Class Discussions 2015
Topic 1. New cognitive perspectives
How to apply readings in #1 to
think on Jan. 2015 terrorist acts?
▪ Are terrorists selfish or altruist? Groups
▪ Why do we pay more attention to French than
▪
▪
▪
▪
▪
Nigeria killings?
Which emotions are involved?
Was this type of problem easier in the past?
What is the role of institutions?
???
Sweet tooth
(love for sweet food)
▪
▪
▪
▪
▪
Why do we like sugar and fat?
Is such preference optimal?
How do we deal with it?
♦ Look for examples of culture, institutions, education, selfcontrol, rationality, emotions
Does it determine our weight?
What can you do as…
♦ … a manager? At Danone? McDonald’s? Searle Inc.?
♦ … an economist? At the Ministry of… Health? … Education?
♦ … student?
Consequences of cognitive
specialization. Example:
▪
▪
Physiological:
♦
♦
♦
♦
big brains
big hips
born helpless,
learning; and
But also institutional:
♦ Family
♦ Responsible
fatherhood
Outline:
Our mind & our institutions
Cognitive
specialists
Modular
mind
Maladapted
mind
Rationality
Cooperation
(decisional
mechanism)
(main ambit
of interest)
Institutions
Instinctive
Co-opt
instincts
Ecological
Fill adaptation gap
Consequences of cognitive
specialization. Example:
▪
▪
Physiological:
♦
♦
♦
♦
big brains
big hips
born helpless,
learning; and
But also institutional:
♦ Family
♦ Responsible
fatherhood
Instinctive rationality
is better than rational
▪
▪
▪
Vision = 2D  3D
Is the horse coming
or going?
Presence of several
heuristics noticeable
when only one is
present 
♦ poor perception
♦ “anomalies” (often, no
more than tricks)
Instinctive cooperation (1):
Cheating detectors
▪
We falsify abstract hypotheses badly.
E.g., cards with letters and numbers, “enforce rule ‘D  3’
D

F
3
7
Badly if concrete:
“If X eats hot chilies (HC), X drinks beer”:
Eats HC Eats SC Drinks beer Drinks Coke

Well if in terms of detecting cheaters: “enforce ‘If X drinks beer, X must be 18+’ by checking drink
or age”
Beer drinker
Coke drinker
25 yr old
16 yr old
The trolley case
Key concepts of topic 1
▪ Modular mind: in “rationality & cooperation
▪ Maladaptation: ídem 
▪ “Artificial” adaptation:
▪
cultural, institutional, educational complements
Determinism—nature vs. nurture—free will
Examples of modularity (& adaptation?)
▪
▪
▪
▪
▪
▪
▪
Jealousy? (Does it change with genetic tests?)
Love? Purpose? Triggered by what?
♦ Intriguing: What about love vs. arranged marriages?
Fear: snakes or cars?
Xenophobia?
♦ Is it malleable, flexible? For good or for bad?
Risk aversion, losses? Change? E.g., students…?
Discount rate?
Happiness puzzle
♦ “I wish that I’d let myself be happier” (“Top 5 regrets of the dying”)
Optimizing topics 1 & 2
▪ Getting recipes for management (e.g., “Homo
▪
Administrans”, Nicholson)?
Opening your mind, to complement you
“toolkit” for self-control and social interaction
Topic 2. Business implications of
evolutionary psychology
Outline of “Business Implications of
Evolutionary Psychology”
▪ Organizing exchange
♦ Opportunism and ‘Farsighted contracting’ in TCE
♦ Moral hazard in principal-agent theory, etc.
▪ Management
♦
♦
♦
♦
General management
Managing people
Marketing
Finance
Questions on functional management
▪
▪
▪
Leadership
♦ Is self-deception effective? In what areas?
♦ Why do leaders usually feel alone? What do we ask them?
Finance
♦ Why do people continue to fall for pyramidal frauds? (e.g.,
Madoff, Foro Filatélico, preferentes, etc.)
♦ Why do speculative bubbles keep happening?
Marketing
♦ Why do customers not like it when brands change their
logos?
♦ Is advertising that addresses men sexist? And advertising
that addresses women? Any examples?
Biological “effects” on behavior and,
in particular, management
▪ Do they replace, add or interact with the
▪
environment?
Interaction  complexity  applications?
♦ Management? (“Homo Administrans” examples)
Analysis “Homo Administrans”
▪
Contents:
♦ Research grounded on biology (nature) effects
♦ Emphasizes interaction nature-nurture. E.g.,:
•
•
▪
▪
“Genes do not operate in isolation. Environment is important,…,
they interact in subtle ways”
Describes research on such interaction: Arvey: “Businesswomen, it seems, are born. But businessmen are made”.
♦ Cautions on the limited explanatory power (2 last paras.)
Puzzle: It is perceived as contradictory or biased
When reading new info
♦ Confirmatory (100% nurture)  “of course”, no complaint
•
I.e., do you subject nurture argument to the same standard?
♦ Conflicting (interaction nature & nurture)  complaint!!!
How to deal with homo sapiens?
(endowed with cheating detectors, emotional commitments, etc.)
Managing your career
▪ Which emotions threaten your career?
▪ How can you train yourself (“nurture”) for...
♦
♦
♦
♦
Postponing gratification?
Interacting better with others?
Speaking in public?
Keeping control over your career?
▪ How should you deal now with your partner?
♦ Making a deal, establishing “safeguards”?
How is to achieve work/life balance?
▪ What regrets are expressed by many
▪
▪
▪
managers, both men and women?
Are they the same?
Why?
How can they be remedied?
How should UPF change?
▪
▪
▪
▪
▪
▪
▪
Groups: Size? Continuity? Identity? Competition?
Exams: Necessary? How often?
Homework: Necessary? Effects?
Information on: Type of exam? Ranking in the class?
Change: Teaching method?
Others? Can you help UPF make students more
rational? Meaning by rational? Improve self-control?
Do we tend to limit the changes to “UPF”—i.e.,
everything but ourselves?
Topic 3. Incentives
Are incentives “effective”?
▪ What do we mean by “effective”?
▪ Yes, they are, but, unexpected results b/c two
main sets of reasons
♦ Quality versus quantity: Kerr in Business Econ:
“Getting B when you aimed for A”
•
Rat extermination/farming, preventive fires & healthcare,
organ transplants?, army paid by casualties caused, etc.
♦ Human nature—harder problem
•
Effective use of assumptions & empirical knowledge
▪
▪
▪
▪
Does voluntary cooperation exist?
♦ Examples? http://bit.ly/wt61P6
♦ Do all individuals cooperate voluntarily?
When voluntary cooperation does exist, how do explicit
incentives affect it?
Can “strong” reciprocity...
♦ ... help us negotiate?
♦ ... create new types of incentive?
♦ ... alleviate the problem of collective action (“public goods”)?
Do you interpret “indignation” as “strong reciprocity”?
In Spanish politics? EU politics (e.g., EU-Greece)?
▪ Or more simple emotions, such as anger, rage, envy?
▪ Are incensed citizens, “indignados”, incurring a cost?
▪ Can it channeled productively?
▪ What would happen if we were to fine you for
arriving late?
♦ What’d happen if we lift the fines 2 weeks later?
▪ How will you motivate your children to make
their beds?
♦ BTW, do you make your own bed?
How would you interpret it in educational terms?
▪ If NYC could fine foreign UN diplomats for
parking incorrectly, would they park better?
Would they all react the same way?
Market and ethics
▪ How does the “market” affect ethical
▪
standards?
Empirical evidence for cross-cultural
experiments
♦ Does voluntary cooperation increases or
decreases when subjects have been living in a
developed market economy versus a tribal
economy?
28
▪ How should we provide better incentives for
▪
university teachers?
How should we provide incentives for
university students?
♦ Consequences of bonuses? Fee discounts better?
▪ And for teachers’ evaluations by students?
♦ What would happen if teachers were paid
according to students’ evaluations?
♦ What have you learnt from the Bocconi study?
Is “corruption” present among
UPF students?
What do we think of someone who…
▪
▪
▪
▪
▪
▪
▪
▪
▪
… often misses classes?
… copies in exams? … copies in problem sets?
♦ ... copies from you without permission?
… does not return a wallet containing money?
… uses Bicing without paying it?
♦ … steals a bike in the street? … your bike?
… slips a friend in for hospital tests?
… gets medicine with a pensioner’s voucher not being a pensioner?
… works while collecting unemployment benefits?
… dodges paying for a ticket on the Metro?
♦ … steals someone else’s Metro season ticket?
… avoids paying taxes?
♦ … keeps some of the money collected for a graduation trip?
♦ … keeps a commission for organizing a graduation party?
Topic 4. Delegation and
divisionalization
Main ideas on divisionalization
▪
Review
♦ More or less centralized solutions: driven by control &
information costs
♦ Elements:
•
•
•
▪
▪
Allocation of decision rights
Evaluation of performance
Compensation
♦ Hayek: importance of local information
Centralized solutions: expense centers
Decentralized: cost, revenue centers, etc.—units with
greater freedom & responsibility
Centralized solution:
expense centers
▪
▪
▪
Rules, budgets, subjective eval. of performance
Typical problems
♦ Incentives  oversized
♦ Information asymmetry  budget gaming
Transition into decentralized “market-like” solutions
(“e.g., internal markets”)
♦ Matching demand and supply: locus of uncertainty
♦ A lot of central planning (an expense center itself!) to
manage this artificial market, even with weak incentives
Decentralized solutions: cost
centers etc.
▪
▪
▪
Key: Adjusting information availability, decision rights
and measured performance
Common problem: non-measured variables that need
to be carefully controlled: e.g., quality in cost centers
Major issue: transfer pricing
♦ Opportunity cost: But which costs to consider as relevant
depends on which decision you are making
♦ Common puzzles & mistakes: e.g., allocating joint costs on
the basis of direct labor leads underutilize labor
♦ Specific cases: decreasing costs, double margin (problem set)
♦ Interesting: field where microeconomics touches accounting
Social choice on public services
▪ Market failure
♦ Externalities, public goods, natural monopolies
♦ How did they vary from XIX to XXI centuries?
▪
• courts, police, prisons, army, foreign relations
• education, health, pensions, housing, etc., etc.
 political intervention
♦ Financing and producing public services
•
How to organize production? Bureaucracy
♦ Only financing public services
•
How to contract them? Subcontracting, internal markets
Delegation and divisionalization (1)
▪ How to organize....
♦ ... a company with a single product and a single
market?
♦ ... a company with several products and several
markets?
♦ ... a university?
▪ What do we mean by “organize”? Economic
divisionalization:
♦ Allocation of decision-making rights
♦ Evaluation of performance
♦ Compensation
Delegation and divisionalization (2)
▪ How to organize ...
♦
♦
♦
♦
♦
♦
♦
... a manufacturing department?
... a sales department
... Zara’s China division?
... Bankinter’s insurance business?
... IBM’s strategy department?
... the UPF library?
… UPF?
How to organize the Royal
Household?
▪ News for Spain: recently set salaries
♦ Issues, more generally?
▪ Functions? I.e., “outputs”
▪ What about inputs?
♦ Accountability?
♦ Bought where?
▪ Budget?
♦ How to set it? What to include?
Politicians’ salaries
▪ Do we discuss
♦ Level?,
♦ Function?, or
♦ Composition?
▪ Extrinsic & intrinsic motivation?
▪ Incentives
▪ Self-selection
Delegation and divisionalization (3):
Implicit prices & budget gaming
▪ Discuss:
♦ According to “the head of the heart surgery
department at the Hospital de Sant Pau, seven
patients died while waiting for operations there” (El
País, 7 June, 2000)
▪ What are the explicit and implicit prices?
▪ Were they playing an strategic game?
▪ Applicable to conduct by local, regional and
national governments?
Delegation and divisionalization (4)
▪ How are UPF, TV3, SCS paid and by whom?
▪ What incentives do users & suppliers have?
▪ What incentives do those responsible for
budgeting have?
♦ Are they really “responsible” for the budget?
▪ Who does finance the budget?
♦ What incentives do they have?
♦ What information do they have?
•
What incentives do they have to find information?
Delegation and divisionalization (5)
▪
▪
▪
Who knows most about value and cost?
Budget cutbacks
♦ Which is easiest, to cut back the wages of university
teachers, school teachers or metro train drivers?
♦ … cuts in preventive medicine or cardiology?
Cost allocation
♦ How do owners’ associations finance collective heating, and
what are the effects?
♦ What are the consequences of taxes on employment? And
on consumption?
Delegation and divisionalization (6):
“Internal markets”
▪
How to reform...
♦ ... public healthcare? NHS? Shadow invoicing?
•
▪
(How are health services for civil servants organized?)
♦ ... primary and secondary education? School subsidies?
♦ ... the university system?
Is there any point in creating an “internal market” of
public services if it will only be “disobeyed”?
♦ What changes and decisions has the current system of
school subsidies led to?
♦ Example: restricting the offer of subsidized schooling when
demand for it increases
Delegation and divisionalization (7):
“Automatic management”
▪
▪
▪
How are the following organized in Spain?
♦ ... Notaries?
♦ ... Property and mercantile registers?
How were the following organized up to the 1980s...
♦ ... courts?
♦ ... Primary health centers?
What are the characteristics of these solutions?
♦ Powerful incentives?
♦ Civil servants or employees?
♦ Degree of regulation?
Delegation and divisionalization (8)
▪ What are the consequences of insisting that a
department must...
♦
♦
♦
♦
... reduce costs? ... its average cost?
... maximize revenue?
... maximize its profit?
... maximize the return on its investment (ROI)?
▪ What should we think about a positive
deviation from standard performance?
Delegation and divisionalization (9)
▪ What is the optimal transfer price?
▪ What problems arise in a context of
▪
▪
decreasing costs?
How can this be considered in accounts?
Should it include fixed costs?
Case: Airport fees
▪
▪
▪
“Lack of passengers advises closing down 15
airports”
How should we set the fees to use these 15 airports?
On the basis of
♦ Marginal cost
♦ Total average cost
AENA recently rose fees in underutilized airports
such as El Prat or Barajas
♦
♦
♦
♦
Is it sensible? Consequences?
Whose interest is such pricing serving? AENA’s owners?
How would you apply the transfer pricing analysis?
Did Fomento the same for the AVE?
Delegation and divisionalization (10):
Franchising
▪ How many companies make up the +30,000
McDonald’s restaurants?
♦ What sort of companies are they?
▪ What is the point of franchising?
♦ Think, e.g., in which sectors is it mostly found
▪ What are the standard functions of
▪
franchisors and franchisees?
For whom does the franchisor perform a
policing work?
Block III. Institutional
environment
How to decide on…?
▪
… life expectancy?
♦ How do we decide? Individually? Socially?
♦ Is there an optimal level? Is the maximum level optimal?
•
▪
Individual = market? “Social” = political?
Are they the same? Even for vaccination?
… education?
♦ How should decisions be made? Individually? Socially?
♦ What is the optimum? Is the maximum the optimal level?
♦ Does the optimal way of deciding on these matters change
between basic education and university education?
Topic 5. Market and politics
▪ The three elements of the economic problem
♦ Optimization (Robbins)
♦ Information (Hayek)
♦ Exchange (Coase)
▪ We are interested in:
♦ Analyzing how they are resolved by the market
and by politics—(BTW, Is the market “social”?)
♦ Learning to compare how they do so
♦ Understanding how they complement each other
Decisions affecting life expectancy
Individual
decisions
Smoking, drinking
Driving speed
Purchase health insurance
Diet
…
Social
decisions
Taxes
Traffic radars
“Free” healthcare
Tax on fat, sugar, etc.
…
Life expectancy:
shorter in USA than Spain
▪ Why?
▪ Which one is optimal?
▪ Might there be decision failures in the USA?
▪ Might there be decision failures in Spain?
Are there “failures” in these decisions?
How do these decisions differ? “Failures”, with
respect to what? Do these failures also differ?
Individual
decisions
Smoking, drinking
Driving speed
Purchase health insurance
Diet
…
Social
decisions
Taxes
Traffic radars
“Free” healthcare
Tax on fat, sugar, etc.
…
Hayek on Life Expectancy
▪
▪
▪
What is the “economic problem” with respect to life
expectancy? For…
♦ Robbins
♦ Hayek
♦ Coase
What is the relevant information? Where is it located?
♦ What are “scientific” & “specific” knowledge?
♦ Are both types of info present in a diet decision?
What are the root causes of some typical failures?
Topic 5. Market and politics (1):
The role of information
▪
▪
▪
▪
▪
If the economic problem is to correctly allocate
resources, what is required to solve it?
Who “should” decide on which univ. / school to go to?
(E.g.: single-sex schools)
Who knows better about the different schools?
♦ Students, parents, teachers, planners, politicians?
Who has better incentives?
♦ For finding information? For deciding? For Innovating?
(Aside: Should these questions be posed in terms of
“best” or in terms of “better”?)
Topic 5. Market and politics (2):
How do we value them?
▪ Which schools do politicians choose for their
▪
▪
▪
children? Is this relevant?
Who do we want to choose the schools for
our children in… Spain, today; Denmark,
today; Iran, today; Spain, in 1965?
Do politics / markets decide by majority vote?
How does personal wealth affect decision
rights in markets and politics?
Topic 5. Market and politics (3):
Markets or politics?
▪ Who does the market compete against?
▪ Which markets and which politics?
♦ Bad vs. ideal? Ideal vs. bad? Real vs. real?
▪ Danger: implicit asymmetric assumptions on
▪
behavior, information, competition
Food for thought:
♦ Identify examples of each type of comparison in
the press and in radio and TV debates
♦ Who generally wins when decisions move from
the market to politics? And vice versa?
Economic failures
▪ Rationality
▪ Markets:
▪
?
Politics:
?
 Individual
optimum
 Collective
optimum
?
?
?
?
Politics’ failures
▪ Representation  Agency w. self-interest &
▪
▪
▪
info asymmetry  opportunism, corruption
Collective action  misinformed voters, lack
of control, prevalence of concentrated,
minority interests
Behavioral limitations: emotions, herding, etc.
Tradeoffs w.r.t. to competition (e.g., in terms
of stability)  Lack of competition
Topic 5. Market and politics (4):
Improving the performance of politics
▪ Role of competition: Role of barriers to entry & new
entrants? What can we expect from them?
▪ Market for beliefs / ideas:
How can we improve citizens’ information on...
▪
▪
♦ ... the value of public services?
♦ ... what we pay for them? (Is this the same as cost?)
♦ Example: What effects do “shadow invoices” have on the
transparency of public expenditure?
Weighing information: Should babies have a vote?
Their parents? Only the over-21s? Immigrants? Only
taxpayers? Should pensioners have just half a vote?
How can we use our instincts to improve / worsen
political decisions? Herd instinct? Ownership?
“Vodafone convinces the advertising regulator
to oblige all mobile phone cos. to include
Value Added Tax in their advertised prices”
(Feb. 7, 2014, http://ow.ly/tntXN)
▪ Are information asymmetries present?
▪ In which markets are they present?
▪ What’s the optimal rule?
♦ Does it depend on the tax structure?
•
E.g., what with a constant % rate?
♦ Is it optimal a mandatory or a default rule?
Topic 5. Market and politics (5):
The case of electricity
▪
▪
▪
Has the price of electricity risen?
Do we finance renewable energies with
transparency?
Generally speaking, is the policy right or wrong?
Costs:
♦
♦
♦
♦
♦
Nuclear, 44 € / MW/h (*)
Coal, 72 € / MW/h (*)
Fuel-gas, 69 € / MW/h (*)
Wind, approx. 90 € / MW/h
Photovoltaic, approx. 430 € / MW/h
•
Sources: (*) National Energy Commission, 08
http://www.cne.es/cne/doc/publicaciones/cne82_08.pdf
▪ See also this for a critique
Topic 5. Market and politics (6)
▪ Are both markets and politics social decision▪
▪
making processes?
Easier to see politics as social decision-making?
Is A. Smith’s finding intuitive?
Individual optimums  Collective optimal
▪ When does the market fail? Only the market?
Rationality  Individual optimums  Collective optimum
Topic 5. Market and politics (7):
Transaction costs & property rights
▪ Externalities
▪ Coase Theorem: zero TC  irrelevant
▪ What is Coase’s contribution to the “economic
problem”?
♦ Property rights 
incentive to produce and use information
♦ Institutions 
reduce transactions costs  specialization 
productivity
♦ Comparative analysis of realities (politics vs.
markets, public/private provision, alternative
regulations)
Land owners vs. mountain bikers:
Property rights? Externalities? Transaction costs?
Similar cases with bikes in cities’ sidewalks?
Externalities are reciprocal
▪ Nonsmokers on smokers
▪ Bicycles on cars
▪ Pedestrians on bicycles
▪ Punctual students on latecomers
▪ More examples ?
“If you run over a wild boar, you’re guilty”
(El País, Feb 13, 2014)
Allocation of liability
▪
▪
▪
What are the consequences that the law makes
either the land (or animal) owner or the driver (or car
owner) liable?
Optimal levels of accidents, boars, cars, fences,
speed, precaution…?
Will such levels be affected by alloc. rule?
♦ Are transaction costs high? (sensible here?)
♦ If high, who is in the best position to decide?
♦ Optimal for: abandoned pets? Wild animals? In hunting
areas? In highways?
♦ Optimum changes with technology (e.g., use of chips to
define property rights on pets)
Topic 5. Market and politics (8)
▪
▪
▪
▪
How can we correct failures of rationality in people
who are inclined to be violent?
Can we apply this criterion to other failures on
rationality?
♦ Example: If we protect “weak” parties to a contract, what
incentives do they have to inform themselves & stop being
weak?
Is it easy to distinguish between strong and weak
parties after the event?
♦ E.g., today’s victims of fraud are yesterday’s big investors
Who is most rational – the consumer or the citizen?
♦ E.g.: Speed limit of 110 km/h on highways
Poaching wildlife
▪
▪
Why? What to do?
♦ Key variables?
Does allocation of
property rights fully
solve the problem?
Topic 5. Market and politics (9)
▪ Is the number of pollinating bees optimal?
▪ Why do streets get congested?
▪ Why fish stocks get depleted?
♦ Why is this not the case in Scotland?
▪ Why is the air polluted? What can be done?
▪ Would it be enough to define and allocate
property rights? What does Varian omit?
Topic 5. Market and politics (10):
How to evaluate market vs. political solutions?
▪
Examining their real performance
♦ We should not compare
•
•
▪
▪
A real market, imperfect, governed by self-interest
An ideal, perfect politics governed by angels
♦ Nor should we compare an ideal market with real politics
♦ Are real cases determined by politics, markets, or… both?
Assuming human beings are similar w.r.t.
♦ Opportunism: Madoff & Nixon; Jobs & Obama
♦ Rationality: consumers & voters
What do progressives and classical liberals often
assume about politics and markets?
Topic 5. Market and politics (11):
Applying insights from topics #1, 2, 3 into #5
▪
▪
▪
We have seen
♦ Bounded rationality: e.g., limited “steps of reasoning”
♦ Role of emotions: e.g., voluntary cooperation, strong reciprocity
overcoming collective action, fear
♦ Herding behavior: does it influence social change?
Do we define fairness in equal or in proportional terms?
♦ Correlates with economists’ normative (what to do) and positive
(how things are) positions (see Randazo & Haidt clipping)
Role of culture, values and beliefs in society?
♦ Possibilities of markets and institutional reform such as, e.g.,
labor market liberalization, stronger competition in politics
♦ Cultures and values, a hard constraint, at least in the short term?
6. Institutional support for private
contracts
Topic 6. Institutional support for
private contracts (1): Basic concepts
▪ Promises as the content of exchange
▪ When are promises defined?
▪
▪
♦ Ex ante / ex post
♦ By contract, by law (default vs. mandatory rules; retroactive)
By whom?
♦ All parties, third party, one party (standard-form contracts)
How are promises enforced?
♦ One party (moral enforcement)
♦ Second party (in a repeated exchange), or indirectly
(representation)
♦ Third party (market vs. judicial enforcement)
Topic 6. Institutional support for
private contracts (2)
▪ What are “default rules” for?
♦ E.g. marriage and separation of property
♦ Do they play a greater role? E.g., “salience”
▪ What are “mandatory rules” for?
♦ From a normative point of view (“what should be”)
♦ From a positive point of view (“what is”)
▪ What are judges for?
♦ Normative view
♦ Positive view
Topic 6. Institutional support for
private contracts (3). Two examples
▪ Freezing residential rents
♦ Key questions? I.e., type of rule?
♦ Short term effects? Through which contracts?
♦ Longer term effects? Through which contracts?
▪ Rule freeing a mortgagee from the remaining
debt when giving up the property (dación en
pago)
♦ Retroactive or prospective?
♦ Default or mandatory? Which default rule?
Topic 6. Institutional support for
private contracts (4): Labor
▪
▪
How is it organized: Market or politics? “Corporatism”?
Taxes: amount, transparency, progressiveness
▪
Contract regulation
▪
▪
♦ E.g., Social Security charges “paid by the Employer”—see Vox
♦ Retroactive “rights”?
♦ Default or mandatory rules?
♦ Individual or collective?
•
If collective, nationwide, province-wide or at firm level?
Content of exchange
♦ Wages: amount? Is this relevant?
♦ Work conditions
♦ The meaning of “free dismissal”: bargaining for severance pay
•
Human capital, expropriation, “new productive model”
Enforcement: asymmetrical, impartial, judicial?
Topic 6. Institutional support for
private contracts (5): Ryanair
▪ Court rules that “Ryanair cannot charge 40€
▪
▪
▪
for printing a boarding card”
Type of rule?
Consequences?
Relevant assumptions?
♦ Competition
♦ Types and homogeneity of customers
♦ Others?
Topic 6. Judges (6):
Solution or problem?
▪ How do parties want ex ante for judges to
▪
▪
decide ex post? Counterfactual hypothesis
How do parties want ex post for judges to
decide?
Judges’ difficulties  solutions?
♦ Self interest: corruption, morality
♦ Cognitive: e.g., hindsight bias
•
Example: mortgage interest rate “floors”
Advices from Don Quixote to
Sancho (a)
▪ “Try to find the truth in the rich
man’s promises and gifts, and also
in the poor man’s sobs and
complaints”
♦ (“Procura descubrir la verdad por entre las
promesas y dádivas del rico, como por entre los
sollozos e importunidades del pobre”)
Advices from Don Quixote to
Sancho (b):
▪
“Never follow the ‘law of fit’. It is usually followed by
the ignorant who think they are sharp”
♦ (“Nunca te guíes por la ley del encaje, que suele tener
mucha cabida con los ignorantes que presumen de agudos”)
♦ Law of fit: a decision taken by a judge based on whatever
takes his fancy, without recourse to legal provisions
•
(Ley del encaje: “la resolución que el juez toma por lo que a él
se le ha encajado en la cabeza, sin tener atención a lo que las
leyes disponen” (Covarrubias))
Topic 6. Institutions… (7):
Extractive elites: rationale or excuse?
▪
Is rent extraction, opportunism in economic or social
interaction rare or prevalent? E.g., shirking in agency:
♦
♦
♦
♦
▪
Rents extraction by “the elite”?
Collective action by voters?
Is corruption more prevalent among rich or poor people?
Does it change if we think on tax evasion, benefit capture,
redistribution politics?
Should we allocate responsibility for political failure to
the elite or the people?
♦ How should we think about it? I.e., whatever current
allocation how to allocate it productively?
Topic 6. Institutions… (8):
Culture & Institutions
▪
▪
▪
▪
“Cultural explanations are useless. E.g., we
Spaniards now drive much more slowly”
♦ Was there info asymmetry on speeding? Sustainability
♦ Adaptation: “Catholic” measures (ex ante control of all)
Do institutions produce our culture?
• More in long run? E.g., the Reformation as institutional change
Does culture constrain institutions? At least, change
Is this important for institutional “transplants”?
♦ Danish labor “flexicurity”? Finish schools?
Spanish values as compared to
those in main EU countries
▪
▪
▪
Responsibility
♦ We value less how democracy works, politicians &
institutions; but we are also the less informed
♦ Only country in EU where citizens blame more Northern than
Southern Europe for the crisis
Social preferences
♦ With Italy country with strongest / weakest belief that the
State / the individual should have the primary responsibility
for ensuring a a decent level of life”
♦ Least support for the market economy
Source: Study on World Values, FBBVA, April 2013
Spain according to the World Justice
Project’s “Rule of Law Index”, as compared
to other rich countries
▪
▪
▪
▪
▪
Same corruption level but we punish corruption less
http://ow.ly/shmrv
We monitor governments less
We carefully guarantee individual rights, mainly in
labor area, but hardly monitor government
We suffer a deficit in the enforcement of judicial
decisions, as well as more judicial delay
Finally, our laws are less stable
7. The function of business in
society
Topic 7. The function of business in
society (1)
▪ Can you name a film that portrays business,
▪
entrepreneurs, business managers in a
favorable light?
How are they usually portrayed?
♦ Objectives, morals, personal relations, etc.?
▪ How are big and small, rich and poor, strong
▪
and weak companies portrayed?
How are politicians portrayed?
♦ Politicians versus citizens?
Topic 7. The function of business in
society (2)
▪ Which have the best reputation – banks or
▪
▪
▪
▪
savings banks (“cajas”)?
Which have most mortgages – banks or
savings banks?
Which have received most public aid – banks
or savings banks? Read, e.g., this (ES)
What “social work” did/do the savings banks?
What is the consequence for a bank of
announcing big profits?
Topic 7. The function of business in
society (3)
▪
▪
▪
▪
What is “corporate social responsibility”, CSR?
Is CSR
♦ Necessary for correcting market failures?
♦ Democratic?
Does CSR affect corporate control?
♦ What happens if an agent has several different objectives?
Does the “moral circle” apply to companies?
♦ Whether small or large?
♦ Whether they have a reputation or not?
♦ Does it entail risks?
Topic 7. The function of business in
society (4)
▪
▪
Is there a conflict between social and individual
responsibility?
♦ What can/should we do if “Nike” trainers are the product of
child labor?
Is there a conflict between morality and rationality?
♦ Can morality be rational to different degrees?
♦ Examples: Are the consequences of the following relevant?
▪
• Child labor
• Aid in famine,. E.g. mosquito nets
How does the sale of “indulgences” work?
Topic X. How do we think?
▪
▪
▪
▪
What do Friedman and Arrow say in their articles?
Which of them do you agree with?
Which of them do you think is more “political”?
When we come up against arguments that go against
our beliefs, do we tend to consider them more or less
“political”, “ideological” or “immoral”?
▪ How to move from beliefs to ideas?
Topic Y. Bye, bye
▪
Recurring Topics
♦ Gap between demand and skills and attitudes
•
▪
Can we apply the statement made by Guzmán de Alfarache:
“It was difficult for me to learn to serve when I had been
taught to give orders”? (“Se me hacía duro aprender a servir
habiendo sido enseñado a mandar”)
♦ Cost and fear of freedom, especially in ourselves
Advice
♦ Be vigilant on the gap, examine experiences and react fast
♦ Be free:
•
•
Think, instead of following others like a sheep
Choose, instead of tying yourselves to a chain of more or less
unconscious decisions