Institutional Law and Economics: The Legal-Economic Nexus

In writing about A. Allan Schmid and his ideas, I've run into a few common themes. One of them is the key idea of human interdependence (as written about in this blog post ), but another is the economists' handling and discussion of transaction costs (also other econ buzz words like free market, externality, etc., but those are topics for other posts). Throughout my reading and writing, I've compiled several notable authors' definitions of transaction costs. A few key differences stand out. The definition, in economics literature, of a transaction is often separate from the definition of transaction cost. This seems important to note, since it is clear to me that economists can mean very different things when they refer to a transaction (not that we always agree on what is considered a cost either). In the 1937 paper, The Nature of the Firm, by Ronald Coase, he does not use the term "transaction cost" but refers to "the cost of using the price mechanism...

As we continue to learn about the evolution of ILE, a review of some of the older work by Prof. Al Schmid is a helpful guide.  In 1964, Schmid edited and wrote a book called "Agricultural Market Analysis" with his longtime colleague James Shaffer (my IE class was with both of them in 1993 at MSU). Schmid and Sahffer wrote chapter two this text and included some key definitions that are helpful in understanding the evolution of ILE.  these are all quotes from that text: "P osition is the name or social symbol identifying a particular set of role images identifying an individual in relation to the other. Each position carries right and obligations" "I nstitution is defined as an enduring organized set of related positions directing energies of individuals towards a common end". (This is quite different from the definition Al would later use). "Social system is the aggregation of institutions defining the relationships of any group of individu...

Academic Detective Work: Writing About the Origins of a Model Recently the anniversary of the start of our MSU/Great Lakes Institutional Econ project came and went, with little fanfare other than a brief review of the past year's accomplishments during my annual review. It has always been a little weird to me to see days or months of work summarized in a few bullet points or publications. This got me thinking about all the hours researchers and academics in general can put in to even the most straight-forward seeming pieces. We call it "research", but some of the time our searching takes us well beyond the usual academic channels and requires some TV-montage-worthy sleuthing. In sub-fields like economic history or institutional economics, this is more obvious. In these fields, the ability to do some academic detective work outside of scholarly journals is a large determinant of success in the job. When writing about the origins of a model or of some line of thought, th...

The concept of externality was first introduced to economics, in a formal sense, by Alfred Cecil Pigou in the book "Economics of Welfare" written in 1920 (Medema, 2017).  As Medema points out in his 2017 article, Henry Sidgwick and John Stuart Mill and even Thomas Malthus had identified the idea of externalities earlier but not the word.  From the time of Pigous's 1920 book until about the late 1950's, economists did not really use the idea of externalities.  Medema persuasively argues that it was only used tangentially by economists in developing the new welfare economics, including heavy weights such as all Paul Samuelson, Frank Knight and Abba Lerner. It was mostly used as a potential problem or foil for achieving equilibrium in competitive markets but not an important focus. It was Tibor Scitovistky (1954) who made the first important contribution to the idea that externalities were direct interdependence rather than interdependence due to the existence of mar...

Last week, we discussed the issue of hospital beds and hospital bed capacity.  This has been at the heart of the debate over the Covid-19 restrictions and the need to flatten the infection curve to avoid overwhelming the capacity of hospitals.  Based on 2015 data from the Centers for Disease Control, the US and approximately 900,000 hospital beds across 5,500 hospitals.  Two-thirds of these hospitals are under 200 beds on average. Hospital beds are a rather strange economic good because of the separation of user and payer in most cases in the United States and in many countries.  The user of a hospital bed, the patient, is the consumer of the good.  The payer and the buyer of the good is typically a public or private insurance company expect in the cause of an uninsured individual.  This group includes private insurance companies such as Aetna, Kaiser or Blue Cross.  It also includes public insurance such as Medicare and Medicaid and some local gove...

Hospital Beds as an Economic Good The building and maintenance of hospital beds is a difficult economic proposition.  Each hospital must decide within the market rules are designed by each state in the United States, how many beds make sense for that facility. Hospital beds are expensive to maintain and represent a high fixed cost.  Much of the costs of a hospital bed must be incurred regardless of actual capacity (Green, 2002) [1] .  An empty bed loses money and is not available to help cover fixed costs. Planet Money Show and Hospital Beds National Public Radio’s (NPR) show “Planet Money” recently had story about the issue of hospital bed economics.   https://www.npr.org/sections/money/ They cite during the show Prof. Zack Cooper from the Yale School of Public Health who talks about the efficiency and inefficiency of hospital beds.  Cooper states in the piece that, “If there are beds, those beds would have gotten used...

This week, given the extreme circumstances surrounding the recent COVID-19 pandemic, we are once again deviating from our usual ILE content and leaning on the expertise of our in-house law fellow, Samantha Zinnes , to talk about the challenges local government has in dealing with the crisis. This brief interview was conducted via zoom on March 30 th , 2020. Relating to the law and this COVID-19 crisis, what can you say about the federal and local response? SZ: The problem right now is not necessarily that the law is flawed, but that we have a distribution of leaders who are unevenly using the law and the tools it gives them to their fullest potential.   We have a federal government with tools that only the federal government can use, but they are not being implemented the way states and local governments want or need them to be.   So the fact that we have multiple levels of government is a double-edged sword.   The states check the federal government by only al...