Disciplinary biases, institutional detail . . . and commonsense

Keiren Healy at Crooked Timber talks about the ways in which disciplinary orientations can bugger up sensible problem solving opportunities in a policy area in which he has specialised – organ donation.

The claim that presumed consent systems perform better than informed consent systems is not well supported empirically. If you look at cadaveric organ procurement rates in the OECD over the past 12 years or so, we find that presumed-consent systems do in fact perform better on average than informed-consent systems. The question is why they do so. Debate in this area is dominated by bioethicists, economists and lawyers. A consequence of this is thatthanks to the disciplinary interests and biases of these groupsthe organizational and institutional machinery required to make something as complex as cadaveric donation happen tends to drop away in debates, and is replaced by considerations of the ethical implications of this or that policy in general (e.g., concerning consent) or arguments about the effect of this or that incentive or rule on individuals (e.g., concerning financial incentives or a legal regulation). But the organizations matter because they manage the logistics of procurement, and this is a very complex process. How a change in the law is implemented in practice, or how a rule is embedded in organizational process, can greatly affect the outcomes. This is more a question of organizational and institutional sociology.

This is a very important issue – something that hampers the usefulness of our disciplines hugely and indeed, often contributes to their making things worse not better. I guess there is no easy solution to this. But for a long time I’ve observed the poor functionality of economics which often gets itself hung up on what’s in the textbooks, rather than trying to use the concepts, principles and techniques enunciated there as a first jumping off point and a tool kit to try to solve problems keeping in mind that the solving of problems will almost always involve a high degree of (non-disciplinary) commonsense.

I could go on about this for some time, so perhaps this will become a multipart post, but . . . just for starters.

The economics of information is now a vast literature. Yet, beyond demonstrating the potential worth of regulating to require better disclosure in various situations, economists have shown little interest in exploring exactly what such policies should look like in institutional detail. Thus the authors of a new book on transparency policy Full Disclosure, the Promise and Perils of Transparency began their task with this discovery.

When we searched for studies by other researchers, we found almost no literature analyzing targeted transparency ¹ across a range of policy areas (p. xiii).

Remarkable, don’t you think?  This is seventy years after Hayek fingered information as central to the functioning of the economic system.  Now it’s true that Hayek’s point in highlighting information was to highlight how efficient markets are with information.  But the ‘economics of information’ literature has been going for forty odd years and part of its central point is that markets are far from perfect in handling information.

I see this kind of lack of interest in institutional detail in lots of places that I look.  (Disclaimer: I can’t claim to be on top of the literature in some of these areas, but my occasional forays into the literature in search of material to back up commonsensical questions that I have, frequently produces meagre pickings.  Nevertheless if people can point me to relevant literature, I’d be grateful).

For instance:

• There would be huge gains to be made from a simple commonsensical application of economic principles to any number of rules of legal procedure.  When we have our next ‘cost of justice’ inquiry, can we please, please, please, try to get rules of procedure that commonsensically embrace legal principles.  Peach Home Loans is currently litigating and we require someone to give evidence against a defendant.  The amount at issue (with regard to the relevant point) is a few thousand dollars.  We require a Peach client to inform his or her most high worthiness that a particular broker working as an agent for us did not return phone calls to clients, thus losing their custom. But such evidence is hearsay unless we can get the witness in the witness box which requires flying them interstate and having them hang around for a day or so, perhaps not even get on on the day they’re scheduled for, and then answer a few questions and then fly back. This in an age of internet hookups and so on.  The whole way legal procedure works, in which each side may try to ambush the other so that all sorts of issues have to be covered in detail even when they may never be an issue, is a triumphant nightmare of form over substance.  I reckon there are vast gains not just crudely economic but in terms of social functionality in sorting some of this nonsense out.  But it’s not exactly centre stage in the ‘law and economics’ literature.
• Regulation review. Our processes of critiquing regulation are not ‘institutionally rich’ or particularly focused on the problem solving at hand. They typically involve attempts to constrain regulators by imposing quality hurdles on what is regulated using pretty stock ideas, which, though they are not irrelevant, are often not very helpful to making the difference between regulating really well and regulating in a much more mediocre way. As I say in my presentations, getting rid of what you don’t want worked for Michaelangelo in removing unwanted marble from the blocks that became his sculptures, but trying not to regulate badly is not a very promising formula for regulating really well.
• Intellectual property protection.  Studies of ‘optimal patent length’ and so on are of some interest, but there’s so much institutional detail between this and the effect of patents.  The ease of filing, the ease with which large firms intimidate smaller firms – given our ramshackle legal system (see above), the inevitably arbitrary rules and principles that emerge when we try to define what part of an invention is patentable. Could we aspire to a system in which all these rules are built up from economic principles?
• Perhaps the best example of the phenomenon I’m talking about – the crowding out of important second order questions by often symbolic first order questions that enjoy higher status in the discipline – is the remarkable lack of focus on ‘alternative trade liberalisation’ instruments.  One can reduce trade barriers either by directly lowering them (expanding quotas and/or lowering tariffs) or by expanding trade concessions – with duty remission schemes like duty drawback and export processing zones. Economists have shown a preoccupation with the former and very little focus on the latter.  So much so that if you asked what proportion of imports we got into China by way of domestic trade concessions like EPZs and duty remission, I doubt you’d get very far – yet off we go to trade negotiations with countries that have made extensive use of what I call concessional trade liberalisation. In fact the story is worse than this.  From the publication of Peter Lloyd’s book Intra-Industry Trade in the mid 1970s to the burgeoning of a substantial literature on the subject from then on, this literature paid almost no attention to concessional trade liberalisation, even though this kind of liberalisation was adopted by the Asian Tigers and their followers specifically to facilitate the expansion of intra-industry trade (IIT) in the presence of existing trade barriers. There were any number of discussions of the policy implications of the ubiquity of IIT which typically defaulted to the old chestnuts about free trade versus protection.  Yet this was too high a level question to be the most interesting.  If you’ve just discovered a whole new source of gains from trade, it seems unlikely that the policy implication would be to reduce trade – so the broad presumption in favour of freer trade is strengthened, even if it’s made somewhat more complicated.  The more interesting question was the one that followed which is ‘if you can’t have free trade for good (economic) or bad (say political) reasons, or just if you’re getting to free trade slowly, how does the ubiquity of IIT change how you might specify the most beneficial transition towards freer trade.  There were virtually no takers for that question in the economics profession – but there were plenty of bureaucrats in Asia for whom it was the question.
• Pharmaceutical regulation:  I think we could make major strides in economic efficiency, and massively improve the competitiveness of aspects of pharmaceutical research with a careful examination of pharmaceutical regulation.  It’s pretty likely that there’s excessive gold plating there and that it’s (probably massively) impeding pharmaceutical research.  But there would be political obstacles to just providing lower levels of safety even if you can show that such changes would be justified by a cost-benefit analysis.  Still I think there are ways we can make progress without compromising that safety.  Sadly for Troppo readers, someone will have to pay Lateral Economics to elaborate further!

1. the authors term for specific disclosure regulation[↩]