Midwest Law and Econ Gathering. October 13, 2001

Dear Fellow Gatherers,

 I took notes on the papers, and send them along to you. I hvae not
bothered to attribute particular bits to particular people, so some of
it is what the speaker said, some is what I was inspired to think by
what he said, and some is perhpas just my mind wandering. Here it is,
anyway, for what it's worth (and Jim, you'll be able to get some idea
of what happened after you left. Hope all is well in Chicago).

 I thought this was an excellent conference, by the way. Usually I
have a very hard time sitting through a whole day of papers, but not
this time.  That, of course, is a credit to the audiences as much as
to the speakers.

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McAdams. The Hawk-Dove Game.  first talk.

Law and Economics: Law matters. Government matters.

Law and Society: Law does not matter. Peripheral things do.  When law
appears to bring about change, it is because it is correlated with
cultural changes that change the law. Think of divorce. Crime too.
Homosexuality.

 Battle of the sexes and Splitting a Pie are really the same. Make the
BS strategies "Choose 70 percent" and "Choose 30 percent".

 It is interesting how Hawk-Dove and Battle of the Sexes differ, even
though both have two Nash equilibria, each preferred by one of the two
players. In   BS, either the two disequilibrium boxes  have identical
payoffs, or the players differ in how they rank them.

Ah, but Hawk-Dove is perhaps closer to Splitting a PIe-- that is,
bargaining. In bargaining, if both choose SOFT, then the outcome is
better than HARD, though the total is not as big    as if one chooses
HARD and one SOFT.

Hawk-Dove and the Prisoner's Dilemma have interesting similarities.

Why don't we talk about Hawk-Dove more, compared to the Prisoner's
Dilemma? Well, we do talk about bargaining games an awful lot.
Usually, it is not formalized, though, whereas prisoner's dilemma
sitautions are hard to recognize unless you have learned about the PD.

McAdams is trying to look at where and why expectations are important,
multiple equilibria.

  This idea needs examples. What laws are trying to make certain
outcomes focal? "Drive on the right side of the road."

  Culture is partly about expectations, but more about tastes (which
are cultivated by a particular culture) and material conditions (e.g.,
fish is cheap in Japan, so they eat fishprepared a lot ofways) .



Peg: a marriage could start as Battle of the Sexes, degenerate to
Hawk-Dove, and end up as a Prisoner's Dilemma.  I'd extend it. It
could start as Ranked Coordination (two Pareto-ranked symmetric
equilibria).

So: at the start, two people marry because they have similar
interests, thoguh they must carefully coordinate. Then, their
interests diverge somewhat, and though coordination is still
beneficial, one is unsatisfied with the result, while still happy to
be married. Then, interests diverge more, ... I am a bit hazy here.
Then, cheating becomes tempting, because the other person's preferred
outcome is actually worse for you than simply refusing to cooperate or
trust.  This end might be simply living as if the other person did not
exist. Or, if the prisoner's dilemma payoffs are bad enough, divorce
or separation will be preferred.

(In fact, we might want to say that the last two stages are a
prisoner's dilemma with negative payoffs, and ending the game by
separation.)




1. Suppose we have  a Hawk-Dove game repeated with different players.
How should we think about the idea of building up a reputation as a
Hawk?

  Here is a model a bit different from the one we talked about at the
football game.
  Think of it as a war of attrition.     There are people with Tough
reputations and people with Soft reputations.  Initially, everybody
has a  Tough reputation. Whenever someone plays Dove, he loses his
Tough reputation and acquires a Soft reputation. This is a somewhat
arbitrary assumption, and it is the big one in this model. It is no
stronger than the assumption in the Klein-Leffler (1891) model,
though, that you lose your reputation if you ever sell a low-quality
product.

When a  Tough player meets a Soft player, the Tough player plays Hawk
and the Soft player plays Dove. When two Tough players meet, or two
Soft players, then they randomize Hawk and Dove.

This means that as the game proceeds, and there are fewer Tough
players left, it becomes better and better to be Tough.  The mixing
Tough player therefore will choose Hawk with higher and higher
probability, perhaps reaching 1. (If it does, that would make the
modelling simpler.)

    This could be tricky to set up formally, because it has lots of
periods and we don't know how many Tough players there would be in
equilibrium (there might well be multiple equilibria, all with the
pattern described above).


   2.   How would Hawk-Dove work out in the game of a smoker and a
nonsmoker in a railway car?



Your smoking example has potential, but we had trouble getting it to
work out.
If it would work, it woudl apply   to divorce, homosexuality, and
crime too. Each kind of
obnoxious behavior is analogous to smoking.

A problem is that this is sequential-- one person makes a critical
remark first, and then the other. And a sequential hawk-dove works out
very differently from a simultaneous one.





The smoker lights  a cigarette. What happens next?

Suppose the payoffs are as follows for Smoker-Nonsmoker:

Hawk-Hawk:  Payoff -2, -2.  They have a big fight and both emerge
unhappy.

Hawk-Dove: Payoff 2,0.  The nonsmoker does not object, knowing that
the smoker is geared up to have a big fight if he does.

Dove-Hawk: Payoff 0, 2. The nonsmoker does object, and the smoker
stops smoking, knowing that if he persists the nonsmoker is geared up
to start a big fight.

Dove-Dove: Payoff 2,0. This is different from the usual Hawk-Dove
Game.  Here, if the nonsmoker does not object, it does not matter that
the Smoker would have backed off-- he doesn't have to, and he gets to
keep smoking.

 This game, which perhaps might be relabelled as Soft-Tough instead,
has two equilibria. Hawk-Dove is an equilibrium, because if the
nonsmoker deviated to Hawk his payoff would fall from 0 to -2, and if
the Smoker deviated to Dove his payoff would remain at 2, rather than
rising. Dove-Hawk is an equilibrium still, because if the Smoker
deviated to Hawk his payoff would fall from 0 to -2.  The change in
the Dove-Dove payoff from the usual one does not affect what is an
equilibrium. It just means that the Hawk-Dove equilibrium is weak
rather than strong.

 Or, in version B, the game really is like the original Hawk-Dove, and
the Smoker's Hawk action is "Start smoking and be ready to defend
yourself vigorously" and the Nonsmoker's Hawk action is "Start a big
fight if the smoker starts smoking." Then, the Dove-Dove outcome would
be that the Smoker would not start smoking at all, and the payoff
would (0,2), favoring the Nonsmoker.

  The main problem here is as to whether this is really a simultaneous
move game.  One thing that woudl make it a little less simultaneous
would be to have it be a war of attrition.  In each of many periods,
each player chooses IN or OUT, where IN means he takes some action
that is costly if the other player also chooses IN, and OUT means to
give up and be DOVEish.

In fact, I think it woudl work out if the action is costly regardless
of whether the other player chooses IN (think of saying something
blunt, when the speaker   doesn't like being blunt). It would also not
alter the model a great deal if the IN moves escalated-- that is, if
their cost for some reason rose in period N compared to period N-1 (if
you have to come to blows after shouting for a while-- but I'm not
sure why that would be).

    An even more realistic War of Attrition would be one in which the
players alternated offers. That sounds an awful lot like the
Rubinstein (1982)  bargaining model.  The big difference is that in
the Rubinstein bargaining model the size of the share offer can
change,whereas in the War of Attrition, a player just continues to say
"I want my way 100 percent"  and we don't allow side payments.


Still another approach, very different, is this.  If you smoke in a
subway train, in one
equilibrium that says nothing about whether you are an unpleasant
person. So everybody who wants to, smoke. In another equilibrium, it
does say that you are an unpleasant person, because only the thick-
skinned smoke. This is sort of like in my Stigma paper in the Journal
of Law and Economics about 1996.



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LEE FENNEL

Why do people oppose the estate tax?

Maybe because they prefer  rich people saving and leaving money to
their children instead of rich people spending their money on
themselves.  Part of this is that we think extravagant spending is in
a utilitarian sense inefficient, because the marginal utility from
such spending is so low. ANother part is that we want to encourage
virtue, and both saving per se and giving money to poorer people
(e.g., children) is virtuous.

Also, as TOm Ulen perhaps was saying, the estate tax penalizes people
who don't hire tricky lawyers and take advantage of loopholes  and
rewards those who do.

Ulen: good idea:  As in contract law, use a majoritarian default. The
law should say, "Even if you didn't do inter vivos transfers for the
past 10 years, we will assume you did."

Jeff: the 10,000 dollar exclusion is for administrative convenience.
It means we don;t have to think about little gifts. But we do,
actually. NOw, some parents give 10,000 dollars away-- plus, they give
Christmas gifts, etc.. So the tax people really ought to figure out
what those gifts are. But they don't. So the administrative conveience
reason really isn't used in practice.

A puzzle: People don't take advatnage of the  opportunity to give away
10,000 dollars per year to each child.

 What would happen if we had a 100 percent estate tax? The government
would end up owning a lot of fancy real estate, paintings, etc.

I'm skeptical that optimism about getting wealthier explains
opposition to the estate tax.  It just is too unrealistic for  many
people who oppose it.

How about simple fairness? People do believe in fairness.

Also, maybe they fear the slippery slope of confiscation. If we start
by taxing rich people's estates, we may continue all the way down to
taxing the person just above the median estate size. And it is
realistic that everyone could hope, optimistically, to reach an estate
of that size. All they have to do is dream of owning their own house.

 In a limited partnership,of a kind authorized recently  Jim Lindgren
says,  the owner can give away ownership while retaining control as
general partner. That works out fine if he is altruistic towards the
owning partners. Then he can give them control too, at his death.


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LINDGREN on guns in the colonies and fraud in history writing

Were guns imported? Are there records of imports? Tom Ulen
asked about this.

 Are guns less common on the frontier partly because of inter vivos
transfers? An old man might give away his gun to his son, especially,
if the family were too poor for the son to buy his own gun.

 Your paper needs an explanation at the start of how probate works.

The paper would benefit from a lot of glowing quotes from eminent
historians and such too.


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GINSBURG on COURTS IN NEW COUNTRIES

 The  "insurance theory"  of judicial review.  It is
insurance for a party that might get thrown out of power.

 Is it risk avoidance, exactly? No, not at all. Even risk-neutral
parties would favor independnet courts.  Their motivation is that this
is like a repeated prisoner's dilemma. MAKE THIS DISTINCTION IN OUR
PAPER. (also, we should cite this, and Erin O'Hara's, maybe. It is
O'Hara and William Dougan, Discriminatory Taxes, George Mason Law
Review, 1998. The idea is that person A opposes a tax on person B
because A fears he will be victimized by the next tax.) I guess this
paper should cite us and O'Hara too.

   I wonder if setting up a special constitutional court leads to more
statutes being struck down. In the US and Japan, the supreme courts
struck down very few statutes in their first 50 years. Part of this
was because they plenty of other kinds of cases to decide.

The paper might read better, and catch the attention of more readers,
if it started with facts about various courts and only then went on to
discuss theory.

p. 37. The regressoins are preliminary, I know. Access, being a 0/1
variable, shoudl be done using probit insteadof OLS.  Strictly
speaking, maybe court size should be done using ordered probit, but I
don't think it's bad to just use OLS for that. And explain how
infinite terms get represetned in the regression data.

But you can't do probit with just 18 observations. I guess it's
actually better just to do OLS and note that this is not statistically
correct for hypothesis testing, but it is still useful for help in
thinking about the data.

Actually, a better thing to do woudl be just to graph the data in 3
graphs of party strength against the court variables. Some packages
will label each point by the name of the country-- that would be very
useful here.

Maybe a correlation matrix would be useful for thinking about the
data.

 In table 3, order the countries by something more useful than
alphabetical order-- by number of judges, perhaps, or, better, party
strength.

Kaushik Mukhopadhaya's thesis, mentioned by Alexeev, was about how a
larger committee is less accurate being of more slacking off and free
riding. He hasn't published it yet,but you can reach him at Emory
Economics Dept. (kmukhop@emory.edu) . Nick G.-- Think about ways to
combine the information in the 3 small-sample regressions. Jim
Lindgren suggetsed one way: make an index of the 3 court variables.
That will, in effect, have the error terms in those 3 regressoins
partially cancelling each other out.

I think there must be another way to do it too. It is not Seemingly
Unrelated Regression (Zellner), I think, but it has that flavor. The
angle might be someting like this:

We have three proxies for one true variable, X. Each adds an error to
it, u,v, w.... I won't finish this thought. In reviewing these notes
on Saturday I now know that Jim Lindgren tried the index approach and
it works well. There is probably an even better approach,
econometrically speaking, but it probably isn't worth struggling
about. The reason I think there might be a better approach is that it
is as if you really have 36 observations, not 18, since you have 18
countries with two proxies each. Thus, it seems like you should get
the benefit of greater statistical significance. Maybe the indexing
procedure does that. It is an interesting statistical issue, which you
might want ot mention to statistician you meet at dinner parties.

        Adverse selection and moral hazard. Moral hazard certainly
enters: a
party's workers  will not try so hard to win the next election if they
have the assurance hey won' be jailed by the oppostion party if they
lose. Adverse selectionwon't enter, I said out loud, but I think I
might have been wrong.

Here is where it owuld not enter. Suppose one party is setting up a
court. There is no two-party transacion, so asymmetric info doesn't
matter. IT is like a farmer planting a crop  that  is less risky than
his alternative crop.

  On the other hand, suppose both parties must agree to the
constitution, or to continue it. Then a weak party, which really has
little chance of ever winning, but is not known to be so weak, would
too readily agree to the indpeendnet courts.

  I am not too sure how this adverse selection stuff would work out.
It might need formal modelling.


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BRINIG ON ADOPTION VS FOSTER CARE

p. 3. Footnote 8 There is 1.8 instead of 18.

p. 5. Please give numbers for the number of black and white babies
available for adoption and adopted over time.

  This seems to be a striking instance of the desire of black
leadership groups to perpetuate racial identity and attitudes,
presumably because that is the source of their own power and income
(probably mediated by their coming to believe that what was godo for
them personally was good on more general grounds).

Was there political pressure from foster parents who liked receiving
the state payments? (They must be getting surplus, or they wouldn't
volunteer to be foster parents.)

  An interesting number for the paper would be the present value of
the cost to the state  of foster care over the child's minority
versus adoption.

    Now, preference is given to friends of the natural parents as
foster parents, over adoption by a stranger. That's a tough decision.

Do the kincare providers keep the kids for their entire minority very
often? That would make a big difference to how I viewed it.

 This, note, is an issue distinct from the white/black issue ("it's
not issue of black and white").  Even in an all-white country it would
arise.

  p. 14. Minnesota was probably settled by British people first,
wasn't it? (I'm thinking of 1860, not 1890.)

  p. 15. What does "freed for adoption" mean?

The value of adoption isn't like Richard McAdams's idea. Adoption is a
commitment, not
just a focal point. The foster parent has both signalled someting
about himself and bound himself to take care of the child for a long
time. If there is a subsidy even for adoption, that will change the
informational content of the signal.

 And, actually, signalling info is not the same as setting a focal
point either.

If the child has been taken from his mother because she is a bad
parent, then maybe her relatives are rather bad parents too, if not so
bad as the mother.

You could say that getting X percnet more kids to be adopted instead
of fostered would lead to a Y percent reduction in juvenile
delinquency. Then you can go a step further and say that if spending X
dollars would lead to X percent more adoption, then we could reduce
juvenile delinquency by Y percent.


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COLE ON DEFINING RIGHTS

 Thrasymachus in Book I of the Republic: Justice is the will of
the stronger. That is like Umbeck  in his quote.

 Going back to Richard McAdams's idea: property is a Hawk-Dove Game
equilibrium. We agree that I own my house, and you do not, and I will
fight you if you try to come use my house, and you will back off. I
prefer this equilibrium to the one in which you own the house, but we
both like having peace.

Biologists have made this application of Hawk-Dove--it is really teh
original one. Birds contend  over nesting spots or food. THe Bourgeois
strategy is the one with first-come first-served property rights.

For my social regulation book: the p. 4 Hohfeld dichotomies might be
useful. If I have a right to something, that implies you have a duty
not to do certain things with it. If I have a privilege to do
something, that means you can do it too, but you have no right to stop
me, and I have no duty not to do it.

If I have a right, other people have duties.

If I have a duty, soeone else may or may not have a corresponding
right. Maybe I have a duty to not smoke marijuana, but nobody has the
right to prevent me from smoking marijuana.

If I have a privilege of using a necktie, that means nobody can stop
me. But I can't stop other people from using it either. (?)

I put the question mark because at a single moment in time, my
privilege to wear a necktie prevents you from wearing it. So I really
have a right, not just a privilege. The difference between the two
concepts, right and privilege, vanishes. I think Hohfeld probably is
wrong. He just hasn't defined the act at stake carefully enough. I
could have a privilege to have whatever words I want come from my
mouth, and you could simultaneously have a privilege with respect to
your words, but in each case it is a right to a differennt object-- my
words, and your words. Saying we both have a right to free speech is
fuzzy, because "free speech" refers to two different acts.

 Possibly you would find my Desecration paper interesting, because it
is about this kind of problem.

 "The Economics of Desecration: Flag Burning and Related Activities."
Journal of Legal Studies (June 1998) 27: 245-270 (lead article). When
a symbol is desecrated, the desecrator obtains benefits while those
who venerate the symbol incur costs. The approach to policy used in
this paper is to ask whether the benefits are likely to exceed the
costs. I conclude that they usually do not. Desecration is often
motivated by a desire to reduce the utility of others, which generally
is inefficient. Also, if desecration occurs, people have less
incentive to create and maintain symbols. Symbols, like other produced
goods, need property-rights protection if the outcome is to be
efficient. Laws against desecration are a good way to provide this
protection, given the likely failure of the Coase Theorem and the
possibility of efficient breaking of the laws. In Ascii-Latex or
Acrobat pdf (
http://Pacioli.bus.indiana.edu/erasmuse/published/98JLS.flag.pdf)

What about  joint ownership? It could work too ways. If Joe and Sam
have the right to a necktie, then either of them can prevent third
parties from using it. But they cannot stop each other.

Or, we coudl say that they both have the privilege of using the
necktie, and nobody else does. Then,   each can wear the necktie,  and
they can   prevent anybody else from wearing it.   Also, though, any
of the third parties can prevent any of the other ones from using it.

 I guess if I have the power to do X, then you have the liability-- a
potential loss- that I might go ahead and do it and hurt you.

And if I have an immunity from X, then you can't do it to me.

 I got stuck on understanding Hohfeld.

p. 3. As displayed in Table 1, HOhfeld's system may be difficult, but
it is not at all elaborate.

 p. 12. the authors presume that the polluter has the PRIVILEGE, not
the RIGHT, according to Hohfeld, right?

It seems like Hohfeld and Calabresi&Melamed need to be meshed
together. Shouldn't C and M be mentioned in this paper?

The definitional issue comes down to: Can I have the abilityto do
soemthing without having the right?

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RASMUSEN and RAMSEYER on JAPANESE JUDGES AND BUREAUCRATS
.
   Note that risk aversion is not necessary to drive our model, though
it helps create teh proper payoffs.   Even risk-neutral
parties would favor independnet courts.  Their motivation is that this
is like a repeated prisoner's dilemma. MAKE THIS DISTINCTION IN OUR
PAPER. (also, we should cite Ginsburg, and Erin O'Hara's, maybe. It is
O'Hara and William Dougan, Discriminatory Taxes, George Mason Law
Review, 1998. The idea is that person A opposes a tax on person B
because A fears he will be victimized by the next tax.)


We need a name for the Ramseyer 1994 theory. The Alternating  Parties
Theory is a pretty good name.


Ginsburg, Tom (2001) "Economic Analysis and the Design of
Constitutional Courts," forthcoming, Theoretical Inquiries in Law
(December 2001).

Ginsburg compares different countries'  courts that decide on the
constitutionality  of government statutes and actions. He is
interested in why different governments choose different systems, and
uses the Alternating Parties Theory as his basic one.  He notes that
Israel started with a fairly passive supreme court and an entenched
Labor Party, and when Labor and Likud started alternating, the supreme
court started being more assertive.  He finds some evidence using
regression analysis  that Post-Socialist countries that adopted new
constitutions in the 1990's chose to have more independent courts if
they had less strong majority political parties, but the working paper
is preliminary.

 Mueller, Dennis (1999) "Fundamental Issues in Constitutional Reform:
With Special References to Latin America and the United States," 10
Constitutional Political Economy 119-xxx (xxx 1999).  He argues for
appointment by the previous judges, with override by the legislature.


 Add some language about the reason we don't think that the close
identity of bureaucarts and politicians shows that  politicians are
following bureaucrats is because we don't see ANY cases where pols do
something clearly to their disadvantage and to the advantage of
bureaucrats, but we do see bureaucrats diverting public resources
towards uses the pols like.

  Note that bundling helps the   less intelligent  voters more, which
might be a bad thing. If the voter must pick and choose, then more
randomness is introduced-- becaues the stupid  voters pick candidates
randomly-- but also the  intelligent voters can more easily  swing the
election. Misleading rhetoric by a candidate will not  have so much
impact if the stupid voters only listen to the rhetroic of the top
candidate. I'm not sure this goes anywhere, though.

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Christopher DRAHOZAL AND HYLTON AND OHARA: FRanchise Contract Choice


If you use the statistics package STATA, STATA 7.0 has marginal effect
estimates for probit coefficients, which would be better than the
coefficients to report. I've just been using it to redo all the
regressions from  my Japanese Judges papers for the book that Mark
Ramseyer and I are doing based on them, so we can use the marginal
effects now and have an easier time interpreting coefficietns.

 Another consideration in choosing a state's law to apply to your
contract: stability of the law. If a state keeps changing its law, you
don't want to choose it. Or, if you are afraid the state will change
from efficient law to inefficient law.

NOte that this reason applies even if the unstable  state's possible
new law is not inefficient and is just redistribute.  The possible
redistribution introduces risk. Also, since the move is only possibly
to hurt the franchisor rather than being unbiased, using that state's
law means that the franchise terms have to be adapted to favor the
franchisor more, which is inconvenient if the franchisor is used to
setting the same terms in all states.

 It would be nice to say how many observations are correctly predicted
by the regression.

If you have HOFLIT, you'll want to have the urbanization  of the
franchisee's state too.

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 ULEN.  Civic engagement.

  I felt confused throughout, because before we decide whether the
Internet is good or bad for  political discourse, we need to figure
out whether things like polarization, greater participation by
uninterested people,  and longer discussions by interested people are
good things.

 Actually, what we need is not more content
onthe INternet, but 1. More people connected-- maybe at LOW speeds (so
they use it for words, not pictures or sounds). 2. More organization
and filtering of info. THis is provided privately a lot anyway, but
maybe there's some case for government aid.

 Is polarization good or bad? The argument for it being good is that
you get real discussion then, as opposed to groupthink where everybody
agrees. Sunstein has it backwards.

   Is civic engagement and discussion good for policy outcomes? When
it comes down to it, people seem to be saying that it is not. If you
have serious disagreements, so people get excited enough to have
arguments, as about abortion, you are less likely to get compromises
and legislation. But you do get more serious discussion about first
principles. And you get more big changes.

 One example is slavery. The Whigs and Democrats were very careful to
avoid polarization on slavery, knowing it would split their parties.
One example of this was the "gag rule" in Congress that prevented
certain anti-slavery resolutions from being discussed.   It was only
when they failed and split that the Republican Party was born and
slavery had a chance of being ended.

 It is also relevant that polarization and extremism increases civic
involvement. It is only when people get excited that they are willing
to act politically.

  Should there be partisan elections? We could eliminate the filtering
that party labels provides. Then voters would have to find out who
each candidate was. I think that would be a bad result-- there woudl
actually be more random voting or nonvoting, rather than better
informed voting, plus some peopel would bear the costs of becoming
informed.

 Sunstein, it sounds like, doesn't consider the alternatives to things
he doesn't like. What he is really plumping for is having people watch
3 TV networks rather than cable or the Internet for their news.

 Bok seems to ignore  the growing centralization of American
government, which tends to make invovlement in local politics less
attractive.

  WHy is civic involvement good?  Presumably because we get better
decisions.  Or maybe because it makes people behave better because
they feel more responsible. But this makes strongest the case for
invovlement in local politics. Robert Putnam's point is that it is
local, geographic, involvement that generates social capital, not
interest in national politics.  If our goal is good decisions, it is
local involvement that is efficient.  We don't need 100 million people
thinking about our policy towards Afghanistan. We do need 10 people
thinking about whether a new traffic light should be put on the
Bypass.

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