Non-Market Decision Making Reading Notes Section 3.6

March 23, 2017 • John Vandivier

This article contains my notes on the section 3.6 readings for <a href="http://www.afterecon.com/wp-content/uploads/2017/03/econ-856-leeson-syl.pdf">Leeson's Economics of Non-Market Decision Making.

3.6 Alternative Institutions of Property Protection and Conflict Resolution

Allen, Douglas W., and Vera Lantinova. 2013. “The Ancient Olympics as a Signal of City-State Strength.” Economics of Governance 14: 23-44.

3 Main Points
1. The ability of a Greek city-state to win in the Olympics served as a signal for military strength, thus deterring some degree of conflict.
2. Game theory indicates a repeated series of Race Games may substitute for military conflict when athletic ability is associated with cheaper military production.
3. Until the Macedonian Domination, battles between Greek city-states were generally hoplite warfare. This is a ritualistic form of warfare which reduced military costs.
4 Key Q&As
1. What three conclusions has the economic literature on conflict produced?
  1. Conflict arises when property rights are imperfect and costly to enforce.
  2. Outcome functions are complicated. Some factors include technology, endowment, discount factors, information symmetry, non-military sector productivity, and the sequence and nature of settlement offers.
  3. Peace is always pareto-superior to violence.
2. What are three policy solutions the economic literature on conflict has suggested?
  1. Agreements to limit arms
  2. Binding constraints or treaties
  3. Altering the nature of the spoils
3. What are five historical observations which evidence the plausibility of the substitution of military conflict for Race Games?
  1. The games were designed to demonstrate who was the “best” at events that related to military prowess.
  2. Efforts were made during the golden years to keep the signal focused: training was limited and athletes could not be traded.
  3. To legitimize the signal of the games, the games were held at a neutral site where honesty was institutionalized and all states participated.
  4. A serious outside threat from an enemy not participating would considerably reduce the value of the Olympic games, but during the golden era the city-states were not conquered or regulated by a third party power.
  5. The games took place within a cultural context where all participants had the same language, culture, military technology, religion, and where a general balance of power existed.
    1. Sub-point: The culture is not an abstract common culture, but a particular culture which importantly perceived the Olympics as a proxy for war: \"In the eyes of the Greeks, the Olympics were tied to military victory and the announcement of city-state strength. One does not find mention of the entertainment value of the games in the historical record.\"
4. What are five peculiar features of the ancient games which were inconsistent with pure entertainment?
  1. A victor could be claimed without any competition actually taking place.
  2. Women were strictly forbidden from the Olympic competitions, not just as athletes, but also as spectators
  3. Little effort was made to accommodate spectators. Watchers had to sit on mounds of earth and provide for their own protection from the sun during the hottest time of the year.
  4. Greek culture and society—with the exception of Sparta—was not known for brutality and enjoyment of blood sports.
  5. Athletes could not be traded between city-states.
Personal notes
1. This paper starts getting better around section 4. It's largely a work of economic history or even anthropology. It makes plausible arguments from history and culture, but the economic calculation is dubious in the few locations it's present at all.
2. They provide no data for their main correlation. The coefficient could be insignificant, unimportant, or even opposite their expectation.
3. Military strength information could theoretically stimulate attack as well as deter it.
4. They argue various non sequuntur:
  1. P 24: Given that Greece is the birth place of western civilization, they must have generated massive wealth relative to other civilizations of the time.
  2. P 25: Given that Greece generated massive wealth, an unappreciated aspect of their culture must have been a strong set of institutional methods for mitigating the impoverishing practice of feuding.
5. Pareto superiority doesn't demonstrate economic efficiency. Almost nothing we call economic growth involves Pareto-superior movement. Eg, McDonald's employees replaced by robots.

Ellickson, Robert C. 1989. “A Hypothesis of Wealth-Maximizing Norms: Evidence from the Whaling Industry.” Journal of Law, Economics, and Organization 5: 83-97.

3 Main Points
1. Ellickson argues that property rights may be derived anarchically from social custom, contra the legal-centralist view. He further argues that the content of such property rights will be norms which are wealth-maximizing for a close-knit group along its ordinary run of problems. Interestingly, his position on wealth-maximizing is that is minimizes objective transaction costs and deadweight losses, not subjective values.
2. As Melville explains, disputes among whalers from 1750 to 1870 were common because one ship might harm a whale and another finish it off, or one ship might catch a while but a wreck or storm turn it loose, and so on.
3. Observed whaling norms appeared to be plausibly efficient, in particular in contrast to various transparently inefficient, but simple to implement, hypothetical norms.
3 Key Q&As
1. What is the legal-centralist view of property rights?
  1. That the state is the exclusive creator of property rights.
2. What does it mean for a group to be close-knit?
  1. Close-knittedness enables a member to monitor others and use informal means to bind the behavior of others. Geographic distance did not preclude the international whaling community from functioning in a close-knit way due to the presence of international social connections and conventions among few whaling ports and whaling locations at sea.
3. What were the 3 ownership norms?
  1. Fast-fish norm: A claimant owns a whale so long as the whale is fashioned by line to their ship.
  2. Iron-hold-the-whale: A claimant owns a whale so long as the whale has been affixed by a harpoon or other whaling device. The line of the whaling device, if any, need not be attached to the hunter's ship. In particular, drogue fishing or marking with a waif is fine under this rule. The rule is subject to a termination point by which a claimant must make his claim if a violation is perceived. By convention the termination point was usually when the blubber stripping work began by another whaler.
  3. Split Ownership: A hunter and an ultimate seizer sometimes split the ownership of a carcass. Notably, finback whales were hunted by bomb lance because they are very fast swimmers. This weapon had the consequence of sinking the whale to the ocean floor. These carcasses would generally wash up on a beach somewhere a few days later, to be discovered by a different individual.
Personal notes
1. To say that any behavior is derived from social custom is a tautology. Ultimately I still buy that property rights are implicit or explicit violence minimization contracts, and ultimately stipulated through the use of force or threats of force, etc. Demsetz > Ellickson.
2. The logic of close-knittedness is plausible, but the article nowhere measures it or even suggests an operationalization. How might we go about with a rigorous empirical verification? Rigor being constituted in tests of quantifiable comparative significance, importance, direction, magnitude, and so on, rather than arguments based only in plausible reasoning.
3. Ellickson essentially admits that calculating the wealth-maximizing set of rules is infeasible and he argues for payout based on fractional contribution rather than marginal production.
4. Overall, very interesting and largely well written paper. I think the 'social custom' conclusion is right but it is a proximal rather than a root cause explanation. I also think it's too squishy for reliable application, in contrast to the coercion mechanism.

Leeson, Peter T. 2014. “Human Sacrifice.” Review of Behavioral Economics 1: 137-165.

3 Main Points
1. Argues that human sacrifice rationally emerged as a technology for protecting property rights.
2. Game theory and historical observation on burning sacrifices are consistent with the theory.
  1. Observations of non-burning sacrifices tend to act as a punishment, esp capital punishment, mechanism, rather than a conflict prevention mechanism.
  2. Leeson cites Indian Konds as evidence toward the burning point and the Aztecs as a typical case of non-burning sacrifice, but his theory holds up to Jewish history as well: Burning bulls may have reduced conflict and Christ was crucified under the (albeit incorrect, but anyway) perception that he was a criminal.
3. Sacrificed individuals are purchased from an outside group which entails a loss of wealth. If the sacrificed individuals came from inside the group a simple transfer would occur.
3 Key Q&As
1. What are 4 reasons that human sacrifice may have been rational and efficient in the protection of property rights?
  1. It reduces conflict incentives by destroying wealth, reducing the payoff of plunder.
  2. It is spectacular, communicating the destruction far and wide. That is, burning produces a bright light which remote observers may be able to see.
  3. Immolating a live human is nearly impossible to fake.
  4. Human sacrifice is presented as a religious obligation. This creates an incentive for community members to contribute wealth for destruction.

Leeson, Peter T. 2014. “Oracles.” Rationality and Society 26: 141-169.

Not read.

<a href="http://www.peterleeson.com/Gypsies.pdf">Leeson, Peter T. 2013. “Gypsy Law.” Public Choice 155: 273-292.

Not read.

Schwartz, Warren F., Keith Baxter, and David Ryan. 1984. “The Duel: Can these Gentlemen be Acting Efficiently?” Journal of Legal Studies 13: 321-355.

3 Main Points
1. Dueling is an institution which emerged as both an expression of social value and also in part as a means to identify productive social rules.
2. Dueling provided a deterrent effect discouraging certain behaviors and also a mechanism for protecting reputation
3. Some combination of conformity to underlying values and functional efficacy is necessary for a convention to survive. One can postulate a trade-off: The more efficacious the device, the more costs can be incurred to enforce it by monitoring and imposing external sanctions.
  1. For example, abstinence has social benefits by preventing social disruption. To maximize social welfare, social expenditure up to the value of the prevented disruption are rationally supplied.
3 Key Q&As
1. What were three norms of interested connected to the practice of dueling in the antebellum South?
  1. Norms which identified conduct justifying a challenge by duel
  2. Norms specifying permissible responses of a challenged party
  3. Regulation of the conduct of the seconds, the representatives of each party
2. What are the three offered hypotheses to reconcile the informal consensus among leaders of the society to follow the dueling convention, while at the same time the law explicitly condemned the practice?
  1. Leadership supported both institutions because they were complimentary. The legal condemnation caused those who sought to run for office or to abide laws to withdraw from dueling, and this caused dueling to operate in a more productive fashion.
  2. The group which controlled law is a different group than those who conformed to the dueling convention.
  3. Leadership supported the legal prohibition as a means to exit the dueling institution. The presence of both is an artifact of transition.
3. What two positive theories of dueling are advanced?
  1. The cultural theory and the economic theory. The cultural view posits that the institution is the expression of tastes, values, or preferences of the population. The authors propose that the institution must satisfy both theories, not one or the other. The economic theory holds that the duel is a social convention which maximized the value of production by solving three problems:
    1. How to secure information about capacity and performance by group members
    2. How to structure incentives
    3. How to minimize and distribute costs from risk and uncertainty among members

Volckart, Oliver. 2004. “The Economics of Feuding in Late Medieval Germany.” Explorations in Economic History 41: 282-299.

Not read.