Tag Archives: incentives

More Morality Scenarios

I floated a few Trolley-problem-type hypotheticals yesterday that highlighted some difficult choices that sometimes have to be made when it comes to punishing wrongdoers. Specifically, what to do in cases when rewarding (say, via gentle punishment that is actually desirable, or via outright rewards) a wrongdoer turns out to be better for society at large than punishing that wrongdoer. The example I gave was the bailout of banks in the recent financial crisis, which could have limited damage to the economy but would have rewarded those who helped cause the crisis.

Expanding on this, there are related questions worth pondering (if you have nothing better to do):

1. In the bailout scenario, what if helping the banks only improves the odds of helping the economy by 90%, and the bailout money is not recoverable? 75%? 50%? 20%?
2. In the bailout scenario, what if helping the banks can help the economy, but also increases the risk of future crises by 10%? 100%? 1000%?
3. In the context of a financial crisis caused by criminal wrongdoing, what if maintaining confidence in the banking system requires a bailout and non-prosecution of criminal wrongdoing?
4. In the context of a financial crisis caused by criminal wrongdoing, what if maintaining confidence in the banking system requires a bailout actively enriching those who caused the crisis – basically, paying them to undo what they did?

Let’s make it more difficult and go from income statements to more graphic situations, and go in different directions. Imagine for now that the analysis below can only be done after the fact, not before.

5. A genetic analysis determines that criminals with a certain gene variant who commit sexual assault do not commit any other crimes for the rest of their lives if they aren’t punished. If they are punished, their recidivism rates are the same as for all other rapists. Do you punish them for their first rape, if you catch them, or do you let them go?
6. A genetic analysis determines that criminals with a certain gene variant who commit sexual assault commit crimes at a half the rate than average citizens if they get away with their first crime, but if punished, their recidivism rates are the same as for all other rapists. Do you punish them? What if the rate is the same as for average citizens but lower than other criminals?
7. A genetic analysis determines that criminals with a certain gene variant who commit sexual assault are completely rehabilitated and commit no crimes again if they spend 17 years in prison, which is much longer than such criminals usually spend in prison. Do you keep them in prison for the longer term?
8. Imagine a scenario combining 1 and 6, where two 18-year-olds commit the same crime, perhaps even together. Can you justify letting one go and imprisoning one for 17 years, if their gene variants differ?

These are hard questions, I think, in part because they run counter to some very strong innate instincts of fairness and justice. However, we’re bound to encounter issues of this kind, and it’s worth thinking about them. Obviously there are serious real-world complications to consider: for example, knowing your own gene variant in the latter scenarios can affect your behavior. If you know you have the gene in #5, you basically get a freebie if you want to commit sexual assault. This is clearly a terrible incentive, but look at the alternative, in which a punish assailant is punished, goes free, and then likely offends again (recidivism rates are high). These scenarios don’t present good options, and I hope we don’t have to confront their analogues in the real world. Chances are, however, that we’ll have to.

I don’t have any answers here, but feel free to share your instincts.

Book Review: Happy City

Charles Montgomery‘s Happy City is an interesting effort. On one hand, it’s a thorough description of experiments in urban design, complete with case studies covering the last century. On the other hand, it’s a muddled mix of vague policy recommendations, personal value judgments, and contradictory analyses.

I’ll start with the good: Montgomery shows us countless examples of cities that work and cities that don’t. The studies describing the ill effects of exurbs and the benefits of well-designed neighborhoods are backed up by solid evidence, and have both case studies and statistical summaries to defend them. The book’s greatest achievement is listing the largest turnarounds in city design: Bogota and cities like it managed to make improvements despite some real challenges.

Mongtomery also does a good job pointing out the cumulative effects of good urban design: cities that make people happier also make them healther, make economies better, and make carbon footprints smaller – all at the same time. This runs counter to assumptions that conservation or sustainability necessarily involve a cost or sacrifice. Good cities make several mutual goals achievable using the same means, and the virtuous cycle that can follow makes the entire enterprise seem worth trying. Obstacles to the good city largely involve bad incentives embedded in city building codes, zoning laws, and tax laws, and Montgomery does a good job of exposing the many hidden incentives that push people into suburbs and exurbs even when most people are happier in denser, livable neighborhoods.

This is where the book’s shortcomings become apparent. Montgomery tells us repeatedly that people make choices (like living in the suburbs) that they come to regret, but takes polls in which people say they’d prefer walkable neighborhoods at face value. If people are actually willing to spend hundreds of thousands to live one way and get it wrong, why would polls in which they have nothing at stake be more accurate than their actions? Similarly, when citing statistics that show that bikers are the happiest commuters or that watching TV is associated with depression, Montgomery does little to defend the methodology: isn’t it possible that healthy people with flexible jobs (or no children) get to commute by bike, and that depressed people watch TV because they don’t go out? (Yes, at least on the latter.)

The economics of the book are also very weak. For example, Montgomery makes Vancouver one of the shining examples of successful cities, except when he notes that it’s becoming unaffordable. This is to be expected, of course, but Montgomery chooses not to recognize this as a sign of either success OR a problem, but waves it away as something that “needs to be taken care of by the government.” It’s baffling that a book about modern cities doesn’t cite Edward Glaeser’s work, but Montgomery omits him entirely. It’s not surprising – Montgomery clearly has much more central-planning-oriented politics than Glaeser – but it’s disappointing. This is especially apparent because Montgomery does nothing to tell us where heavy industry, manufacturing, and agriculture happen in his Park Slope utopia. Montgomery praises the elimination of cars and is great at chronicling the benefits thereof, but he doesn’t show the downside of eliminating delivery routes. He decries big-box stores but doesn’t account for the economic benefits of scale.

In fact, Montgomery is at his worst when he dabbles in social policy, where his central-planning tendencies start to show. He contradicts himself at times – first privately designed neighborhoods serviced by privately run streetcars are successful and basically an ideal to aspire to, next private services can’t possibly provide good neighborhoods and public planning is needed. Similarly, Montgomery correctly identifies bad regulations that encourage sprawl as a problem, but considers eliminating them to be a “big fat bonus for property developers.” Montgomery shows the success of Copenhagen and Vancouver as something worth emulating, but doesn’t consider the possibility that those two cities are exceptional: rich, mostly homogeneous cities in western democracies are hardly a challenge. Montgomery has nothing to offer for Phoenix or Houston, let alone Mumbai or Lagos. His ideas just aren’t scalable in any real sense. There is also an unnecessary cheap shot against the Tea Party that makes the book overtly political in a sense it doesn’t need to be.

Ultimately, this book is worth reading for people interested in livability of cities. That said, the prescriptions of mixed-use neighborhoods (incidentally, much like East Lakeview where I live now) seems to reflect a little too much of Montgomery’s own preferences and don’t account for many economic realities that need to be addressed. “Have better people plan your city” is hardly a solution. After all, as Montgomery himself tells us, city planners is who gave us our present problems.

Book Review: Triumph Of The City

*Note: I read this book two years ago, but I’m publishing the review today because a book I just finished is in the same field.

I would live in Ed Glaeser‘s world. He’s an incredibly astute observer of urban life, its benefits and limitation, and the future of development. Most importantly, he’s a humble analyst: his prescriptions are delightfully deferential to individual preferences. Triumph Of The City combines much of what makes Glaeser so engaging, which is why it’s too bad that not nearly enough people who should read this book will read this book.

Glaeser is at his best describing cities at all levels: what they look like, what life in them is like, what people wish life in them would be, and, most importantly, how they came to be what they are. The last part is the most interesting: Glaeser details the many reasons that the US (and large parts of the world, really) should not have any cities. In the US in particular, the rules are stacked against cities: spending on transportation, gas externalities, tax laws, building codes, etc. all encourage sprawl and dispersion, not cities. The best insights come from tying together seemingly unrelated points (tax laws involving depreciation) and their consequences (favoring new construction over rehabilitation).

These regulatory distortions make up a large part of Glaeser’s point, but he justifies it: these distortions shape modern cities more than anything else, and they deserve to be pointed out. Glaeser follows this up with a defense of the city as a mode of life: his empirical work proves the benefits of life in a good city. He ties these two together to great effect, by showing the distortions that cause many people to live in bad cities. The slums of Mumbai, the sprawl of Houston, and other case studies are largely caused for the same reason: regulations that prevent organic growth of cities to adapt to changing circumstances. Glaeser doesn’t question these choices, accepting the preferences of those who want to live in large houses and those who want to live in dense walkable neighborhoods equally. What he does well explain how costs and benefits would be apportioned if the deck weren’t so stacked against the city.

There are a couple of places where I wish Glaeser had spent more time. First, he tells us that cities are the economic engines of our times, and touches on why, but I would have appreciated more insight into this aspect. Second, and this is a true nitpick, since Glaeser is deferential to preferences, his work lacks specificity in terms of prescription. That’s not a real flaw, of course, but it does leave the reader wanting more.

Recommended.

Reader Comment On The Black Rhino Hunt

A commenter writes in response to my post on the black rhino hunting license auction:

regarding your black rhino, i actually read that the auction was to kill one specific rhino that the conservationists had deemed too aggressive, not letting the younger males mate and other bad things that i can’t recall.  So it was slated to be eliminated for the good of the species.  So why not auction off the opportunity of a lifetime to allow someone to go with them and pull the trigger.  But the story wasn’t written that way because that wouldn’t generate traffic.

I tried to confirm this, and there are in fact several such assertions, as here:

The Safari Club’s executive director, Ben Carter, has defended the auction, saying all money raised will go toward protecting the species. He also said the rhino that the winner will be allowed to hunt is old, male and nonbreeding — and that the animal was likely to be targeted for removal anyway because it was becoming aggressive and threatening other wildlife.

I don’t think the director of the club that auctioned off the permit is an unbiased source of information, and others have disputed these claims. If true, however, this would add another positive externality to what I considered a good idea from the start.

The Black Rhino And Incentives

I didn’t comment on this story when it first surfaced, though many did (usually incorrectly. Here’s a CNN summary:

On Saturday night, a group of wealthy hunters will gather inside the Dallas Convention Center to bid on the rare chance to hunt one of the world’s most endangered animals in Namibia.

The Dallas Safari Club is sponsoring the auction and says, as surprising as it might sound, that it’s being done in the name of conservation, to save the threatened black rhinoceros. The permit is expected to fetch between $250,000 and $1 million, and all proceeds will be donated to the Namibian government and will be earmarked for conservation efforts, club officials say.

Animal conservationists estimate there are only about 5,000 black rhinos in the world, 1,700 of which are in the southern Africa nation of Namibia. They are considered a “critically endangered species” by wildlife organizations around the world.

This has drawn the ire of conservationists:

Sacrificing one animal for the greater good of the endangered species is a move that critics and animal conservation groups call “perverse” and a “sad joke.”

“They need to be protected, not sold to the highest bidder,” said Jeffrey Flocken of the International Fund for Animal Welfare. “It also sends a dangerous message that these iconic and disappearing animals are worth more as dead trophies to be mounted and hung on a wall in a Texas mansion than living in the wild in Africa.”

Jeffrey Flocken is probably a nice person with good intentions, but if that quote is accurate, he’s either an idiot or completely self-absorbed, or both.

If it’s the latter, he’d like the black rhino to be saved, and he’d like to get credit for it, too. This is completely selfish: if the rhino lives, what does it matter how it was saved? If the true purpose is to save the species, why does it matter that it was saved in a way that Jeffrey Flocken disapproves of? It only matters if it’s more important that Flocken and people like him “win” and get credit for saving endangered species than it is to actually save species. This is not a rare thing: proponents of the minimum wage routinely find it more important to appear to be helping the poor than to actually be helping the poor. But let’s say that Flocken & company are the only humans without this particular human cognitive illusion, and they just want the rhino to live. If that’s the case, Flocken is being an idiot.

The black rhino, being a vulnerable species with little value, is slated for extinction in our lifetimes unless it is protected. Protection is costly, however, and since money has opportunity costs, that protection must be justified – spending money on saving rhinos instead of, say, vaccinating children, must be explained, at the very least to those who fund your activities. The ONLY way that protection of the black rhino is going to happen if someone finds it valuable to protect the rhino. This is how cows and sheep and goats survive: they’d be extinct in a hurry if we stopped protecting them, and we protect them for their economic value. The black rhino has little to offer except its rarity and existence value: some people fund its protection because they want to live in a world where black rhinos exist (same reason I donate to protect polar bears). This doesn’t seem to be enough, since the rhino is still endangered. That’s where Texas millionaires come in. They, apparently, want to hunt the black rhino, which is a valuable thing. This is one thing the black rhino can “sell” to fund its own protection. (Polar bear hunting licenses work the same way.) Now the Namibian government has one million incentives to protect the rhinos – so they can sell more hunting licenses.

If this is going to save the black rhino, I say go for it, Texas millionaires. Kill one to save the rest. And Jeff Flocken, you should be applauding them.

People Like Me

In my recent takedown of Matt Yglesias I received a common counter regarding the failed Obamacare implementation (in private communications, because no one ever comments, because why would anyone comment on a blog post). The position goes something like this: the Obamacare implementation would have worked had Republicans not sabotaged it, so we just need to get the Republicans out of office to get Obamacare working. Some of these conversations evolve further into explaining why the social-democratic system could work if only there weren’t “people like [me].” I’ll address the Obamacare issue below, but first the general idea, which seems to be that utopia is attainable, if only there weren’t all these other people who won’t do and think what they’re told.

Perhaps that’s an unfair characterization, but it’s not far off. I’ve been told that it’s people like me who harp on individual rights and how unfair certain popular practices are to good people that’s ruining any possibility of successful collective action, and that if we only backed their preferred policies, all would be well. Arguing that a policy would totally work if everyone loved it is probably true, but if ifs and buts were candy and nuts, we’d all probably gain a lot of weight.

The same is true for any political position. Libertarians argue that interference in voluntary transactions is difficult to justify, in large part because it creates bad incentives. For example, one of the effects of welfare and unemployment insurance and high income taxes is that they incentivize people not to work. People like me point this out and thus argue that policies must be designed taking this into account, not by assuming that people will ignore these incentives and “play along” with the system. If you can ask me to encourage poor young people to subsidize richer old people on the health insurance exchanges, I can ask you to encourage everyone who’s doing fine on welfare, housing assistance, and Medicaid no not let that affect their choices. I’m not asking you because you’d be telling people to be stupid. You shouldn’t ask the equivalent of people like me.

On the Obamacare point specifically: You can’t wish away the opposition that’s backed by something like 40% of the electorate no matter what, and you should know better than to count on them – after calling them names and shoving the legislation down their throats – to help you make the program work so that you can keep winning elections against them.

A particularly blind example of this is Jonathan Capehart, who says the two following things:

Although the statute provided plenty of money to help states build their own insurance exchanges, it included no money for the development of a federal exchange — and Republicans would block any funding attempts. …

So, the federal exchange that Republicans said wouldn’t work ended up not working because it was starved of the money needed to help make it work.

“The statute…provided no money for…a federal exchange.” Glossed over in that phrase is that DEMOCRATS PASSED THE STATUTE. They wrote the law (although they always claim it’s not the law they really wanted) and are now blaming the opposition party for not making it work. The existence of Republicans shouldn’t surprise them, and can’t be wished away. If you want to make the world a better place, make your policy take that fact into account. Because they’re people, and to some degree, they’re people like me.

Markets, Mobility, and Talent

In my last post, I mentioned that reducing complexity would be a low-cost way to improve relative mobility in American society (and others, probably). At the end I also called for a bigger role for markets (which people who know me will claim I always do), and it’s worth explaining why more markets mean more fairness.

First, to clarify: when I say “markets” I mean more unfettered, less micromanaged markets which actually only benefit the big businesses they claim to restrain. Any new regulation is easier to deal with for a big company than a small one, as the cost of compliance is spread over a larger base. For example, a rule requiring every corporation to have a certified accountant on staff would mean little to a giant firm but could strangle start-up with the added cost. Regulations thus encourage ever larger corporations, which are then able to exercise more political influence for their own benefit.

Less regulated markets would lead to more firms of smaller size, and this increased competition would mostly benefit poor people (through lower prices and more opportunity). Most importantly, it would benefit talented poor people because it would make talent more valuable. It’s obviously valuable today, but a more cutthroat competitive market would make it more profitable to seek out new talent where it’s been overlooked. It’s already been shown that smart poor kids don’t apply to the best colleges they could get into, and currently no one has an incentive to help them do so. Imagine a more competitive marketplace, then, in which an enterprising firm or firms seek out these talented individuals, get them into better colleges, and hire them upon graduation.

Most people don’t believe that firms would do this, but this already happens on smaller scales and in related fields. Some firms will pay for their employees to obtain training and advanced degrees; the military pays tuition for students who then serve. This merely combines these two ideas. The concept that employers go to unusual places to seek out talent is actually common in the most competitive arenas. I am thinking here of professional sports. NFL teams have been known to sign players who didn’t play college football – athletes from basketball, skiing, wrestling, soccer, etc. They also sign and draft players from small colleges and Canadian schools and teams. In short, they will not leave any stone unturned if it means getting finding talent and beating their competitors.

This is not the case in non-competitive situations, and certainly not in non-market economies. In a market setting, your competitors put pressure on you to improve; in a government or regulated setting, no such pressure exists. The more of the economy is regulated, credentialed, or government-controlled, the less pressure there is to seek out talent. The beneficiaries in this world are the rich, the well-connected, and the otherwise politically favored. The poor, of course, are not those things. The best way to help them is to create a world in which talent is more important than connections – and that means competitive markets.

Water, Water Everywhere, And Not A Drop To Drink

A bus stop on my way to work featured an ad that said the following:

Loyola students banned bottled water because they believe that clean water is a basic human right that should never be sold. 

It went on to state how many fewer plastic bottles were sold as a result (at Loyola, of course – they were probably just sold elsewhere, since Loyola is a tiny percentage of overall water bottle demand). I hoped that the ad was exaggerating, but the relevant website uses similar language: The promoters of the ban “feel that safe and accessible water is a fundamental human right and must not be handled in ways that put profits over people.” It’s certainly not identical to water “should never be sold” but I believe it shares a similar mindset. I’ll be generous to the students at Loyola who passed this ban and assume that the majority did so because they believed it would be effective in reducing plastic use, which in turn would be good for the environment. I don’t believe the latter has been established, but we can skip that for now. The more troubling parts are the apparent beliefs of some in the Loyola student body and administration.

First, the statement that clean “water is a fundamental human right.” I understand that universal access to clean water is desirable – it can be argued that clean water is what makes our modern urban lives possible – but it’s a big step to make it a fundamental human right. After all, clean water is, among other things, a product: though it does occur in nature, clean, drinkable water doesn’t occur in nature nearly enough to support the world population. To get it to everyone requires time and energy. If clean water is a fundamental right, everyone is entitled to it. This creates a huge disconnect: suddenly everyone demands clean water but no one wants to provide it? And why?

Because, second, the promoters argue that a product that is a fundamental right should “never be sold.” I’m not entirely sure what they envision instead: perhaps water provided by government to everyone. That has been tried, and it generally fails. Even today, some of the worst outcomes occur where markets are prohibited and instead central entities engage in distribution. The prohibition on organ sales, for example, has resulted in a massive but easily solvable shortage of healthy organs for needy patients. Cows are sold, and they’re doing fine. Tigers and elephants, not so much. (Not elephant tusks, mind you. If someone owned elephants, we’d have more elephants and more ivory. But that’s for another day.)

Water today in most countries is “sold” at a massive discounts: municipal water supplies don’t charge market value for the water they supply to households. This makes water affordable for the poor, but it also creates the incentive to overuse: with prices low for rich and poor alike, there’s no reason to conserve water. This is already creating shortages – in the US, the Colorado waters are way overused by states downstream. In the world, the poorest are getting hit the hardest (good luck, Yemen). This is bound to get worse unless incentives are created for conservation, and that means pricing. And pricing means selling.

Wanting something important not to be sold shows a terrible misunderstanding of the forces that actually bring clean water (and food, and phones, and everything) to people. It is BECAUSE it’s sold that clean water is plentiful: someone makes money collecting dirty water, purifying it, bottling it, and delivering it to your local supermarket where you can pick up a refrigerated bottle for 99 cents. The only reason some people don’t have clean water is because they don’t have money to buy it. To fix the problem of access to clean water, the only workable solution is to make everyone rich enough to buy it at market prices. This isn’t easy, of course, but unlike promises of “universal high quality education” or “universal high quality medical care,” this one is achievable. I’ve promised some thoughts on poverty recently, and they’re coming. This is just an instance of the central aspect of my thoughts: to get people what they need, make them wealthy enough to afford it.