Richard Epstein on Originalism and Judicial Restraint

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I’m worried! I’m sympathising with organic farmers over a land use conflict!

Writing this blog of sound mind and sober disposition, I still have considerable sympathy with two organic farmers over a land use conflict they have with the neighbouring gun range.

blackstone nuisance

Local land use regulations allows a gun club to set up 600 m away with competitive shooting days all day for 88 days a year. That is a voluntary self restraint. They could hold shooting competitions every day of the year. The local land use regulations allow the use of guns on rural land. The gun club used this absence of a prohibition on the use of guns in the frequency of use to set up a gun range to fire guns all day long on rural land.

Now here is the rub. There something wrong with the concept of quiet enjoyment of your land if a neighbour can fire off a large amount of noises continuously. The occasional noise, the occasional gunshot yes, but all day? I live near the airport, but I knew it was there when we bought the property and the lands  was a little cheaper because of that.

The organic farmers are unusually pristine and prissy about what they want by neighbours to protect the sacredness of their more expensive snob food. I’m not too sure whether they would want to grant their neighbours an equal right to unusual land uses such as opening a gun range. That said, the organic farmers do have a point about a very noisy neighbouring land use that can be heard some distance away.

The organic farmers, of course, could have negotiated with their neighbours for covenants to restrict land use that undermine there are unusually pristine requirements for quiet enjoyment of their land and their neighbours land too. Easy to do when the land is first unused, but once economic activity accumulates, not so easy in terms of  transaction costs and hold-outs.

HT: Environmental Law 101 | Hoover Institution.

Zero hour contracts may be outlawed in New Zealand–updated

In another triumph of the Socialist Left of the National Party, the supposedly centre-right New Zealand government is considering outlawing zero hours contracts:

ONE News can exclusively reveal the Workplace Relations Minister is leaning towards outlawing the contracts and other employment provisions that he sees as unfair…

The Minister of Workplace Relations said the most punitive aspects of zero-hour contracts will be banned:

Mr Woodhouse has previously said a ban of zero-hour contracts would be an overreaction, but signalled the outlawing of aspects including:

•Restraint of trade clauses that stop someone working for a competing business if an employer does not provide the desired hours of work.

•The cancellation of shifts at short or no notice.

One reason for this is to neutralise a wedge issue with the Labour Party. The labour parties in both New Zealand and United Kingdom plan to outlaw zero hours contracts.

The NZ Labour Party’s Certainty at Work private member’s bill would require employment agreements to include an indication of the hours an employee will have to work to complete tasks expected of them.

Aaron Director pointed out that there are many real world business practices that behave differently from the caricatures in textbooks and arouse suspicious responses from economists (as well as from lay observers including lay observers with no ideological agenda).

Director said that visions of market power dance their heads and some of these suspect practices have been regulated for reasons he attributed in a large part to intellectual laziness. Ronald Coase made the same observation about knee-jerk responses to perplexing new business practices:

One important result of this preoccupation with the monopoly problem is that if an economist finds something—a business practice of one sort or other—that he does not understand, he looks for a monopoly explanation.

And as in this field we are very ignorant, the number of ununderstandable practices tends to be rather large, and the reliance on a monopoly explanation, frequent.

Much of the lasting influence of Aaron Director and of Ronald Coase came from their ability to show that simple judgements about business practices often cannot withstand rigorous scrutiny.

The organisation of and the contracting practices in the labour market is not a complicated despite the best efforts of the Left over Left and unions to pretend that it is so, as Richard Epstein explains:

Labour markets are not characterized by tricky externalities. They do not pollute streams or require the creation of public goods.

They are not characterized by genuine breakdowns in information, as workers are in a position to observe the conditions of their employment on a day-to-day basis.

Left to their own devices, without explicit support from union activities, they will be highly competitive, and thus work hard to allocate scarce human capital to its most productive use.

Workers have the option to quit for higher wages, and employers can always seek out low cost techniques to reduce their labour costs. Any short-term dislocation for firms or individuals is more than offset by the overall increase in the system productivity, spurred in part by clear signals that should increase investments in human capital.

In the UK, the Work Foundation found that 80% of those on zero hours contracts are not looking for another job; only 26% wanted longer hours. This implies that 74% were content with their current work times arrangements.

The inherent inequality of bargaining power between employers and workers and the reserve army of the unemployed must not be all that they are cracked up to be these days if low paid workers have to sign legally enforceable restraint of trade agreements, which is a common complaint about zero hours contracts. The worker does not have guaranteed hours but must promise not to work for someone else in the same line of business.

Obviously, the few members of the reserve army of the unemployed lucky enough to have a low pay, insecure job that offers no regular hours have so many other job options that their employers must get them to agree not to quit and job-hop at will. Jobs must be readily available to low paid workers for otherwise why do employers insist on this restraint of trade in employment agreements?

If there is an inherent inequality of bargaining power between the bosses and the workers, why do employers seek restraint of trade agreements against these downtrodden workers who are supposed to have few options but to accept the miserable zero hours job offer before them?

The question that must always be asked is why do people deemed competent to vote and drive cars sign zero hours contract? What is in it for them – for the worker who signs these contracts – especially for workers who already have a job and are switching to a zero hours contract? David Friedman asked this question about the economics of restraint of trade agreements for employees:

…the employer who insists on an employee signing a non- competition agreement will find that he must pay, in additional wages or other terms of employment, the cost that the agreement imposes upon the employee, as measured by the employee and revealed in his actions.

It follows that the employer will insist on such an agreement only if he believes that its value to him is greater than its cost to the employee… The contract is designed, after all, with the objective of getting the other party to sign it.

If I am designing the contract and offering it to many other parties, that may put me in a position to commit myself to insisting on terms that give me a large fraction of the benefit that the contract produces. But it is still in my interest to maximize the size of that net benefit-which I do by only insisting on terms that are worth at least as much to me as they cost the other party.

If zero hours contracts are as bad as the Left over Left claim, the job quit rates for these contracts should be high, and people moving from existing jobs should be under-represented in this section of the labour force. If a worker already has a job, they have few reasons to sign up to such a purportedly poor job offer. Show me the evidence.

Unless we have a good idea about why firms are moving to zero hours contracts, which we don’t, and why employees sign these contracts rather than work for other employers who offer more regular hours of work, meddling in these still novel to the officious observer arrangements is risky.

Environmental Law 101 | Richard Epstein

Back in 1999, Richard Epstein wrote a great summary of what should be environmental law from an old common law perspective, from a classical liberal perspective, and a pragmatic economic libertarian perspective:

Stated bluntly, nothing in the theory of property rights says that my property is sacred while everybody else’s property is profane. That single constraint of parity among owners should lead every owner to think hard…

This recognition of the noxious uses of private property is the source of the common law of nuisance.

That law dates from medieval times, certainly by 1215, at the time of the Magna Carta. It is no new socialist or environmentalist creation for the twentieth century.

When the common law of nuisance restricts the noxious use of property, it benefits not only immediate neighbours but the larger community. If I enjoin pollution created by my neighbour, others will share in the reduction of pollution.

Simply by using private actions, we have built a system for environmental protection that goes a long way toward stopping the worst forms of pollution.

Epstein does not stop there. He recognises as he should that the common law of nuisance is not enough to stop all problems of pollution:

Yet before we leap for joy, we must recognize that private actions are not universally effective in curbing nuisances.

Sometimes pollution is widely diffused—waste can come from many tailpipes, not just one—so that no one can tell exactly whose pollution is causing what damage to which individuals.

Under those circumstances, private enforcement of nuisance law can no longer control pollution…

We do not change the substantive standards of right and wrong, but we do use state regulation to fill in the gaps in private enforcement.

Epstein then makes a plea for private covenants to deal with a great deal of the social frictions that arise in the suburbs:

But often when individuals worry about their local environments, they’re not particularly happy to treat the nuisance law, however enforced, as the upper bound of their personal protection.

They want (especially as their wealth increases) more by way of aesthetics and open spaces. Fortunately, our legal system has a way to accommodate these newer demands.

One of our most important land-use control devices is the system of covenants by which all the holders of neighbouring lands agree among themselves and for their successors in title

Covenants might work in Greenfields developments in modern cities. But they really doesn’t work in managing land use conflicts in the inner city where regulation is been used to substitute the covenants for many decades.

Epstein’s ideal for modern environmental law is:

In sum, the system of public and private enforcement of nuisances and public and private purchases of environmentally sensitive sites is the way that sound environmental policy should proceed.

via Environmental Law 101 | Hoover Institution.

Some economics of zero hours contracts – part 1: concepts, definitions and initial puzzles

Unions say New Zealand employers are following trends overseas and adopting zero hour contracts: workers have to be available for work, but have no hours guaranteed. Unite Union national director Mike Treen said:

McDonald’s, KFC, Pizza Hut, Starbucks, Burger King, Wendy’s – all of the contracts have no minimum hours, and so people can be – and are – rostered anywhere from three to 40 hours a week, or sometimes 60 hours a week, and it depends a lot on how you get on with your manager.

No official figures are available on the number of people on zero hour contracts in New Zealand, but they are are available in the UK in the chart below. About 250,000 workers in the UK work on zero hours contracts.

These workers agree not to work for anyone else, but are not promised regular work at all with their new employer.

The question that must always be asked is why do people who are deemed competent to vote and drive cars sign zero hours contract? What is in it for them? David Friedman asked this question about the economics of restraint of trade agreements for employees:

…the employer who insists on an employee signing a non- competition agreement will find that he must pay, in additional wages or other terms of employment, the cost that the agreement imposes upon the employee, as measured by the employee and revealed in his actions.

It follows that the employer will insist on such an agreement only if he believes that its value to him is greater than its cost to the employee…

The contract is designed, after all, with the objective of getting the other party to sign it.

If I am designing the contract and offering it to many other parties, that may put me in a position to commit myself to insisting on terms that give me a large fraction of the benefit that the contract produces.

But it is still in my interest to maximize the size of that net benefit-which I do by only insisting on terms that are worth at least as much to me as they cost the other party.

The inherent inequality of bargaining power between employers and workers and the reserve army of the unemployed must not be all that they are cracked up to be these days if low paid workers have to sign legally enforceable restraint of trade agreements.

Obviously, the few members of the reserve army of the unemployed lucky enough to have a low pay, insecure job that offers no regular hours today have so many other job options that their employers must get them to agree not to quit and job-hop at will. Jobs must be readily available  to low paid workers for otherwise why do employers insist on this restraint of trade in employment agreements.

Why do workers sign these contracts, which can include a promise of exclusive services – not working for other employers? Several subsequent blog posts will attempt to answer this question

The inherent inequality of bargaining power between employers and workers doesn’t work too well here because  the worker is accepting this job as compared to these other options , which may include employment in an existing job.

Once a worker is on-the-job and has accumulated job specific human capital, issues of post-contractual opportunism come up on both sides.

An important function of the employment contract is to prevent attempts to renegotiate terms and conditions once one side of the other has committed to the relationship and will find it costly to go elsewhere.

Zero hours contracts are negotiated upfront, which makes them unappealing to anyone already has a job, unless the terms and conditions of a zero hour contract, including the wages paid are much more appealing than officious observers make out.

Richard Epstein made this point about the general operation of the labour market, which is of relevance to our search to the answers to the questions posed by this blog post:

Labour markets are not characterized by tricky externalities. They do not pollute streams or require the creation of public goods. They are not characterized by genuine breakdowns in information, as workers are in a position to observe the conditions of their employment on a day-to-day basis.

Left to their own devices, without explicit support from union activities, they will be highly competitive, and thus work hard to allocate scarce human capital to its most productive use.

Workers have the option to quit for higher wages, and employers can always seek out low cost techniques to reduce their labour costs.

Any short-term dislocation for firms or individuals is more than offset by the overall increase in the system productivity, spurred in part by clear signals that should increase investments in human capital.

Zero hours contracts are a new labour market phenomena . That is no reason to automatically default to monopoly explanations for their emergence, including their emergence in a highly competitive industries and highly competitive labour markets where  employees change jobs regularly.

As Coase said in the context of industrial organisation as a whole and novel business practices in particular:

One important result of this preoccupation with the monopoly problem is that if an economist finds something—a business practice of one sort or other—that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of ununderstandable practices tends to be rather large, and the reliance on a monopoly explanation, frequent.

The next blog post arises out of my first exposure to the labour economics of working arrangements. Specifically, how the fixed costs of employment and the fixed cost of going to work  both lead to minimum hours constraints in most employment contracts.

Most of what I know about the  labour, personnel and organisational economics of working arrangements  was about explaining  why employers would expect an employee to work as a minimum number of hours if they were to employ them at all. Always good to start with explanations as to why zero hours should not exist, but they clearly do.

Subsequent blog posts will discuss zero hours contracts in the context of the team production and organisational architecture; and zero hours contracts, equalising differentials and job sorting.