Externalizing security costs when the price is zero

Here’s a fact that likely won’t surprise you: Walmart is a heavy user of police resources. Some police departments aren’t happy about it:

…Robert Rohloff, a 34-year police veteran who has to worry about staffing, budgets, and patrolling the busiest commercial district in Tulsa, says there’s nothing funny about Walmart’s impact on public safety. He can’t believe, he says, that a multibillion-dollar corporation isn’t doing more to stop crime. Instead, he says, it offloads the job to the police at taxpayers’ expense. “It’s ridiculous—we are talking about the biggest retailer in the world,” says Rohloff. “I may have half my squad there for hours.”

The unintentional twist is that with regard to crime, most firms and most people “offload the job to the police at taxpayers’ expense” to some degree or another. The problem the article identifies is the very great degree to which Walmart does it. Around 15 years ago Walmart scaled back on staff, intentionally saving money and unintentionally creating an environment more conducive to misdemeanor.

This is a classic problem with zero-price public services: there’s no built-in incentive not to overuse them. Until now retailers have found it most profitable to internalize some of the costs of their own security, estimating the amount they pay deters a greater amount of loss. Walmart has a different calculation, is willing to go minimal on security knowing it can externalize the costs, and is therefore guilty of responding to incentives and taking the policy toward its logical conclusion.

Perhaps, in an abstract way, they should shoulder more of the burden. But existing policy allows for this, so they’re well within their legal rights, and just try to come up with another policy that would pass court challenges that wouldn’t lead to other undesirable consequences, like mom-and-pop stores who don’t have deep pockets having to pay extra. What’s the cut-off?

(There is one possible out, as the article mentions the town of Beech Grove, Indiana, declaring Walmart a public nuisance. This would mean a $2500 fine for every police call. This forced the local Walmart to internalize some of its security costs, but the fact that this is the only instance leads me to believe it wouldn’t be employed on a large scale. I lack the legal background to say more about it; all I can see is the rarity of the measure.)

The takeaway points, none of which are surprising:

  • People (and firms) respond to incentives.
  • Firms face different cost structures.
  • Zero-price resources can be overused.

The other part of the law

It’s in the news today that John Hinckley Jr., the would-be assassin of Ronald Reagan, is to be released from the mental hospital:

John Hinckley, who tried to assassinate President Ronald Reagan in 1981, will be released from a psychiatric hospital after a judge on Wednesday set a series of conditions for him to live with his mother in Virginia.

The 103-page opinion from U.S. District Judge Paul Friedman said Mr. Hinckley’s doctors have found he has “no signs of psychotic symptoms, delusional thinking, or any violent tendencies,’’ and therefore “presents no danger to himself or to others in the reasonable future if released.’’

Mr. Hinckley may be released as early as Aug. 5, the judge ruled.

The ruling means that 35 years after an attack that severely wounded the president and three others, Mr. Hinckley will be a free man—albeit with restrictions on his travel, communications, work and use of the internet.

Mr. Hinckley, 61, was found not guilty by reason of insanity in 1982 and committed to St. Elizabeth’s Hospital in Washington, D.C. Over the past 12 years, his doctors and the courts have been gradually loosening his restrictions, over objections from the Justice Department, allowing him to go to Williamsburg, Va., for unsupervised visits with his family more than 80 times.

As previous posts have noted, I’m very interested in the justification of legal penalty as deterrent. It has a lot of explanatory power, especially throughout history before large-scale incarceration centers were feasible. But deterrence only works for rational people. The mentally ill may not be deterred by expected punishment.

As my law&econ professor pointed out, even the mentally ill are not completely random thinkers (i.e. completely irrational), but they have systematic differences from mentally normal people. A system premised on deterrence needs a fallback, a separate way to handle people who don’t respond to incentives in the way others do.

Hinckley’s judge believes Hinckley is no longer dangerous to himself or others and thus should be released. I’m not sure how the other people affected by the shooting feel about this, but we can see the logic from a social standpoint. Executing him or having him die in jail won’t deter mentally ill people from attempting to assassinate future presidents. It costs the public money to incarcerate him, and there’s no social benefit unique to keeping him there. Mentally normal people know they face the main approach in the justice system, not the fallback approach, so it isn’t setting a bad precedent.

On top of this, I don’t know much about presidential security but from my time in DC I know it’s incredibly thorough. It would shock me if any president were ever seriously in danger again. If, counterfactually, there were a snowball’s chance in hell somebody could assassinate a 21st century president, I’d imagine it would be some kind of suicide attacker who wouldn’t be deterred by anything the legal system could threaten.

Residual claimancy in the tribal era

Here’s an interesting bit of social organizational wisdom reflected in Numbers 5:5-8 (RSV):

5 And the Lord said to Moses, 6 “Say to the people of Israel, When a man or woman commits any of the sins that men commit by breaking faith with the Lord, and that person is guilty, 7 he shall confess his sin which he has committed; and he shall make full restitution for his wrong, adding a fifth to it, and giving it to him to whom he did the wrong. 8 But if the man has no kinsman to whom restitution may be made for the wrong, the restitution for wrong shall go to the Lord for the priest, in addition to the ram of atonement with which atonement is made for him.

The most common form of keeping order for most of human history was to have tribal or clan groups avenge infractions of a known code of conduct done to their members. It’s more famous in the breach than in the observance, but the threat of having a small war over infractions was incentive not to commit them in the first place, making antisocial behavior less likely on the margin.

This threat is (obviously) less effective when the offended party has no kin to avenge him. This is the wisdom embodied in the passage: ensuring there will always be somebody interested in seeing the penalty exacted. As a bonus this system protects the most vulnerable, i.e. turns the juiciest targets into the least appealing.

Few would argue this system is ideal, true, but the ancients had far fewer feasible alternatives than we have. Given their constraints, this is a clever feature.

Bookmakers in European and US sports

As an American I always get a kick out of bookmakers being involved with professional sports in Europe. Here in the US the major sports leagues want nothing to do with gambling ventures, but in Europe bookmakers can advertise and even sponsor teams. Why the difference?

Off the top of my head I can think of two alternate explanations. The first is that US sports consumers have a lower tolerance for (perceived) corruption. Italy has often been in the news for corruption in its association football system and I’m sure there are other instances. However, Europe has too many different people and cultures for this explanation to cover them all. It might sound appealing (to Americans) at first but I don’t think it’s very strong.

The other explanation is that gambling is legal in much of Europe. It was run by reputable organizations long before organized crime had a chance to get involved. There is no suggestion that these outfits compromise the integrity of the game (read: product). Because 1) gambling has traditionally been illegal in most places in the US and 2) people still want to do it, the void has often been filled by organized crime. With no reputation at stake and little else to lose at the organization level, the mob is free to (attempt to) influence the outcomes of games. Thus the major US leagues shy away from it.

Assuming gambling laws liberalize in the future this aversion to gambling sponsorship will probably pass too. Interestingly, there have recently developed ways to stake and win money based on the outcomes of sporting events that comply with gambling laws. As these are run by reputable companies the probability of fast-forwarding the process is high. From the position that gambling should always have been legal in the first place this is good news.

Lessons from Making a Murderer

[Warning: contains spoilers.]

The documentary series Making a Murderer is making the rounds in the media right now after being released in mid-December. I watched it all over just a few days and recommend it highly. Here are some thoughts about its implications.

[Warning: contains spoilers.]

1. Part of the show’s message is that Avery is probably innocent. Another part is that he was not given a fair trial, nor was his nephew. In the nephew’s case it seems very clear that his confession was manipulated and should be thrown out. As far as Avery goes, the series presents him as innocent but a quick search around the internet will give some reasons to think he was not. I don’t know, but police and prosecutors didn’t appear to act fairly. On balance it seems to me the reasonable doubt criterion was satisfied.

More broadly, beyond this case, police and prosecutors have powers—both de jure and de facto—that would blow the average citizen’s mind to find out. Regardless of Avery’s guilt or innocence I’m glad to see the presentation of what the state’s side of the legal system is capable of. The public may think it’s a good thing on net, but they need to know what kind of tool it is. It can be used for good purposes, yes, but there’s no guarantee of that. People know this abstractly, but the concrete portrayal in the series does the Lord’s work. (Regrettably, the Annie Dookhan case had very little impact.)

How often are situations like this happening all over the country? Probably every day. One of the things I thought as I watched was how taxing being a good judge must be. As a judge you inevitably preside over and influence false positives and false negatives, and beyond knowing these are possible there is really no way to know which is which in any case. My subjective impression is that most judges tend to side with the state more or less automatically, sacrificing quality for comfort.

2. What the purpose of law enforcement? Really the question is what are the purposes of law enforcement? (Here I take the broadest view of law enforcement systems, including those in societies that don’t/didn’t have dedicated state apparatus for it e.g. medieval Iceland, pre-contact American Indian groups, etc.) One of the purposes is to keep order. Societies that are too disordered don’t allow for human flourishing. Another purpose is to set the public’s mind at ease. In general, people will tolerate quite a few questionable cases if they think the system overall is working (from their perspective; if you’re on the receiving end of a questionable case you don’t feel that way). While I don’t like it I can see why police and prosecutors would zero in on suspects they think they can convict at the expense of exploring other less certain investigative paths. This is why protections for the accused are so important and why Brendan Dassey’s manipulated confession was so heinous.1 If people can be punished for crimes they didn’t commit, i.e. if their choices and their life outcomes are severely disconnected by non-random events, we are back to the disordered society.

3. Imagine the details of this case being substantially the same, only in Mississippi and with the accused being black. Now go back to the case as it happened. What are the essential components of both stories? So I’m not misunderstood, I don’t doubt racism influences the legal system. What I’m saying is there is more than one troubling factor at play. There is only so much social attention to devote to the list of social problems, and society may prefer to focus on racism inside and outside of the legal system more than other problems within the legal system, but tradeoffs always exist.


1. How many of the people who are outraged about this case also think lower evidentiary standards for college rape tribunals are a good idea?

David Malo on autocracy, pt. 2

While the authority of the kings in ancient Hawai’i was and is described as more or less absolute, selections from Mo’olelo Hawai’i, chapter 38: The Civil Polity demonstrate some constraints:

46. One thing which the kalaimoku [the king’s right-hand-man and chief agent] impressed upon the king was to protect the property of the chiefs as well as that of the common people; not to rob them, not to appropriate wantonly the crops of the common people.
47. If the king made tour about the island, when night fell, the proper thing for him to do was to camp down by the highway, and the next morning to proceed on his journey. It was not right for him to enter the house of commoner to pass the night; that was all wrong and was termed alaiki, the short way.
48. The wrong lay in the fact that when the king entered the house of common man his men entered with him. They ate of the commoner’s food, helped themselves to his goods, seduced or ravished the females, acted disgracefully, and raised the devil generally.
49. Their counsel to the king was that when, in travelling along the alaloa, he came to branch-road, he was not to follow the branch, because that was bad practice. The branch-road was called mooa, or meheu. (Mooa, bending of the grass; meheu, trail, trace.)
50. The evil lay in the fact that when the king left the beaten way, the people followed along with him. The path led probably to little farm—mahina ai—and as soon as the king’s men saw it they pulled the crops, helping themselves to the sugar-cane, etc., and the blame for the outrage fell upon the king.
51. Another reason why the king should not turn aside to follow a by-path was because it might lead to house where women were beating tapa—hale kuku—and if the king’s men found her to be handsome looking woman, they might ravish her, in which case the king would be blamed for the deed.
52. The proper course for the king was to camp at night by the highway. If the people put up house for him, well and good. If not, let his own retinue set up for him tent, and let him eat the food he brought with him. The king who would follow this plan would not have to issue any orders to the districts for food; he would be called king of superior wisdom. (Alii noeau loa), prudent king.
53. Again when the king went on canoe-voyage around the island, he should not let his canoes tack back and forth, off and on, in towards the land and out to sea again, lest, by so doing, they should come across fleet of fishing canoes, and the fishermen, being robbed of their fish, should lay the blame upon the king.
54. The right plan in sailing would be to keep the canoe on straight course from the cape just passed to the one ahead, and when that was doubled to steer directly for the next cape, and so on until the destination was reached.

67. It is the king’s duty to seek the welfare of the common people, because they constitute the body politic. Many kings have been put to death by the people because of their oppression of the makaainana.
68. The following kings lost their lives on account of their cruel exactions on the commoners: …
71. It was for this reason that some of the ancient kings had wholesome fear of the people. But the commoners were sure to be defeated when the king had right on his side.

Many, perhaps all ancient societies had similar implicit constitutional provisions.

Economic lessons from late medieval Venice

Lately I’m reading John Julius Norwich’s A History of Venice. He’s not particularly interested in economics (it’s not for everybody), though I was particularly struck by this section about the middle 13th century (pp. 155–156):

… She was no longer a city. She was a nation.

But a nation founded on trade; and that trade, as the Venetians must – at least subconsciously – have realized, owed its phenomenal success not to any territorial expansion but, paradoxically, to the very smallness of the Republic. Here was another benefit conferred by the surrounding lagoon. By virtually confining the Venetians to so restricted a space, it had created in them a unique spirit of cohesion and cooperation – a spirit which showed itself not only at times of national crisis but also, and still more impressively, in the day-to-day handling of their affairs. Among Venice’s rich merchant aristocracy everyone knew everyone else, and close acquaintance led to mutual trust of a kind that in other cities seldom extended far outside the family circle. In consequence, the Venetians stood alone in their capacity for quick, efficient business administration. A trading venture, even one that involved immense initial outlay, several years’ duration and considerable risk, could be arranged on the Rialto in a matter of hours. It might take the form of a simple partnership between two merchants, or that of a large corporation of the kind needed to finance a full-sized fleet or trans-Asiatic caravan; it might run for an agreed period or, more usually, it might be an ad hoc arrangement which would automatically be dissolved when the particular venture was completed. But it would be founded on trust, and it would be inviolable.

Trust is important for social activity in general and for commerce in particular. Venice was a setting in which the behavior of one’s possible trading partners could be easily known and conveyed—and subject to the discipline of continuous dealings. Norwich does not specify the official legal penalties for cheating but one imagines such bad behavior would be hard to sustain in this atmosphere even without them.

This system of easily formed short-term partnerships meant in practice that any Venetian with a little money to invest could have a share in trade. Artisans, widows, the aged, the sick – all could enter into what was known as a colleganza with some active but comparatively impecunious young merchant. … Some small dues [on the proceeds of the colleganza] might be levied by the state, but in these early days Venetian tax was low – infinitesimal in comparison with the punitive sums levied by the Byzantines on their own merchants, or by most of the princes of feudal Europe. So profits were high, incentives were great, and investment capital increased year by year.

We know from the study of economic development that societies in which investment opportunities (in the broadest sense) are within the reach of broad segments of those societies are the ones that get better growth results. This isn’t only a modern phenomenon.

Ancient law & economics: Sabbath-breaking edition

Ancient law often seems especially cruel to us moderns. Not only do ancient laws often condone and systematize things we find repellent—a topic for another day—but the punishments seem especially harsh. One famous example from the Torah*:

Exodus 31:12-17 Revised Standard Version (RSV)

The Sabbath Law

12 And the Lord said to Moses, 13 “Say to the people of Israel, ‘You shall keep my sabbaths, for this is a sign between me and you throughout your generations, that you may know that I, the Lord, sanctify you. 14 You shall keep the sabbath, because it is holy for you; every one who profanes it shall be put to death; whoever does any work on it, that soul shall be cut off from among his people. 15 Six days shall work be done, but the seventh day is a sabbath of solemn rest, holy to the Lord; whoever does any work on the sabbath day shall be put to death. 16 Therefore the people of Israel shall keep the sabbath, observing the sabbath throughout their generations, as a perpetual covenant. 17 It is a sign for ever between me and the people of Israel that in six days the Lord made heaven and earth, and on the seventh day he rested, and was refreshed.’” [emphasis mine]

One way to deal with this passage is to say that God said it, and God’s wisdom is greater than ours, so we don’t have to understand it, we just have to do it however harsh it seems. (As long as we’re in the population to whom the law applies, Jews in this case.) There are various other apologetic ways to look at it. I’m not inclined or qualified to discuss all of them, but they’re similar.

If one interprets this example as coming from a human document the analysis is very different. There must be some other justification intelligible to humans. A little law & economics can help here. The Torah law is incredibly thorough in its proscriptions. Some of them govern the minutest details of daily household life. The probability of detection for many of these infractions is very low. If a person is seen to commit an easily detectable infraction, it’s likely he is also committing and getting away with smaller infractions.

The logic of punishing things that are easier to detect because of an assumed correlation to things that are harder to detect (or prove) is apparent even today. Al Capone went to prison for income tax violations even though it was known by everybody that he was involved in many more serious matters. Structuring laws punish how people deposit and withdraw cash because this is much easier to detect than the illegal things they might do with the cash.

There was no science of forensics in the ancient world, no dedicated police force, and rarely any paper trails. In order to deter people from breaking the law when the chances of getting caught were slim, the magnitude of the punishments had to be ramped up. While we have no way of knowing it’s fair to assume violations occurred all the time without anybody else ever finding out about them.

The worthiness of the goals of these ancient laws, and indeed of parallel modern laws, is a separate topic. The goals of the Torah law may have been order and social cohesion among the people of Israel, or they may have been fabrications to shore up the power of the powerful at that time, or a combination. Readers of this blog know that I think the War on Drugs is a fantastically awful institution, for example, and it is one of the major justifications for structuring laws. But you can see how, given the ends, there is a logic to the legal means.

As a final note, though I don’t intend this as an apologia for any particular religious law, I suppose one could explain the passage by saying that God had the law & econ reasoning in mind when declaring the penalty for breaking the sabbath.


* I use the RSV here since the relevant passage in the Orthodox Jewish Bible is harder to follow for those not versed in it.

The West Lothian question from the outside

The West Lothian question is an interesting window into British politics. The summary from Wikipedia:

The West Lothian question refers to whether MPs from Northern Ireland, Scotland and Wales, sitting in the House of Commons of the United Kingdom, should be able to vote on matters that affect only England, while MPs from England are unable to vote on matters that have been devolved to the Northern Ireland Assembly, the Scottish Parliament and the Welsh Assembly.

Take a moment to think about this. (If you’re British or otherwise familiar with the issue, try to step outside of that frame.) On the surface it seems perfectly reasonable to mandate that England-only laws get the same treatment from the UK parliament as the others. One possible counterargument is that, with England making up the major part of the UK at 83.9% of its total 2011 population, an English assembly would become the de facto decision-making body, although (a) constitutionally, matters that affect all the constituent countries are voted on by MPs from all of them and (b) the political parties can and usually do cross the internal borders, so this is probably of minimal practical concern. There might be other counterarguments that are also reasonable from a third-party view; I’m not an expert on the topic and I’m open to making a different judgment with more data. But country X votes for country X laws makes sense in the abstract.

So why is it a simmering, unresolved issue? I got a vague sense of it reading the article until somewhere after the halfway point when it was stated clearly: the Labour [sic] Party is disproportionately well-represented outside England and resists changing this part of the system. In fact, on some votes on England-only issues they don’t get a majority of the English MPs but get a majority overall. Maybe their justifications are the most convincing but they don’t seem particularly strong to me, an outside observer with no dog in the fight. (Or if I have one I can’t identify which one it is.)

As an aside, this is particularly interesting in light of the Scottish referendum on independence last year. My own personal preference is for more and smaller states rather than fewer and larger states, ceteris paribus, although in this specific case I wasn’t even remotely informed and didn’t get a vote anyway. I read a variety of takes, including some making the classical liberal argument for voting No in the referendum by saying essentially that the SNP is less classically liberal than what they’re getting now, so even if independence is appealing in the abstract staying in the union was the least bad option. As Scotland was long dominated by Labour and as Labour is steadily losing ground to SNP, maybe this will tip the scales in the future.

The West Lothian question is reminiscent of an issue in US politics, but I’ll save that for a future post.

Wednesday nexus

Innovations in governance: Off-world colonies of the Canadian Arctic. Conditions in the Canadian Arctic and on Mars are very different from conditions elsewhere; efficient long-term governance might look very different there. On a related note, Alex Tabarrok defends the company town and private proprietary cities.

The Future of Economic Development: A Conversation Between Tyler Cowen and Jeffrey Sachs. I wasn’t able to be there in person but there’s video.

Nice unintentional prophecy at about 4:30 in this clip of Vin Scully’s radio call of Hank Aaron’s 715th home run, the anniversary of which was last week. Also baseball-related: The Common Law Origins of the Infield Fly Rule.

FiveThirtyEight credulously shares a poorly-conceived, allegedly economics-based piece about the wage gap. If your results show firms becoming more sexist as the costs of sexism increase you need an explanation beyond “because sexism” to make it work.

[Side note: In general I had high hopes for FiveThirtyEight. I now realize that was premature.]

The History of Byzantium podcast continues to impress.

The Hole-in-the-Wall Pass had a long history of overlapping use by many different outlaw gangs:

Geographically, the hideout had all the advantages needed for a gang attempting to evade the authorities. It was easily defended and impossible for lawmen to access without detection by the outlaws concealed there. It contained an infrastructure, with each gang supplying its own food and livestock, as well as its own horses. A corral, livery stable, and numerous cabins were constructed, one or two for each gang. Anyone operating out of there adhered to certain rules of the camp, to include a certain way in handling disputes with other gang members, and never stealing from another gang’s supplies. There was no leader with each gang adhering to its own chain of command. The hideout was also used for shelter and a place for the outlaws to lay up during the harsh Wyoming winters.