Utopia, you are standing in it!

| Peter Klein |

The May 2007 issue of the Quarterly Journal of Economics featured a nice piece by Nathan Nunn, “Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade.” The paper constructs an aggregate, country-level measure of asset specificity and relates it to characteristics of a country’s contract-law regime and its patterns of international trade. When asset specificity is high, firms tend to rely on contracts or vertical integration, rather than spot markets, so countries with good legal protection for contracts are more likely to specialize in the production of goods requiring specific investments.

Is a country’s ability to enforce contracts an important determinant of comparative advantage? To answer this question, I construct a variable that measures, for each good, the proportion of its intermediate inputs that require relationship-specific investments. Combining this measure with data on trade flows and judicial quality, I find that countries with good contract enforcement specialize…

One of the hardest things to try to explain to people when discussing various kinds of institutional or governmental policy is the law of unintended consequences. It basically says the policy can have effects that are very different than what one expects. History is full of examples, yet people continue to believe that the idea/policy is smart enough to prevent thousands or millions of people from figuring out a way to mess it up while imaginatively trying to better their lives. It shouldn’t scare someone from trying to change things, but steps need to be taken to measure the change in order to ensure that what was intended to happen is indeed happening.

Glen Whitman, an associate professor of economics at California State University, Northridge, wrote a very nice article on this topic, linked here. It is worth a read, as it explains an idea which can be difficult…

| Nicolai Foss |

This is how Yoram Barzel — arguably the most creative current exponent of property rights economics — defines (economic) property rights (in this paper, p. 394):

… an individual’s net valuation, in expected terms, of the ability to directly consume the services of the asset, or to consume it indirectly through exchange. A key word is ability: The definition is concerned not with what people are legally entitled to do but with what they believe they can do.

Notice how different this is from other (older) economic conceptions (e.g., Furubotn & Pejovich, Alchian, Demsetz et al.) which have typically categorized property rights into usus, usus fructus and abusus rights (and the right to sell these rights), often keeping a legalistic connotation.

by Michael ‘t Sas-Rolfes

This week marks the 62nd meeting of the Standing Committee of the Convention on International Trade in Endangered Species (CITES), taking place in Geneva, Switzerland. To coincide with this meeting, the World Wildlife Fund has released a “Wildlife Crime Scorecard” report which lists 23 countries in Asia and Africa that it claims could all do more to enforce trade bans intended to protect tigers, rhinos, and elephants.

But what about WWF’s scorecard? Unlike the governments it assesses, WWF has specifically purported to protect endangered species since its inception in 1961. It has also mostly endorsed the CITES trade ban approach to saving tigers, rhinos, and elephants for more than the last two decades, but the results of this have been unimpressive. Tiger numbers have plummeted, as have rhino numbers in all but a handful of former range states; elephants have fared slightly better since the…

Many jurisdictions have implemented bans or taxes on plastic grocery bags based on environmental concerns. In 2007, San Francisco enacted a county-wide ban that included large grocery stores and drugstores. Los Angeles, Palo Alto, and other cities in California have followed suit.

In research carried out at PERC this summer, Jonathan Klick, a PERC Lone Mountain Fellow, argues that reusable grocery bags contain potentially harmful bacteria, especially coliform bacteria such as E. coli. Klick finds that, in the wake of San Francisco’s ban, deaths and ER visits related to these bacteria spiked as soon as the ban went into effect. For more on this ongoing research, watch our interview with Klick above.

Tempus Fugit. The great economists of my preceding generation inevitably exit the stage. Friedrich von Hayek, George Stigler, Milton Friedman, Mancur Olson, William A. Niskanen and James M. Buchanan have already regrouped in a formidable free market paradise. They are now joined by yet another free-market giant, Armen Alchian, one of my favorite economists, and yet another member of the Editorial Advisory Board of The Locke Institute.

Armen Alchian marked his name indelibly in the history of economic thought for three important reasons.

First, he was one of the last economists of his generation to communicate economics primarily in the form of words, and not mathematical equations. Indeed he well-outlived the 1960 warning advanced by Aaron Director, Editor of the Journal of Law and Economics that by the year 2000 there would be no point in an economist submitting an article to any journal of economics in the…

Murray Rothbard was a great economist[1], and a disaster when it came to politics.

A while ago, I came across this article, about The Godfather I & II and other Mafia movies. A few quotes:

The key to The Godfathers and to success in the Mafia genre is the realization and dramatic portrayal of the fact that the Mafia, although leading a life outside the law, is, at its best, simply entrepreneurs and businessmen supplying the consumers with goods and services of which they have been unaccountably deprived by a Puritan WASP culture. […]

Hence the systemic violence of Mafia life. Violence, in The Godfather films, is never engaged in for the Hell of it, or for random kicks; the point is that since the government police and courts will not enforce contracts they deem to be illegal, debts incurred in the Mafia world have to be…

KEYNES HAYEK 1932 Cambridge vs.LSE

by Mario Rizzo  

My friend economist Richard Ebeling has discovered two extremely important letters. (Click the link above.)

In 1932 before John Maynard Keynes’s General Theory was written, these letters appeared in TheTimes of London regarding the appropriate economic policies for Britain to follow during the slump.  

There are a number of things that catch the eye.