Bargaining With Assholes
| Gabriel |
Like many people I was influenced by Ronald Coase and thinking about him on the occasion of his passing at the age of 102. Coase himself wasn’t fond of certain applications of the Coase theorem because people read it as “you can bargain” and forgot just how big an if it is to add “if the transaction costs are low enough.”
Adam Ozimek had a great post on another problem with the Coase theorem, which is that it creates incentives to over-produce externalities in the hope of side-payments. That is, it leads to extortion. In a nutshell Adam argues that reframing things from unpriced conventions to priced exchanges makes a big difference, especially when you’re dealing with assholes. Go read Adam’s post, you’ll enjoy it and I’ll wait.
I mostly wanted to point towards Adam’s post because he said a lot of what I was thinking, but I might as well add a few related thoughts.
First, Coase himself recognized this issue in his analysis of payola (which heavily influenced my own analysis of that subject in Climbing the Charts). In particular he noted that record labels (and before them music publishers) are much better off if you can’t buy airplay (and before that, placement in set lists) since once you can it quickly becomes mandatory and indeed the music industry occasionally formed monopsonistic cartels to (ineffectually attempt to) suppress the practice.
Second, the film industry experiences problems very much like what Adam is describing. If I’m minding my own business vacuuming my house and a PA from the film shoot next door knocks on my door and asks me to do it tomorrow instead and offers me $100 for my trouble, that’s classic Coasian bargaining. But eventually this leads to people driving around town looking for film shoots and then getting out leaf blowers, air horns, or whatever and this became so common that the state legislature of California wrote a law against it, as summarized by the state senate analyst:
Film producers complain that they are increasingly beset by knowing and malicious disruption of film production by bystanders who extort cash payments in exchange for stopping the disruptive activity. Production companies often accede to the extortionate demands because it is cheaper to pay $1000 or more to be able to continue filming than to stop and set up the production for another day. Among the more common disruptive practices are: reflecting light at cameras during filming to ruin film exposure and blowing air horns, or using leafblowers to interfere with sound recording.
Theoretically, such disruptive activity could be considered extortion, but for extortion to be committed, the threat must be to do something unlawful. A lawful act, even if reprehensible, is not criminal, and the kinds of acts complained of are usually not criminal. While it may be rude to shine headlights on a set, or run a leafblower nearby, it is probably not punishable as extortion. AB 534 (Brulte), pending in the Senate, seeks to resolve the same problem as this bill by criminalizing specific disruptive activities, making the conduct misdemeanor disorderly conduct or disturbing the peace.
Third, even in the absence of strategic extortion attempts, reframing from courtesy to market can make big differences in how people behave. The cite for this is “A Fine Is a Price” which showed that parents were more likely to show up late at daycare when there was a fine for this than when it was merely prohibited. In principle you could solve this by making the fine bigger until the workers saw it as desirable overtime, but that would lead to resentment on the part of the parents. (I’ve previously discussed this article at Megan’s old place).