Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don't (32 page)

75
David Henry, “Stubborn taint of Wall Street scandals clings to the innocent and guilty alike,”
Newsday
, February 9, 1992.

76
Grant, et. al, “Special Project,” 929-1241.

77
President’s Commission on Law Enforcement and Administration of Justice. Task Force Report: Corrections. U.S. Government Printing Office, Washington (1967), 88.

78
Velmer S. Burton, Jr., Francis T. Cullen, and Lawrence F. Travis III, “The Collateral Consequences of a Felony Conviction: A National Study of State Statutes.”
Federal Probation Quarterly
33 (September 1987): 52-60., 55. See also Benson, Michael L. “The Fall from Grace: Loss of Occupational Status as A Consequence of Conviction for a White-Collar Crime.”
Criminology
22 (November 1984): 573-594.

79
Levitt and Dubner,
Freakonomics
, 69.

80
Jonathan Karpoff and John R. Lott, Jr., “The Reputational Penalty Firms Bear for Committing Fraud,”
Journal of Law and Economics
, vol. 36, no. 2, October 1993: 757-758. The money lost to environmental crimes is typically borne by those directly affected by the pollution.

81
Jonathan Karpoff, John R. Lott, Jr.,and Eric Wehrly, “The Reputational Penalties for Environmental Violations: Empirical Evidence,”
Journal of Law and Economics
, vol., no. 2 (October 2005): 653-675.

82
This is over $100 million in 2005 dollars. See Karpoff and Lott, “The Reputational Penalty.”

83
Karpoff, Lott, and Wehrly, 2005.

84
I owe this example to Benjamin Klein who taught me industrial organization when I was a graduate student at UCLA in the early 1980s.

1
Harold Demsetz, “Information and Efficiency: Another Viewpoint,”
Journal of Law and Economics
, April 1969, 1-22, and Joseph P. Kalt, “Public Goods and the Theory of Government,”
Cato Journal
, Fall 1981, 565-584. The title of this chapter is taken from Demsetz’s paper.

2
Ian Ayres and Barry Nalebuff, “Stop, Thief!”
Forbes
, January 10, 2005.
Http://www.forbes.com/forbes/2005/0110/088_print.html
.

3
Ayres and Levitt, “Measuring Positive Externalities from Unobservable Victim Precautions: An Empirical Analysis of Lojack,”
Quarterly Journal of Economics
, February 1998, 43-77.

4
Steve Levitt made this claim when he presented his paper on this topic at the University of Chicago.

5
This does not imply that the politicians would be bought off by LoJack or its competitors. Rather, it reflects politicians’ natural desire to pass legislation that benefits the people and companies in their communities.

6
The comparison between open carry and LoJack is not exact because open carry may benefit people without guns if those with the guns can protect them.

7
Milton Friedman, “The Role of Government in Education,”
Economics and the Public Interest
, 123-153, Edited by Robert Solow, New Brunswick, NJ: Rutgers University Press, 1955.

8
Note, however, that if only certain cars like Porsche were to use LoJack, there would be no free-riding problem because there’d be no benefit for anyone except Porsche owners. Additionally, one might assume that putting a “protected by LoJack” sticker on cars that have LoJacks would solve the free-riding problem, However, this would most likely spur a black market in such stickers for use by free-riders who don’t actually have the device.

9
Thomas H. White, Financing Radio Broadcasting (1989-1927), in United States Early Radio History (
http://earlyradiohistory.us/sec020.htm
).

10
Ibid.

11
Waldemar Kaempffert, “Who will pay for broadcasting?: A frank and searching outline of Radio’s most pressing problem and the possible ways to solve it,”
Popular Radio
, December, 1922, 236-245.

12
Steven N.S. Cheung, “The Fable of the Bees: An Economic Investigation,”
Journal of Law and Economics
, 1973.

13
Harold Demsetz, “The Exchange and Enforcement of Property Rights,”
Journal of Law and Economics
, October 1964, 15.

14
Mary Muth, Randall Rucker, Walter Thurman, and Ching-Ta Chuang, “The Fable of the Bees Revisited: Causes and Consequences of the U.S. Honey Program,”
Journal of Law and Economics
, October 2003, 479-516.

15
National Taxpayers Union, “Who Pays Income Taxes? See Who Pays What: For Tax Year 2004,” National Taxpayers Union Foundation, (
http://www.ntu.org/main/page.php?PageID=6
).

16
See also Joseph P. Kalt, “Public Goods and the Theory of Government,”
Cato Journal
, Fall 1981, 565-584.

17
Rawle O. King, “Federal Flood Insurance: The Repetitive Loss Problem,” Congressional Research Service, June 30, 2005.

18
Owen Ullman, “High Risk Life, High Expense to Taxpayers: Federal Disaster Aid Makes It Feasible to Build In Harm’s Way,”
USA Today
, July 24, 2000, 6A.

19
Ibid.

20
Bert Ely, “Savings and Loan Crisis,”
The Concise Encyclopedia of Economics
(
http://www.econlib.org/library/enc/SavingsandLoanCrisis.html
), and Edward J. Kane, “The Gathering Crisis in Federal Deposit Insurance,”
The MIT Press
; New edition (August 9, 1985).

21
Bill Redeker, “Mount Hood Climbers: What Price Glory?”
ABCnews.com
, December 12, 2006 (
http://abcnews.go.com/US/story?id=2720158&page=1
).

22
“After Mount Hood tragedy, Ore. lawmaker wants mountain locators,”
Seattle Post Intelligencer
website,
http://seattlepi.nwsource.com/local/6600ap_wst_climber_safety.html
.

23
Prior to
Kelo
, eminent domain had also been used to develop blighted neighborhoods. For a related discussion, see Sonya D. Jones, “That Land Is Your Land, This Land Is My Land . . . Until the Local Government Can Turn It for
a Profit: Analysis of Kelo v. City of New London,”
BYU Journal of Public Law
, Fall 2005, 139-165.

24
Http://www.kochind.com/industry/pipelines.asp
.

25
Based on a personal conversation with Bill Dougan on January 6, 2007.

26
Jonathan Karpoff, “Private versus Private Initiative in Arctic Exploration: The Effects of Incentives and Organizational Structure,”
Journal of Political Economy
, January 2001, 38-78.

27
Government expeditions seemed to make up a larger share of the lesser know accomplishments. We can speculate that perhaps government-funded explorers, like their private counterparts, were motivated partly by the desire to acquire fame. Robert Peary, a government-funded explorer who was the first man to make it to the North Pole, wrote his mother that the fame of Christopher Columbus “can be equaled only by him who shall one day stand with 360 degrees of longitude beneath his motionless feet and for whom East and West shall have vanished—the discoverer of the North Pole.” Even more directly, he told her, “Remember, mother, I must have fame.” Bruce Henderson,
True North: Peary, Cook, and the Race to the Pole
, (New York: W. W. Norton & Company, April 18, 2005).

28
Michael Tanner, Congressional Testimony before the Finance Committee, U.S. Senate, March 9, 1995 (
http://www.cato.org/testimony/ct-ta3-9.html
). Here are some examples of private charity administration and fundraising expenditures as a percent of total expenditures: Habitat for Humanity, Washington D.C.—13.8%; The Salvation Army - 16.8%; YMCA of Metropolitan Washington - 19.4%; and American Red Cross of the National Capital Area - 11.6%. Source:
charitablechoices.com
, Charity Descriptions, All Charities A to Z (
http://www.charitablechoices.org/categories/all.asp
).

29
Kelly Bedard and William Brown, “The Allocation of Public School Expenditures,” Claremont Colleges Working Paper, August, 2000, 19 (
http://econ.claremontmckenna.edu/papers/2000-16.pdf
).

30
The relative costs of private schools assumes that religious teachers in parochial schools are paid at the same rate as lay teachers. For further discussion, see John R. Lott, Jr., “Why is Education Publicly Provided?: A Critical Survey,”
Cato Journal
, Fall, 1987: 476-77.

31
Jay Hancock, “Traded Funds May be Trend T. Rowe Price Can’t Let Pass,”
Baltimore Sun
, September 17, 2006, D1. Congressman Michael Oxley, “Mutual Fund Industry Practices and their Effect on Individual Investors,”
hearing before the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises Committee on Financial Services, March 12, 2003 (
http://commdocs.house.gov/committees/bank/hba87798.000/hba87798_0.HTM
).

32
71 percent of Americans understood that a “well-diversified portfolio will experience less volatility.” American Century Investments, On Plan I.Q. Quiz, KANSAS CITY, Mo., April 7, 2005 (
http://www.americancentury.com/welcome/news_release2_2005.jsp?press_release=20050407a
).

33
Robert Hansen and John Lott, “Externalities and Corporate Objectives in a World with Diversified Shareholders/Consumers,”
Journal of Financial and Quantitative Analysis
, (March 1996).

34
Ibid.

35
Ibid.

36
Ibid.

37
For a discussion of the role of a private predator acquiring the assets of firms that were driven out of business see John McGee, “Pedatory Price Cutting: The Standard Oil (NJ) Case,”
Journal of Law and Economics
, 1958-69. He also provides strong evidence that even if such actions were in fact behind Standard Oil’s acquisitions, it could not have been a successful strategy.

38
This discussion is connected to questions on the general growth of government. Related studies include Bennett and Johnson’s survey of the theories explaining why government has grown over time. I co-authored two other analyses of the problem. Lott and Fremling describe the growth of government based upon the costs of voters evaluating the long term versus short term effects of government regulation, while Kenny and Lott interpret the growth of government as a result of women’s emancipation. See John R. Lott, Jr. and Gertrud Fremling, “Time Dependent Information Costs, Price Controls, and Successive Government Intervention,”
Journal of Law, Economics, and Organization
, vol. 5, no. 2, Fall 1989: 293-306, and John R. Lott, Jr. and Larry Kenny, “Did Women’s Suffrage Change the Size and Scope of Government?,”
Journal of Political Economy
, vol. 107, no. 6, part 1, December 1999: 1163-1198. Also see James Bennett and Manuel Johnson,
The Political Economy of Federal Government Growth: 1959-1978
, (College Station, Texas: Texas A&M University Press, 1980).

39
Russell Hotten, “Paris Goes to War for Bigger Slice of Airbus,”
Daily Telegraph
(UK), November 25, 2006.

40
Michael Harrison, “Airbus may end up grounded if superjumbo fails to take off,”
New Zealand Herald
, November 23, 2006.

41
Hauser, Rolland K., The Interface Between Federal and Commercial Weather Services for Agricultural Industries—A Question of Policy, report prepared for the United States Department of Commerce, National Oceanic and Atmospheric Administration, Office of the Administrator, Washington, D.C. (November, 1985), 23. Jerome Ellig provides a list of other similar cases in Government and the Weather: The Privatization Option. Federal Privatization Project Issue Paper #109, Santa Monica, California: Reason Foundation (August, 1989a).

42
Jerome Ellig, “For Better Weather, Privatize,”
Wall Street Journal
, vol. 71 (December 4, 1989b): A16. Hauser concludes that, “Current federal agweather policy, either advertently or inadvertently, has the effect of deterring investment by private meteorology in agricultural weather services.” Hauser, ibid.

43
Michael Stone, Executive Director of UCLA’s, Marketing & Communication Services, noted that for 2004-05, UCLA spent $3.35 billion, of which around $800 million was for research expenditures and $1.13 billion was for the medical school. Even excluding research spending, with over 37,000 students, that comes to almost $40,000 per student. In-state tuition in 2006-07 was only $6,522. See
http://www.admissions.ucla.edu/prospect/budget.htm
. and Office of the President, University of California, 2006-07 Budget for Current Operations, University of California, November 2005. The average tuition at public universities is $5,836 according to the College Board. See Jonathan Glater and Alan Finder, “In Twist on Tuition Game, Popularity Rises With Price,”
New York Times
, December 12, 2006.

44
In contrast, an elite private school like Swarthmore College spends slightly more per student ($73,690) but charges much higher tuition ($33,232). The public school tuition is only 20 percent of the private school’s, but the per pupil costs of the public school are 57 percent of the private school’s. Glater and Finder, “In Twist on Tuition Game.” See also Melissa Bertosh, “2006-07 Budget Calls for Tuition Hike,”
The Phoenix
(Swarthmore College), March 16, 2006 (
http://phoenix.swarthmore.edu/2006-03-16/news/15931
), and Jeanne Sahadi, “College Costs Spike Again,” CNN/Money, October 19, 2004 (
http://money.cnn.com/2004/10/18/pf/college/college_costs/index.htm?postversion=2004101910
) for a breakdown of public versus private university tuitions by region of the U.S. Private school tuitions are 3.3 to 4.2 times greater than public school tuitions.

45
See for example Steve Hill, “Merchants say A&M can hurt local business,”
Bryan-College Station Eagle
(Texas) (May 20, 1990a): A1, A4, and Steve
Hill, “Businesses learn to live with A&M competition,”
Bryan-College Station Eagle
(Texas) (May 22, 1990b): A1, A3.