Radical Markets:Uprooting Capitalism and Democracy for a Just Society with Eric
Replacing capitalism, democracy and borders with creative forms of auctions can eliminate most inequality, restore robust economic growth, heal our politics and create a truly just society.
Common Ownership Self-Assessed Tax
“Depreciating Licenses” with Anthony Lee Zhang, rejected with an invitation to submit a new version from the American Economic Review, August 2017. (SSRN)
Licenses for public assets that require a self-assessed license fee with a tied right of compulsory purchase strike a better balance between investment and allocative efficiency than do existing license designs.
“Redesigning Spectrum Licenses” with Paul Milgrom and Anthony Lee Zhang, forthcoming in Regulation, 2017, 40(3). (SSRN)
Depreciating licenses are an elegant solution to the innovation-investment trade-off for priority access licenses to the soon-to-be-released 3.5 GHz spectrum band.
“Property is Only Another Name for Monopoly” with Eric A. Posner, Journal of Legal Analysis, 2017, 9(1):51-123. (published version)
Replacing private property with a system of self-assessed asset taxation with compulsory sales could solve many classic problems in property law.
“Quadratic Voting: How Mechanism Design Can Radicalize Democracy” with Steven P. Lalley, American Economic Association Papers and Proceedings, 2018, 1(1). (SSRN) (op-ed) (Financial Times coverage) (Hacker News discussion) (Wall Street Journal coverage) (Slate coverage) (Freakonomics blog post) (Overcoming Bias blog post) (Marginal Revolution blog post)
The only vote pricing rules that are robustly optimal if individuals take the chance of being pivotal as exogenous to their actions have voting costs quadratic in the number of votes cast.
“Nash Equilibria for Quadratic Voting” with Steven P. Lalley, submitted June 2017. (arXiv)
In an independent private values model for any bounded support value distribution, the expected welfare loss of Quadratic Voting relative to the first best decays, generically as 1/N.
An opinionated survey of the literature on Quadratic Voting, with a focus on the contributions to this special issue from several disciplines.
Quadratic Voting is quite robust to collusion, fraud, aggregate uncertainty and “irrational” voter behavior.
In simulations, Quadratic Voting never has more than a few percent inefficiency even in very small populations.
“Voting Squared: Quadratic Voting in Democratic Politics” with Eric A. Posner, Vanderbilt Law Review, 2015, 68(2): 441-499. (SSRN) (Chronicle of Higher Education coverage) (Wall Street Cheat Sheet coverage) (interview)
Quadratic voting would be a more just and equitable method of public decisions than standard democratic institutions are.
“Quadratic Voting as Efficient Corporate Governance” with Eric Posner, University of Chicago Law Review, 2014, 81(1): 251-272. (SSRN) (policy piece with Sang-Seung Yi) (op-ed in New York Times) (op-ed in Financial Times) (blog post)
Quadratic Voting is a simple, efficient and robust mechanims for protecting minority shareholders.
In contrast to previous bankruptcy reforms, a system we propose based on Quadratic Voting allows collective action, which is needed for efficiency.
Visas Between Individuals Program
“The Openness-Equality Trade-Off in Global Redistribution,” forthcoming in the Economic Journal for a feature on Normative Ethics and Welfare Economics as of August 2016. (SSRN) (online appendix) (Huffington Post coverage) (op-ed)
Because they allow so much more immigration, the oppressive GCC countries do much more per capita to reduce global inequality than do “liberal” OECD countries.
Dismembering the Octopus
“Antitrust Remedies for Labor Market Power” with Suresh Naidu and Eric A. Posner, in preparation. Email me for early notes.
The same antitrust standards applied to mergers and other product market conduct should be enforced regarding labor market monopsony.
No investor owning multiple firms in an oligopoly should be able to hold more than 1% of each firm or participate in corporate governance, to avoid harmful accumulation of market power.
Data as Labor
“Should We Treat Data as Labor? Moving Beyond ‘Free'” with Imanol Arrieta Ibarra, Len Goff, Diego Jiménez Hernández and Jaron Lanier, American Economic Association Papers and Proceedings, 2018, 1(1). (SSRN)
By treating user-generated data as user’s labor rather than firm’s capital we can increase labor’s share of the data economy, improve AI productivity, and reduce social tensions over the digital economy.
“Lottery equilibrium” with Josh Mollner, in preparation. Email me for early notes.
In a continuum economy allowing each individual to engage in a single wager over two wealth levels allows any ex-ante Pareto efficient allocation to be implemented, in contrast to all existing mechanisms.
Risk adjustment can be harmful in the presence of imperfect competition and competition policy harmful in the presence of advantageous selection.
“Price Theory” means economic analysis that reduces rich and often incompletely-specified models to a small collection of “prices” (approximately) sufficient to characterize solutions to simple allocative problems.
“The Average-Marginal Relationship and Tractable Equilibrium Forms” with Michal Fabinger, rejected with an invitation to submit a new version to the JPE, April 2017. (SSRN)
A formal definition of a hierarchy of levels of tractability for equilibrium models that can be summarized by a single equation and a characterization of all tractable systems at each level.
Spence meets Rotschild-Stiglitz: a simple model of firm incentives to sort consumers through product design.
We extend basic principles of incidence from perfect competition to general models of imperfect competition, showing how they unify the analysis of many applications in public finance, industrial organization and international trade.
“Walrasian Equilibrium in Large, Quasilinear Markets” with Eduardo Azevedo and Alexander White, Theoretical Economics, 2013, 8(2): 281-290. (published version)
Equilibrium exists in large, quasi-linear utility economies even when consumers view goods as complements.
We give a simple proof that the linear demand system has no discrete choice representation.
“Surge Pricing Solves the Wild Goose Chase” with Juan Camilo Castillo and Dan Knoepfle, extended abstract in the Proceedings of the 18th ACM Conference on Electronic Commerce (EC ’17), 2017: 241-242 and full version submitted January 2018. (published extended abstract) (SSRN) (Marginal Revolution)
Dynamic pricing helps avoid a bad equilibrium in ride-hailing that would devastate system capacity.
“Approximate Efficiency in Matching Markets” with Nicole Immorlica, Brendan Lucier and Josh Mollner, forthcoming in the Proceedings of the 13th Conference on Web and Internet Economics (WINE ’17). (SSRN)
Extends the “price of anarchy” to environments without transferable utility based on approximate Pareto efficiency.
“Descending Price Optimally Coordinates Search” with Bobby Kleinberg and Bo Waggoner, extended abstract in the Proceedings of the 17th ACM Conference on Electronic Commerce (EC ’16) in 2016, submitted July 2017. (extended abstract) (SSRN) (online appendix) (simulation code)
Descending price auctions, unlike all other standard formats, allow for efficient information acquisition.
How interdisciplinary academic-industry collaborations can improve matching markets.
“Concordance among Holdouts” with Scott Duke Kominers, extended abstract in the Proceedings of the 12th ACM Conference on Electronic Commerce (EC ’11) in 2011, September 2012. Under active revision with also Jerry Green and Steven Lalley. Email me for updates. (SSRN) (published abstract) (presentation video)
A compromise on property rights that allows a reasonable degree of efficiency through simple, incentive compatible mechanisms in land assembly.
Competition within, but not between, complementary clusters solve the holdout problem; resettlement does so partially.
“Biasing Auctions,” Princeton University, April 2006 (inactive). (SSRN)
Different explanations of equilibrium winner’s curse have different implications for auction design and are testable.
A characterization of optimal design and development of platforms when type and not just number of users matter using Bonacich centrality.
Existing literature in platform economics suggests there is usually too much fragmentation not too much consolidation in platform industries.
A reasonable degree of market power may be healthy in markets, such as insurance and finance, where selection is important.
We formalize, generalize, and clarify the sense in which the effect of a merger on prices and welfare is approximated by the pass-through of cannibalized profits, the foundation of the new UK and US horizontal merger guidelines.
“Retos para un Mercado de Libre Competencia: El Control de Fusiones y Carteles” in ¿Competidores o Monopolistas? edited by Jaime Delgado and published by the Instituto de Consumo at the Universidad de San Martín de Porres in Lima, Perú, 2011. (link to pre-pubilcation version)
Perú should introduce merger control to stop the increasing monopolization of its markets.
A general theory of monopoly pricing by multi-sided platforms, emphasizing the importance of the source of user heterogeneity, with applications to regulation, measurement of market power and merger analysis.
The relationship between social and private pricing in RT2003.
Law and Economics
“Cost-Benefit Analysis of Financial Regulations: Criticisms and Responses” with Eric A. Posner, Yale Law Journal Forum, 2015, 124: January 22. (published version)
A response to John Coates’s critique of cost-benefit analysis for financial regulation.
“Benefit-Cost Paradigms in Financial Regulation” with Eric A. Posner, Journal of Legal Studies, 2014, 43(S2): S1-34. (SSRN) (policy piece) (op-ed) (blog post) (Bloomberg View editorial endorsing our argument)
Why and how benefit-cost analysis of financial regulations should be conducted.
“An FDA for Financial Innovation: Applying the Insurable Interest Doctrine to 21st Century Financial Markets” with Eric Posner, Northwestern University Law Review, 2013, 107(3): 1307-1358. (SSRN) (NYTimes piece by Simon Johnson endorsing the idea) (Wired piece by Dan Ariely enorsing the idea) (NYTimes coverage) (Washington Post coverage) (The Atlantic coverage) (Huffington Post coverage) (Chicago Tonight television appearance) (Russia Today television appearance) (Fox television appearance) (Bloomberg View piece) (Slate piece) (blog coverage) (original op-ed that proposed the idea in 2008)
A pre-approval regulatory process for new financial derivatives is a practical means to help avoid the proliferation of harmful products.
“Pricing Institutions and the Welfare Cost of Adverse Selection” with André Veiga, forthcoming in the American Economic Journal: Microeconomics, 2017, 9(2). (SSRN)
An apparently subtle change in pricing institutions can reduce the welfare cost of adverse selection by an order of magnitude.
“Taxation and the Allocation of Talent,” with Benjamin B. Lockwood and Charles G. Nathanson, forthcoming in the Journal of Political Economy as of March 2016. (SSRN) (online appendix) (media coverage) (video blog appearance) (blog coverage)
Designing taxes to sorting talented efficiently across professions can rationalize the basic structure of US taxes without any redistributive motive.
Economics of Innovation
“A/B Testing” with Eduardo Azevedo, Alex Deng, Pepe Montiel Olea and Justin Rao. In preparation, email me for early notes.
When innovations are of unpredictable quality (fat tails, as we find is the case in the Bing EXP platform), run many small experiments; when innovation quality is predictable (thin tails), run a few large experiments.
“Market Power Screens Willingness-to-Pay” with Jean Tirole, Quarterly Journal of Economics, 2012, 127(4): 1971-2003. (published version) (SSRN) (online appendix) (simulation code) (media coverage) (blog coverage)
A multi-dimensional screening framework for trading off the sorting benefits of IP against its distorting effects on consumption ex-post.
History of Economics
“Finance and the Common Good” in After the Flood: How the Crisis Changed Economic Thought (see below). (SSRN)
Finance mostly focuses on predicting asset prices, while IO focuses on prescribing industrial policies, possibly because of the consulting opportunities in each field.
“Jewish Economies: Development and Migration in America and Beyond,” two volumes of Simon Kuznets’s unpublished or unavailable-in-English papers on the economic history of the Jews, edited jointly with Stephanie Lo with introductory, original research chapter by myself entitled “Simon Kuznets: Cautious Empiricist of the Eastern European Jewish Diaspora”. The first volume of the book, “The Economic Life of American Jewry” was published in November 2011. The second volume, “Comparative Perspectives on Jewish Migration”, was published in January 2012. (Amazon volume 1) (Amazon volume 2) (publisher’s page) (SSRN) (Usury paper) (data) (NPR appearance)
Much of Simon Kuznets’s economic thinking was closely tied to his Russian Jewish heritage.
After the Flood: How the Crisis Changed Economic Thought, edited jointly with Ed Glaeser and Tano Santos. In addition to co-authoring the introduction, my contribution, “Finance and the Common Good”, is the conclusion. Published by the University of Chicago Press, March 2017. (University of Chicago Press site) (Amazon)
Leading economists reflect on the causes, consequences for economics and appropriate policy responses to the financial crisis.
Principles that should be applied in the growing industry of benefit-cost analyses of financial regulations
“Is Arbitrage Socially Beneficial?” Princeton University, October 2007 (inactive). (SSRN)
Arbitrage and financial innovation are harmful when arbitrage opportunities are created by irrational investors.
“Universal Speculation,” Princeton University, May 2006 (inactive). (request a copy)
The “Universal Portfolios” algorithm of Cover (1991) conflicts would not be used by a Bayesian investor.
Other interdisciplinary work (philosophy and biology)
“Economic Contract Theory Tests Models of Mutualism” with Megan Frederickson, Doug W. Yu and Naomi Pierce, Proceedings of the National Academy of Sciences, 2010, 107(36): 15712-6. (published version) (media coverage from University of Toronto) (media coverage from Harvard)
A general, economics-based methodology for testing theories of mutualism supports Partner Fidelity Feedback over Host Sanctions.
If you think groups should not have rights because they are not agents, then you shouldn’t believe in individual rights either.
“Overconfidence in Neural Networks,” Princeton University, May 2006 (inactive). (request a copy)
Overconfidence arises naturally in a classical neural network model.
Methodology and Econometrics
The econometric identification approach corresponding to Chetty’s “sufficient statistics approach,” solved for multi-product producers.
A model for testing theories with precise predictions against theories with vague predictions.