Rock, Paper, Scissors

EconTalk Extra
by Amy Willis
Leo Katz on Why the Law is So ... Terry Moe on the Constitution,...

rock paper scissors.jpg Voluntary exchange is good, right? It's a foundational principle of economics, and probably one of the most revered. Why then would the law purposefully not allow some kinds of voluntary exchange? What principles trump property rights and contract? And can we who love markets be OK with that? These are some of the many head-scratching questions Russ Roberts explores in this week's episode with Leo Katz, professor of law at the University of Pennsylvania.

This week's conversation sure made me think...How about you? Share your thoughts with us in the Comments, and use some of our prompts to start your own conversations off-line. As always, we love to hear from you.

1. Three main "stories" Katz uses in this conversation to show the occasional perversity in the law are the kidney club, the voting paradox, and emergency room triage. Which of these scenarios (long live Al, Bea, and Chloe!) seemed most counter-intuitive to you, and why?

2. Why do people seem to have such reverence for majority rule? If ,majority rule really is like playing rock, paper, scissors, what would be the best alternative and why?

3. Let's return to Katz's stories...In the triage example, who should get treated first- Al, Bea, or Chloe? Why (and perhaps never mind what Katz tells us about the reality of the law for the moment.) On what principle is your answer based?

4. How about the kidney club? Would you join one? What would be more efficacious in getting kidneys to needful recipients- a club or a market, such as the one in Iran? Why?

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COMMENTS (3 to date)
Gytis Matulis writes:

Very thought provoking discussion. I was left wondering however about instances of the voting paradox phenomenon that have been observed. I spent a few minutes googling and found very few examples. One case that had been studied, a Danish parliamentary event from the early 1970s, seemed extraordinary in several ways and not a convincing example.

Donald Gehrig MD writes:

I'm not buying (or choosing, I guess) the ER 'perverse' choice scenario, as my 40+ yr daily experience as a practicing physician, when you enter our medical markets, an ER or say access to my office appointment schedule for any given day for acute illness/injury access, patients don't "vote" on my triage decisions or choices for my "property right" to best use my resources, not theirs, for their benefit - ie, the example falls down in reality as Drs have primal "property rights" in these medical markets - if patients disagree and won't follow that well trained, fully medical-legal-ethical and liable medical decision making and ranking, then they are allowed but must sign an "against medical advice" exit from that medical market, mine, to which they won't accede

competing patients' personal interests, over and beyond their degree of serious injury or illness, don't get preference rights for them vs us, as they have none in these professional situations except to accept or exit, in that professionally controlled, ranked queue, that queue aligned and controlled by the physician choices, not patients', the latter which are not primal or relevant in our highly dictated medical market domains - ie, our ERs, ORs, ICUs and offices are not democracies

so my concrete mind must be missing the point here of this illustrative "perverse law" ER example, or real choice theory in bargaining in our medical markets - it seems too often in our ever dependence and acquiescence to the ever enlarging paternalistic Administrative State that "the Dr" is some greedy, dolt or moron too eager to be manipulated and exploited and has NO rights or say about their highly life-morbid-death, highly accountable daily lives, decisions and their very short and long term outcomes and consequences

I'm probably being too sensitive, and have probably missed the economic teaching point here, but...don't forget our professional "property rights", too, in these medical market examples

Topper Kain writes:

Dr Gehrig brings up a very important point that the Prof. Katz circles around but I don't think explicitly states- even in the consensual agreement between Al and Chloe to transfer treatment, there is a third party who has not consented to transfer treatment, the doctor. If the doctor does not personally or professionally believe the treatment to be correct, forcing the doctor to be party to Al and Chloe's agreement is also a perversity.

Enforcement of contracts requires the intervention of a third party (law enforcement, society, the credit agencies, etc...) and as soon as a third party is involved their preferences and consent matter. We have to abstract that principle into our laws and that is why concepts such as "unconscionable contract" exist- it is in fact a cost on the rest of society to enforce contract, so we there is a collective "right" to ensure that "we" don't have to enforce agreements that would force a third party (such as law enforcement) to perform an action they considered repugnant. Abstractions will always in some details (the town sheriff is still expected to evict his best friend from an house that falls short of mortgage payments, even if s/he finds it repugnant).

That is why many of the "perverse" example Prof. Katz used were not in fact "perverse"- there are externalities there that we are avoiding as a society, such as forcing a policeman and doctor to forcibly remove a kidney, even if the "donor" agreed to donate it ahead of time. Solutions that reduce externalities like this will be found to be far more acceptable- such as having Kidney Club owners buy into the club like insurance, and lose their coverage (and money contributed) if they refuse to donate the kidney when selected. No one is asked to take action against the refusing donor, but the donor still is punished in a real way.

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