When regulators have engaged in merits review of investment instruments — something the federal securities laws generally eschew — they’ve often screwed up.  State securities regulators in Massachusetts, for example, once banned sales of Apple’s IPO shares, claiming that the stock was priced too high.  Oops.

In addition to the knowledge problem, the proposed FPA would be subject to the same institutional maladies as its model, the FDA.  The fact is, individuals do not cease to be rational, self-interest maximizers when they step into the public arena.  Like their counterparts in the FDA, FPA officials will take into account the personal consequences of their decisions to grant or withhold approvals of new products.  They will know that if they approve a financial product that injures some investors, they’ll likely be blamed in the press, hauled before Congress, etc.  By contrast, if they withhold approval of a financial product that would be, on balance, socially beneficial, their improvident decision will attract little attention.  In short, they will share with their counterparts in the FDA a bias toward disapproval of novel products.

In highlighting these two concerns, I’m emphasizing a point I’ve made repeatedly on TOTM:  A defect in private ordering is not a sufficient condition for a regulatory fix.  One must always ask whether the proposed regulatory regime will actually leave the world a better place.  As the Austrians taught us, we can’t assume the regulators will have the information (and information-processing abilities) required to improve upon private ordering.  As Public Choice theorists taught us, we can’t assume that even perfectly informed (but still self-interested) regulators will make socially optimal decisions.  In light of Austrian and Public Choice insights, the Posner & Weyl proposal — at least as described by Morgenson — strikes me as problematic.  [An additional concern is that the proposed pre-clearance regime might just send financial activity offshore.  To their credit, the authors acknowledge and address that concern.]

Filed under: economics, financial regulation, Hayek, Knowledge Problem, law and economics, regulation

I testified Thursday on H.R. 1946, the “Preserving our Local Hometown Independent Pharmacies Act of 2011,” in front of the House Committee on the Judiciary Subcommittee on Intellectual Property, Competition and the Internet.  The Act, as implied by the title, would establish an antitrust exemption for smaller pharmacies.  The hearing lineup is available here.  My written testimony is available here.  The basic case against antitrust exemptions to allow price-fixing is pretty clear as a matter of economics — e.g. the Antitrust Modernization Commission strongly opposes such exemptions on both public choice and consumer welfare grounds.  As I discuss in my testimony, that case is made stronger in the health care context.

For more on the case against antitrust exemptions, see here, here, and here.

Filed under: antitrust, exemptions

The apparent perils of antitrust blogging:

Last summer, professor Enrique Dans wrote a blog post about the powerful copyright lobby in Spain.  One of his arguments is that Promusicae, the well-known recording industry outfit, is violating antitrust laws. The group has set up a digital system to send music to radio stations for airplay, which the professor says is unfair since non-member companies and independent artists can’t join.

The music group was not happy with this accusation and has filed a lawsuit against the IE Business School professor, claiming that he defamed the group and threatened their honor.

Through the lawsuit Promusicae demands 20,000 euros in damages and a public apology. They claim that the accusations are false and state that “some of the information supplied on the website is false and violates the honor and good name of the group.”

Here is the allgedly offending blog post.  HT: Competition Policy International.

 

Filed under: antitrust, blogging

From the WSJ:

Publishers argue that the agency model promotes competition by allowing more booksellers to thrive. They say Amazon had sold e-books below cost and that agency pricing saved book publishers from the fate suffered by record companies.

But the Justice Department believes it has a strong case that Apple and the five publishers colluded to raise the price of e-books, people familiar with the matter say.

Apple and the publishers deny that.

The Justice Department isn’t taking aim at agency pricing itself. The department objects to, people familiar with the case say, coordination among companies that simultaneously decided to change their pricing policies.

“We don’t pick business models—that’s not our job,” Ms. Pozen says, without mentioning the case explicitly. “But when you see collusive behavior at the highest levels of companies, you know something’s wrong. And you’ve got to do something about it.”

For related posts, see here.  The case increasingly appears to focus on whether the DOJ can prove coordination among rivals with respect to the shift to the agency model and e-book prices.

Filed under: antitrust, cartels, contracts, doj, e-books, economics, error costs, law and economics, litigation, MFNs, monopolization, resale price maintenance, technology, vertical restraints Tagged: agency model, Amazon, antitrust, Apple, doj, e-books, iBookstore, major publishers, MFN, most favored nations clause, per se, price-fixing, publishing industry, Rule of reason, vertical restraints