EconTalk |
Michael Munger on Exchange, Exploitation and Euvoluntary Transactions
Jun 20 2011

Mike Munger of Duke University talks with EconTalk host Russ Roberts about the psychology, sociology, and economics of buying and selling. Why are different transactions that seemingly make both parties better off frowned on and often made illegal? In theory, all voluntary transactions should make both parties better off. But Munger argues that some transactions are more voluntary than others. Munger lists the attributes of a truly voluntary transaction, what he calls a euvoluntary transaction and argues that when transactions are not euvoluntary, they may be outlawed or seen as immoral. Related issues that are discussed include price gouging after a natural disaster, blackmail, sales of human organs, and the employment of low-wage workers.

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Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Jun 20 2011 at 10:54am

awesome podcast….bravo!

luv the batna and euvoluntary concepts.

will mull on this a bit….but think the main issue lies with trying to put a value on relationships.

so, is $10 worth a stable marriage?

is $20/lb of ice worth a neighbor’s family eating rotting food?

$1000 water bottle worth a fellow man’s life?

how do relationships get valued? can they b valued? thru this question, an economist might glance at philosophy.

Jun 20 2011 at 11:55am

A random passerby that helped you out of a ditch would be insulted if you offer them money but if that person was driving a tow truck and wearing a uniform you would probably expect a bill.

Is it that even a small amount of compensation negates the feeling that you are doing good?

Russ Roberts
Jun 20 2011 at 12:26pm


I believe the guy driving the tow truck can enjoy helping people even though he gets paid. But that isn’t the expectation of the passerby who stops. Fascinating, isn’t it?

Jun 20 2011 at 12:51pm

it’s the relationships that carry the expectations.

Jun 20 2011 at 1:38pm

Here is a test that I don’t believe Mike’s theory passes:
Consider 2 people:

Russ is a poor man. His child is dying of some horrible curable disease, but Russ cannot afford the medicine.
Mike is a very rich man. His child is dying of renal failure and they cannot find a kidney for him.

The obvious transaction is one where Russ sells his kidney to Mike in exchange for enough money to save his own son. Here, the BATNA are identical: Their sons both die.

The exchange seems to match Mike’s definition of a euvoluntary exchange. Yet, I would be ready to put some money on the fact that people would still be very uncomfortable with that exchange. This is an empirical question and so we could test this as well as many different alternative theories.

I have many different alternative theories bouncing around in my head as to why that might be the case, and most of them are similar to Mike’s theory. Here is the alternative I find the most convincing:

It is not the relative differences in the two party’s BATNAs that creates the discomfort. It is the difference of a person’s BATNA with some sort of average of other people’s BATNA: Most people don’t have to live in a world where they have to choose between giving up a kidney and starving. Therefore, it is unfair for anyone to be in that position. This theory has lurking somewhere in the background a certain guilt and the idea that we could probably all give up a little something to ensure that that person did not have to make that choice. I would hypothesis that since this theory is highly dependent upon the observer’s perspective of what is “normal”, people in third-world countries would be much more comfortable than people in first-world countries with most cases of “economic coercion”. (I seriously doubt people who are habituated to seeing starvation would find Wallmart’s employment practices coercive.)

There is on the other hand a story which I think would support Mike’s theory as opposed to mine. Let’s say Mike and Russ each have a child dying of renal failure. Mike and Russ are compatible donors for each other’s children. What would be the response if Mike was to offer a kidney for Russ’s child in exchange for Russ offering a kidney for Mike’s child? I think that would be generally seen as acceptable.

Jun 20 2011 at 4:11pm

Nothing’s being optimized. It seems more like a study of opportunities for populist politics than economics.

A lot would depend on the popular (=soap opera) news accounts, the appeal of politicians to selected voters, and what can be made into a “public problem” in the media. That in turn depends on the target audience of the media.

According to Joseph R. Gusfield (eg in Contested Meanings), a path to political power is discovering a new public problem and then taking ownership of it.

A disfavorable voluntary exchange is a great opportunity for discovery of a public problem, since they’re likely to happen a lot.

Jun 20 2011 at 5:44pm

In Mike’s desert example, a water salesman could charge infinite amount of money for a bottle of water (in this case $2,500) to a thirsty person. Yet, as stated, this should not be an illegal transaction because the salesman is taking risk for providing a commodity and should be adequately compensated for the arbitrage opportunity. True, but…

…what if the salesman somehow fixed the odds of finding a person in a desert (heck, why else would he wonder around the desert with a bottle of water)? In other words, what if the salesman baited people to desert so that he could later sell overpriced water?

Notice that in the desert example, it would be unrealistic to expect that a thirsty man would carry $2,500 in cash; yet, he could be technically “nudged” to sign a promissory note to pay $2,500 upon the return to civilization. Herein, the salesman is utilizing privilege of institutional enforcement to reap the upside of the deal, but also inexistence of legal clarity to bait the “customer”.

Situation sounds familiar?

Not even 4-5 years ago, real estate agencies were legally fishing for victims of greed and stupidity to sell rotten home deals. We know how this ended… Another good example are loan sharks that always seem to thrive in rotten institutional environments (read South America).

Here is an even more egregious example of what I think should be an illegal transaction that may on the surface appear legal.

Mike, do you think we should have laws against this?

Jun 20 2011 at 5:51pm


It depends how the salesman lured them. If he outright lied to them then the transaction is null due to fraud. If he “lured” them by highlighting the positives and downplaying the negatives, well, it’s up to you to make up your mind. If you delegate your thinking process to a third-party who does not have your best interests at heart, I am not sure why you would expect to get good outcomes.

Jun 20 2011 at 6:25pm

@ PrometheeFeu
My point exactly – for simple transactions where informational asymmetry is minimal, arbitrage opportunities are scarce and state involvement should be inexistent or minimal.

yet, as we know it, transparent transactions never create a contagion nor cause collateral damage. In loosely regulated markets with high informational asymmetry, buyers have little recourse but to trust the seller. (Of course, this by no means absolves some of the greedy homeowners of their guilt). But really, at the height of the real estate market, how many buyers were truly informed by the sellers, for example, about the risks of ARMs? Strong evidence suggests that sellers were recklessly promoting deals which they knew buyers could not repay. Why? Simply because there was no law to protect the other party.

Like I said, a reason more to listen to the podcast above…

Jun 20 2011 at 8:49pm

This one is going in my bucket of Econtalk favs. I wonder if Dr. Caplan has listened to this one — his book discusses “anti-market bias” and uses some of the same examples discussed here.

Jun 20 2011 at 9:08pm

“If he “lured” them by highlighting the positives and downplaying the negatives, well, it’s up to you to make up your mind.”

This seems to run up against the regret condition, just as advertising may stop a transaction from being euvoluntary (as discussed in the podcast).

Jun 20 2011 at 9:54pm

It’s gratifying to hear EconTalk regulars attempting to grapple with these thorny foundational issues, even when they arrive at “abhorrent” and indefensible conclusions.

Both the real-world and the straw-man/philosophical examples explored in this podcast seem to depend on the same too-convenient stipulations and exclusions. For starters, the classification of transactions as “beneficial” vs. “deterimental” to transacting parties seems like a likely fatal flaw (though I confess that I declined to pay $30 to download the full article, so I may be missing some elements of the argument). The problem is that there is no absolute objective scale for making such judgments, any more than there is any real-world objective scale for neatly distinguishing “purely” voluntary transactions from those which are merely somewhat voluntary. Equally dubious is the use of the “transaction” framing. If the definition of euvoluntarity is subjective, and one or more of the ur-transacting parties is inclined to measure their gains in relative or some other mutually incompatible terms (as seems to be the case so often in real life), then the proposed rule would seem to simply recapitulate the this-IS-the-best-of-all-possible-worlds interpretation of the efficient market hypothesis.

I also question whether this rule is compatible with some of the core tenets of economics, e.g., appreciation for the benefits of the division of labor/specialization, and the associated value of (expanding) the extent of the market. If selling your kidney to meet some desperate need is BATNA, then a division of labor that permits a lender to recoup a defaulted debt by employing a third party to forcibly remove the borrower’s kidney must also be just, right? If the kidney repo agent is unable to find any other form of employment, even they must be held blameless I suppose…?

Finally, even if one dismisses all of the points above as variants of the tentative admission that the universe of past and possible euvoluntary exchanges is a “nearly empty box,” the logical/philosophical merits of the argument itself are equally questionable. The whole argument rests on the fallacy of composition inherent in the proposition that significant market power acquired through purely euvoluntary processes could not, by definition, produce externalities that impair or preclude the possibility of successive euvoluntary transactions. Embracing such an assumption would be akin to stipulating that guns are incapable of killing people, ergo any gun-related deaths that are not directly witnessed by (x>n) competent witnesses must be accepted as mysterious but ultimately natural (if unfortunate) occurrences.

Granted, many strong Austrians reject the historical fact and/or logical possibility of market power of this kind — but I would think that the same keen appreciation of change over time that allegedly underwrites that Austrian skepticism would be equally withering of the notion of pure euvoluntary exchange…

Despite all, I look forward to more talks like this in the future.

Jun 20 2011 at 10:19pm


While the characterization of this week’s arguments as “abhorrent” stands, I actually meant to say repugnant — in the technical sense of that term used by Al Roth et al., c.f.,

Jun 20 2011 at 10:25pm

I’m struggling to come up with it, but there’s got to be an evolutionary psychology angle to this.

Is meat for sex a euvoluntary transaction?

Julien Couvreur
Jun 20 2011 at 11:17pm

I found this podcast interesting, but somewhat longwinded.

The summary is that people find some transactions distasteful and are seen as not being truly voluntary. These preferences are not easily explained by some consistent rationale, but it seems that leverage and money being part of the transaction as relevant factors. (Btw, where is Mike’s promised unified theory in all this?)
Some armchair psychology indicates that the discomfort is not with the transaction itself, but fundamentally with the existence of initial conditions that prompt the transaction.
The result is that some such transactions are made illegal, as people tend to vote their preferences onto others, regardless of the difference between masking symptoms and solving the underlying issue. People are not educated in economic analysis (or sometimes ignore it) and rather try to wish problems away (people shouldn’t be poor, there shouldn’t be scarcity of kidneys).
Ultimately, the question is whether liberty is defined as a negative (absence of coercion), or some vague positive notion (the power to do something or not face some difficult situation).

I wish you had spent more time on the topic of regret and especially the question of people consistently regretting something.

David C
Jun 21 2011 at 12:50am

During the podcast Mike said, “The guy stuck in the ditch is in trouble. For me to pass him by would be bad. But to do it for money would be even worse.”

Rather than speaking to whether it is worse or not, my first reaction is this: if not helping itself is considered unethical, then doing it for money is probably considered unethical because there would be a price below which I would not help.

I find it similar to the ethical conundrum of whether to kill the one man to save a group of people. Stated preference surveys (for what they’re worth) show that people would be willing to kill the one man remotely for the sake of the many, but would not be willing to do the deed if it meant personal contact or looking into the person’s eyes.

Similarly in the ditch example, after contact has been established and the person goes from being an unknown to a living, breathing, fellow human, it seems ethically unpalatable to then refuse assistance for any reason, including being unable to reach a financial agreement.

Jun 21 2011 at 1:10am

Mungertalk is back! What a great episode.

I am a very crude thinker, and I tend to think that most sentiments are “for” what they actually achieve, rather than what we say they are for.

So I propose that our discomfort with “exploiting” another person is really:

1. a way to advertise that our relative BATNA is superior to that of the other person;

2. a way of hurting the other person (we get hurt, too, but not as much as the other person — a great benefit when we think of welfare as being in fixed supply, which many do); and

3. a way to disguise 1 and 2 under the cloak of kindness.

My view is cynical, but it explains two important things:

1. the “exploited” party doesn’t feel the discomfort nearly as strongly; and

2. why Russ would get angry if someone tried to pay him for kindly stopping to dig a car out of a ditch. “Oh, you think you can rub in my face your higher relative BATNA and thus lower my status? You are mistaken – and I’m willing to refuse your money to prove it!”


Michael S
Jun 21 2011 at 2:02am

Mike Munger states “Second, and this is a strong condition, but there is no later regret. I can’t make a mistake; there can’t be a problem with time-consistency. You’ve seen me, Russ–I’m a large man. Sometimes when I buy a donut I think: why did I do that? If I drink too much beer; if I’m a heroin addict. If it’s something I do but then later think that was wrong, that’s not euvoluntary because there is some compulsion or mistake that I’ve made.” I was just wondering why regret has to be a condition for a transaction between two parties to be euvoluntary. It seems to suggest, like Russ mentions, that someone who marries a person and later regrets it did not partake in a euvoluntary transaction. Furthermore it seems to pose the question: how much time must elapse between the action and the regret before that action is determined to be euvoluntary or not euvoluntary? Or is the action euvoluntary until there is regret?

Jun 21 2011 at 2:18am

Or is the action euvoluntary until there is regret?

It would explain why rape is sometimes defined as “sex that women later regret.”

Mike Munger
Jun 21 2011 at 8:33am

Great comments, folks.

A bit on “regret”: Remember, I’m trying to come up with an extremely limited definition, one that EVERYONE agrees is voluntary (hence euvoluntary). On “regret” I was thinking of time consistency problems. I don’t want to negotiate with hostage-takers, but in the short run I feel compelled to.

Well, that’s obviously not voluntary. But what if the time-consistency problem is that I want (a) to lose weight, and (b) to eat donuts. You could say that’s just a trade-off, and that would be euvoluntary. BUT: If I eat the donut, and then regret it, it means my food compulsion made me do it.

So, if I want to lose weight, but make an exception but make an exception for a special cake my wife made for me on birthday, that’s a trade-off, and it’s euvoluntary. I don’t regret it later, and would do the same in the same situation. But if I just eat a regular old donut, and then immediately regret it, that’s NOT euvoluntary.

Note that my claim is that even exchanges that are not euvoluntary are just, and should be allowed. The project is just to identify the very narrow conditions for truly voluntary exchange.

Jun 21 2011 at 9:40am

@Matt: I have never seen such a definition and as a human being, I find your comment quite offensive. There are many women who are victims of sexual abuse or rape and bear psychological scars for the rest of their lives. To trivialize their experience as “sex that women later regret” is insulting and demonstrates a callous disregard for personal liberties. While there most assuredly are some cases where some women have abused the legal system in order to harass a sexual partner, conviction statistics appear to show that such attempts are most likely caught on and dismissed by judges pretty fast. The people responsible for rape are rapists, not rape victims.

Jun 21 2011 at 12:37pm

Re: Matt’s remarks @ June 21, 2011 1:10AM & 2:18AM

Out of curiosity, I wonder how precisely you would go about determining that “the ‘exploited’ party” really “doesn’t feel the discomfort nearly as strongly” (presumably meaning ‘as strongly as the guilt-plagued would-be exploiter’)?

…Or were you actually using the word “explain” in the conventional sense, and thus were simply *asserting* that no transaction that is at least partially voluntary can be regarded as exploitive?

That interpretation would certainly be consistent with your stated views about the “cloak of kindness,” as well as with the use of “explain” in your second message about rape — c.f., since the regretful party chose to live through the transaction rather than killing themselves in the act of resistance, the transaction must have been at least somewhat voluntary (?).

If this is not too far off base, it would be way too generous to characterize such a “view” as cynical … a more apt term would be pathologically sadistic … ala

Jun 21 2011 at 1:16pm

Michael S: I agree with your skepticism with the use of regret as a part of that definition. I think regret can be a powerful signal that a transaction may not be euvoluntary and there may be certain types of regret that would fit in the definition, but as is, I think regret detracts from the definition and the theory.

The oppositions to transactions that generate regret seems to be tied to an idea that the person who is regretting the transaction was somehow tricked or fooled. In all other cases mentioned by Mike, the opposition seems to be tied to the idea that the person is so desperate as to not really having a choice.

There are many transactions which provoke regret and which yet do not seem to generate the same kind of response than other non-euvoluntary transaction provoke in people.

There are many instances of regret which clearly do not fall within the theory: If I purchase a food I have never tried before and it turns out I dislike it, I will regret my purchase. Yet, I don’t think there is anyone who would seriously argue this transaction was not “really voluntary”. (I could be wrong)

Also, with regret, just about no transactions are euvoluntary. That seems to be counter-productive as it makes the theory unable to explain why some transactions might generate that repulsive feeling while others don’t.

I suggest Mike pull out regret from the definition.

Also, I think the definition is way too big including a variety of criteria (well defined property rights, informed parties, no threat of violence, etc…) which could be summed up as the transaction being voluntary.

PS: I am always surprised by the fact that blackmail is illegal. I always assume that the illegality of blackmail requires that the act one is threatening to do is itself illegal.

Jun 21 2011 at 1:34pm

Great podcast so far (about half way through).

This reminded me of a prior Munger podcast where you talked about pushing things to other margins when prices are hampered. It seems like that’s what we want to do in some of these sticky BATNA situations — push rationing to margins other than prices to compensate for what we see as a dramatic imbalance in political or economic situations of the two parties..

Another thought. I don’t have a problem with people wanting to stick their nose into a transaction as a third party. I’d just rather they do it in a way that actually costs them something directly instead of costing everyone else, including the parties to the transaction. For example, instead of outlawing organ pricing through force of government, contribute to a charity that would pay for kidneys for folks they feel were on the wrong side of BATNA equilibrium.

I was once discussing high bottled water prices in emergency areas. My counterpart did not want the prices to go up, even though they recognized that would bring more bottled water to the region. But, this person also did not contribute to a charity to get water to the region for a low price to the end user. I suggested he might want to do that before deciding for others whether they will have water available or not.

Jun 21 2011 at 2:12pm

Also, in terms of the graduate student looking to hire someone to wash her clothes. The students in the class were right that the student should pay more. The question of “how much more? the U.S. minimum wage?” is simple. It’s up for her to decide. It is her preferences stopping the transaction from occurring. There must be some wage at which she was willing to complete the transactions, as she was looking for help in the first place. If she wishes to change the terms of trade by offering more than the market, that is much better than not completing the transaction at all. In isolation, the transaction at a higher wage rate may even be first best, both the worker (who gets more money) and the patron are best off (who feels the warm glow of charity). Though, it may not be true, if everyone behaved that way. The higher wage rate would encourage more skilled workers to enter the industry and drive out the low skilled workers. If everyone did it, it may no longer be effective charity.

I am curious if Russ would behave differently in the instance with the cook now. I fully understand that norms affect our behavior, but after we think through the situation shouldn’t we endeavor to change our preferences? That the cook be sent home for a month or the washer not work is morally reprehensible once we have thought through the situation. In these cases our instincts for “charity” or the uncomfortable feelings we get when someone is serving us turn out to be evil, as enlightened individuals we should try to overcome them.

Jun 21 2011 at 3:03pm

An important circuit back in the days of manual logic design was the regretter.

An electrical engineer’s joke suggestion for a design that doesn’t quite work.

Mads Lindstrøm
Jun 21 2011 at 3:11pm

Maybe regret should be changed to expectation of regret by either buyer or seller at the time of transaction. It would solve the marriage and, I believe, other issued raised in the comments with regret as a condition for euvoluntary would also disappear.

Jun 21 2011 at 4:11pm

I have never seen such a definition

So? Your argument is your ignorance?

I find your comment quite offensive.

Your indignation has no bearing on the truth value of my claim. (See: Creationists being offended when told about evolution. Who cares?)

There are many women who are victims of sexual abuse or rape and bear psychological scars for the rest of their lives. To trivialize their experience as “sex that women later regret” is insulting and demonstrates a callous disregard for personal liberties.

That is probably true, but irrelevant since I didn’t say a thing to trivialize rape victims. Seek out someone who has, and deliver your message to him or her.

While there most assuredly are some cases where some women have abused the legal system in order to harass a sexual partner, conviction statistics appear to show that such attempts are most likely caught on and dismissed by judges pretty fast.

We have no way of knowing how many false claims are successful. That is the nature of the false positive problem. You haven’t actually thought this through, have you?

The Innocence Project should be shaking everyone’s faith about courts’ ability to avoid false positives. Last I read, 57% of those being set free were men wrongly convicted of rape.

The people responsible for rape are rapists, not rape victims.

Appears not to address anything I’ve said.

david s
Jun 21 2011 at 4:56pm

Another great Mungerian econtalk.

Some thoughts:

1) One question is why are people disturbed by BATNA disparity? My theory is that people don’t like having to live with the consequences of previous decisions (e.g., previous bad behaviour in blackmail case, poor decisions related to school or employment, etc,) or their failure to sufficiently limit their vulnerability to the decision-making of others. They prefer to use actual coercion (via the state) to alter the balance.

2) In the example of the rich guy being helped by the poor guy and the latter being insulted by the rich guy offering $100, perhaps the poor guy’s instinctive response is driven by a feeling that the rich guy is trying to eliminate the BATNA disparity ex post or at least is signalling that the BATNA disparity was not really as great as the poor guy may have thought.

3) The response of those who say “I don’t care – people shouldn’t have to face those choices” is in my view a kind of moral vanity.

4) I wonder whether the legal treatment of blackmail, and perhaps libel, have their origin, at least in part, with a desire on the part of the state to protect the powerful.

Jun 21 2011 at 6:20pm

Great podcast Mr. Roberts and Mr. Munger. I enjoy most of them and especially liked this one.

Regret seems to be a big point of contention, it would be interesting to hear a follow up on this.

Matt’s comment about those who for example support the minimum wage actually being malicious (or that is my interpretation) is one that Russ has pointed out before I believe. I think Milton Friedman called the minimum wage the most “anti-negro law on our statute books” for the same reason. HM’s insinuation that whoever raises such a thought must be a sadist is odd to say the least.

Isaiah K.
Jun 21 2011 at 8:06pm

I respectfully demur from Mr. Munger’s conceptualization of these verboten exchanges. I believe they are more properly understood when divided into two sub-categories that he is lumping together into one.

The first category is organized around a controlled substance, for which either the thing itself, or the trafficking thereof, is viewed as unacceptable for that society, such as hallucinogens and narcotics in the first instance, versus body parts and sexual favors in the latter. These are more of a “public policy” exclusion to lawful exchange based entirely upon the good that forms the subject of exchange. This category exists apart from how “free” the exchange seems to be.

The second, more interesting category really gets at the “eu-voluntary” exchange principle, which are exchanges in which the consumer must exchange with a “cartel” if they are to participate in the exchange of the good at all. This would include the examples of blackmail (one cannot choose a supplier of “not divulging information” but must deal with the party who actually knows the private information), price gouging (obvious–the ability to price-gouge rests entirely upon a dearth of other suppliers), and actual monopoly (due to direct monopoly or horizontal supplier collusion).

Because the consumer is not free to choose between competing suppliers, but must deal with the cartel, if they are to deal at all, this seems to the observer as if the consumer is not truly/fully free and self-determined in the transaction. I believe Mr. Munger’s argument is more applicable in this second category, but is flawed in describing the first.

George Gantz
Jun 21 2011 at 9:30pm

Mr. Roberts (et al) – a non-economist, I have been listening to your podcast for about a year and have found them to be an excellent and thoughtful resource, until now. This is the first one that made me angry. The theory of eu-voluntary transactions, while interesting, is at best an illusion (the box is empty), at worst completely immoral. Two points. First, if we lived in a world where significant BATNA differentials precluded transactions, the world would be dramatically impoverished – your grandfather being Exhibit #1. Markets, property rights, capital formation, workforce specialization and government would never have gotten started. Second, and more significantly, while the existence of differences in BATNA raises the moral stakes, it does so for the individual with the highest BATNA. They have a moral imperative to fulfill the transaction – not to walk away from it (choosing their alternative!) because they feel “discomfort”. This idea is appalling!

Two more notes. As someone who works for a monopoly, I’m well aware of the need for intervention to prevent exploitation – but the goal is not to equal BATNA. The goal of economic regulation is to control monopoly pricing so that that all economic transactions actually take place – even in the face of high BATNA differentials. Second, the prohibition on selling organs is NOT fundamentally aimed at preventing the case of willing buyer and seller you posited – but is absolutely necessary to deter the development of a market which would inexorably result in the kinds of horrific exploitation we see in slavery and forced prostitution – which are totally coercive. Or should I say eu-coercive.

andrew fischer lees
Jun 21 2011 at 10:20pm

This whole podcast has interesting applications to the great Social Contract philosophers (Hobbes, Locke, Rousseau).

These brothers thought that some kind of a contract was made between citizens and their sovereign, to abide by the laws of the land and in turn receive protection. But, was this a euvoluntary contract?

The whole weight of their argument RELIES upon the sanctity of contract, but, if we’re throwing out contracts with BATNA disparities, then we’re likely throwing out Social Contract theory…

Very Interesting! Thanks Mike, I’ve been kicking this around in my head, without any progress, for years!

Jun 21 2011 at 10:31pm

@Mike Munger:

It seems as though in the time-inconsistency example you bring up, the transaction is not that which you regret. You do not regret purchasing the donut. You regret eating it. You could purchase the donut and then hand it to some starving person and not have any regret. So I think that exchange would be eu-voluntary.

Jun 22 2011 at 12:59am

Russ & Mike,

I am SO glad you guys did this podcast!!!

I personally think this topic, and those closely related, are the central grown on which the debate for/against libertarianism, statism, etc. should reside.

This was a great introduction podcast to these topics, however I think it only really scratched the surface and failed to highlight the many dilemmas and thorny philosophical issues involved.

I must say I was a little confused as to where exactly each of you were placing your boundaries, as far as which characteristics tip the scales into what Russ or Mike personally would consider unethical, coercive, or worthy of legal regulation or prohibition.

In the case of “sweat shops” in the abstract you both seemed to be arguing that these are perfectly moral, even beneficial, institutions that offer people income opportunities they would otherwise be without.

I must say that, in the abstract, I am compelled to agree with you for the most part. I wonder, however, if I were to present some specific situations, if you would also consider these as equally just, as they seem to me to have no material difference than other arguments made here.

Although the following outlines are hypothetical, they do represent actual practices in real sweat shops.

The first scenario is a female sweat shop worker who will lose her job if she does not engage in sexual acts with her supervisor/boss/etc. Is this a situation you think should be legally prohibited, and why? I see no argument against this that could not also be used to prohibit other sweat shop practices.

This scenario need not be solely limited to sweat shops either. There are plenty of instances of people (most often women) who face the choice of losing a well paying job if they do not perform certain sexual acts with a superior. These people could theoretically leave their jobs for another (which is much easier to stomach when there is unemployment insurance I might add :), so it could be considered voluntary.

On the other hand, some people need a certain level of income in order to continue paying their mortgage, raise children, etc. and when faced with the prospect of having to possibly lose their house, stop supporting their child’s higher education, etc. they choose to go through with the sexual act instead.

Would this be perfectly legal by the arguments put forward? And do you think that it should be? And why/why not?

The second is another sweat shop example, however I must say sweat shop is not the most well defined and technical of terms. Let’s say that you work for an employer at a factory, and again, despite its meager wages, it pays better than the other options in your area. However, this factory manages to save a lot of money by ignoring certain safety precautions and, on this unlucky day, it is you who loses your hand in a piece of machinery.

As you are no longer as useful to the factory, they fire you, leaving you with a greatly diminished ability to earn money elsewhere in the market, as well as saddling you with possibly continuing medical bills.

Should something about this be prohibited? And if so, why?

Jun 22 2011 at 3:04pm

I think several commenters are making an elementary error. When Mike says, “euvoluntary exchanges are just” that does not imply “aeuvoluntary exchanges (exchanges that are not euvoluntary) are unjust.”

The podcast is mostly about what the definition of euvoluntary is, whether or not it is a useful concept, and whether it can be said all euvoluntary exchanges are just, and not about which aeuvoluntary exchanges are just.

Jun 22 2011 at 3:35pm

Fun podcast to listen to (as usual).

Mike, I’m wondering if the way you view BATNA is different from the idea of a threat point in a two-player bargaining game? Do you (or anyone else) see subtle differences between the two? (I’m still sorting it out in my mind.)

Jun 22 2011 at 6:25pm

I must say I was a little confused as to where exactly each of you were placing your boundaries, as far as which characteristics tip the scales into what Russ or Mike personally would consider unethical, coercive, or worthy of legal regulation or prohibition.

This is some of the highest praise I have ever seen given to a podcast, blog post, anything.

Josiah Neeley
Jun 22 2011 at 6:41pm

While Prof. Munger may be onto something with his euvoluntary idea, his BATNA criterion is clearly wrong.

Take the example of the guy who wants to sell me water for $1000 when I am dying of thirst in the desert A transaction is not euvoluntary if the disparity in BATNAs is too great. Suppose, though, that the guy says “hey, you’re our 1000th customer, so you get a bottle of water on the house!” In that case the disparity in BATNAs is even greater than if he charged me $1000. On the other hand, the more he charges for the water, the less disparity in BATNAs there will be.

Josiah Neeley
Jun 22 2011 at 7:05pm

Here’s another interesting wrinkle. In Prof. Roberts’ example, he is very uncomfortable about the fact that the place he was house-sitting for in Chile had a cook who was supposed to make him dinner. Suppose, though, that instead of house-sitting he had been put up in a hotel and part of his hotel room was free meals at the hotel restaurant. I suspect that Prof. Roberts would not have been uncomfortable at the thought he was being cooked for in that situation, even if the pay for the cooks in the two cases was the same

Mike Munger
Jun 22 2011 at 8:03pm

Charlie Clark gets a big smiling puppy dog stamp beside his name.

“I think several commenters are making an elementary error. When Mike says, “euvoluntary exchanges are just” that does not imply “aeuvoluntary exchanges (exchanges that are not euvoluntary) are unjust.”


The title (THE TITLE!!!) of my paper is “Euvoluntary or not, Exchange is Just.” What is complicated about that? The point is that euvoluntary exchanges can never be regulated. And I try to argue that even aeuvoluntary exchanges (thanks, charlie!) are also just, and generally should not be regulated.

Jun 23 2011 at 12:12am

Just a minor correction. The links above to eusociality and BATNA wikipedia pages are reversed.

[Fixed. Thanks–Econlib Ed.]

Jun 23 2011 at 2:33am

Josiah Neeley,

The guy in the desert’s best alternative to a negotiated agreement with the water seller is death. The price discussed during negotiations does not change his best alternative.

Luke J
Jun 23 2011 at 2:40am

I think the example of blackmail (beginning 9:48) was not the clearest illustration.

Russ discovers Mike’s drinking problem and will tell Mike’s wife unless Mike pays Russ $10 weekly. In this scenario, Russ is offering to secure private information for Mike at a price. It is non-euvoluntary.

Russ could decide (perhaps out of friendship) to keep Mike’s issue a secret. No exchange takes place (not even euvoluntary).

The only euvoluntary scenario is if Russ contacts Mike’s wife and tells her that he has important information regarding Mike, but that she will have to pay a one time fee of say, $10 (this particular scenario does not lend itself to weekly payments). Mike’s wife can decide, completely uncoerced, whether she thinks Russ’s information is actually worth the $10 or not. Russ might be able to sell it as more significant than it actually is, in which case he is just misrepresenting the product.

Whether paying $10 to keep a secret is actually beneficial or not is highly subjective 😉 Mike, maybe you should ask your wife what she thinks.

Jun 23 2011 at 10:10am

@ Matt

I think you should reconsider your attitude towards PrometheeFeu, as well as the comment that sparked that exchange.

You stated “It would explain why rape is sometimes defined as ‘sex that women later regret.'”

This statement has a particular meaning, though you may have not realized what it states.

The way you phrased it makes the assertion that this description of euvoluntary gives support to those who define ALL rape as “sex that women later regret.”

In other words, you are saying there is some legitimacy to describing ANY instance of rape by this standard. Whether child rape, rape at gunpoint, drugged rape, etc. (also rape doesn’t only involve women).

This statement IS VERY offensive.

Now it is possible you MEANT to express a different sentiment. For instance I feel you MAY have meant to say that SOME instances described as rape are really sex that is later regretted.

This is basically referring to the fact that some people claim to have been raped, yet are simply using that as a way to avoid embarrassment, get back at an ex-boyfriend, etc.

“The Innocence Project should be shaking everyone’s faith about courts’ ability to avoid false positives. Last I read, 57% of those being set free were men wrongly convicted of rape.”

Although I agree with both of these sentences, in this context I think you implying a false inference. Because 57% of those exonerated were rape cases DOES NOT mean that in those cases rape did not occur. MANY (most?) of them were exonerated do to DNA evidence, meaning the DNA recovered from the rape victim did not match the accused. This DOESN’T mean that a rape did not occur, simply that the person ACCUSED of the rape did not commit it.

This is related to the fact that witnesses, especially in very emotional situations, are easily “primed” to falsely identify assailants, as well as the fact the eye witness accounts in general are notoriously inaccurate.

Tough and Cheek
Jun 23 2011 at 11:41am

In my opinion Mr. Munger missed his calling in life “acting”.

Josiah Neeley
Jun 23 2011 at 12:09pm


The price discussed during negotiations does not change the guy’s best alternative. It does change the *disparity* between what he gets and the best alternative. Prof. Munger’s criterion is that an exchange is not euvoluntary is the disparity is too great.

Judson W
Jun 23 2011 at 1:19pm

The question was asked “What would be under that bridge” … As a Div school graduate, I would suggest the theologians.

Michael Munger
Jun 23 2011 at 3:51pm

Josiah: All I can do is repeat what Matt said. The price charged has no effect on the BATNA. The BATNA is the result if there is no transaction.

That may not be how you define it, but that’s how I define it.

The BATNA is not the best alternative, overall. It is the best alternative if the transaction is outlawed, made illegal, prevented, thwarted, has the kibosh put on it (I could go on, but I’ll stop).

Jun 23 2011 at 3:55pm

Russ, I think you felt you were exploiting the cook because many middle income Americans no longer permanently purchase domestic labor services and have grown unacustomed to them. Permanent Domestic labor services expenses represent an unaffordably large share of many middle income American family’s income; this is because upper income families have bid the prices beyond the reach of middle income American families. You should realize that labor saving appliances such as washing machines, dryers, microwave ovens, and toaster ovens have largely obviated domestic labor services for most Americans. The introduction of microwavable and home delivered meals has also significantly decreased the demand for domestic labor services by many Americans. Domestic labor services in the U.S. has become a product that is affordable and necessary for upper income Americans.

The “disparity in life situation” you mentioned, meaning the difference between rich and poor people is also present in America. By comparison a person making eighty thousand dollars per year would be considered poor to a person making 5 million dollars per year. Most Americans do not see this disparity because they consider themselves well off by popular standards.

Josiah Neeley
Jun 23 2011 at 5:26pm

Prof. Munger,

You say: The price charged has no effect on the BATNA. The BATNA is the result if there is no transaction.

That’s right. The price charged doesn’t affect the BATNA. It does, however, affect the *disparity* between the transaction and the BATNA. And your criterion, as I understand it, is that it is the disparity between a transaction and its BATNA that makes an exchange aeuvoluntary.

Suppose you’re right, though, and the price charged is irrelevant. In that case, there is no difference between charging the guy in the desert $1000 for a bottle of water and charging him nothing. Both transactions have the same BATNA. If one is not euvoluntary, then neither is the other. So if your account is right, people should want to ban giving water away for free to a guy in a desert just as much as they want to ban charging him $1000.

Jun 23 2011 at 5:32pm

The price discussed during negotiations does not change the guy’s best alternative.

Perfect. Then you have to agree that higher prices increase the disparity between agreement and BATNA, while lower prices reduce it. Exactly the opposite of what you proposed in your first comment and perfectly in keeping with Munger’s hypothesis.

Jun 23 2011 at 6:27pm

First of all; thanks for a very interesting podcast, one of my favourites so far.

A couple of reflections and thoughts that came to mind while listening to it were;

1. I was reminded of something i think I read in “Freakonomics” by Levitt & Dubner, where the authors highlighted an Israeli study of donation of blood. They found that donations declined quite rapidly when the hospitals started offering cash incentives to increase donations. An interesting example of where the notion of you doing something for profit offsets the good feeling of doing something for pure altruistic purposes.

2. If you are cynical you could probably see some left-leaning individuals as opposing some of the transactions you discuss in the podcast because of the fact that if these transactions take place in the marketplace it puts a hamper on government involvement in these transactions. In a way, the role of government in the economy diminishes.

3. I think you have to keep questions of inequality in mind to understand the issues at discussion. Some people I have discussed questions of this sort with seems to find it appalling that some individuals would be able to “buy themselves” out of complicated situations.

For example, if the man in the desert was wandering about amongst a group of people not as affluent as himself, he would be able to buy the water offered at this high price while his companions wouldn’t have that possibility. I guess that some people would somehow come to the conclusion that given that fact, prices should be controlled, maybe meaning that all of the group dies of thirst (although most would not think about that).

Josiah Neeley
Jun 23 2011 at 6:55pm


A higher price lessens the disparity because it is a worse deal for me. The better the deal, the greater the disparity between the deal and my BATNA.

It might make things clearer if we put a cash value on my not dying (say, a million dollars). If I have to pay $1 for the water, the disparity between the transaction and my BATNA is $999,999. If I have to pay $1000, the disparity is $999,000. If I have to pay $100,000, the disparity is $900,000, and so on. The more I have to pay, the less the disparity between than transaction and my BATNA.

Jun 23 2011 at 10:24pm

Mr. Munger has some interesting insights into overarching reasons
why some transactions are considered immoral, but I think you both
overlooked something important. People want to ban certain
transactions because they intuitively understand that allowing such
transactions would set perverse incentives.

Take for example your illustrative example of the taco truck. As you
point out, by banning the taco truck owner from selling people water
at $1000 a bottle, we destroy his incentive to search the desert for
people dying of thirst, which is bad. However, if we did allow it, he
would then have an incentive to cause people to get or stay lost in
the desert. For example, seeing that you still had money in your
pocket, he might take a circuitous route so that you could not follow
his tire tracks back to civilization. Say the local government decided
to build some water fountains in the desert. He would have a strong
financial incentive to break them. Doing so is highly immoral, but
strong financial incentives have a way of making people behave that

Take a real-world example where we have allowed ‘non-euvoluntary’
transactions; adoption. Rich couples in the United States want
desperately to raise a child, and are willing to pay handsomely to
make it happen. Poor orphaned children are starving in third-world
countries all over the world. Why not let the market work it’s magic?
A lot of people might say that was a bad idea, although they might not
be able to articulate why. The reason is it gives adoption agencies a
strong financial incentive to acquire as many healthy young
third-world ‘orphans’ as they can get their hands on. Adoption morphs
into a related word- abduction, and the end result is that there are
many places in the world today where if you go there as an American
and take pictures of people’s children, they will assume you are
planning on stealing them for an adoption agency, and they may kill

Jun 24 2011 at 1:39am

Yep, you’re right Josiah. I’ll have to re-listen to the podcast, but I think the original argument (which I lost sight of) was that transactions between two people with great disparities in BATNAs are non euvoluntary.

Jun 24 2011 at 3:07am

The way you phrased it makes the assertion that this description of euvoluntary gives support to those who define ALL rape as “sex that women later regret.”

No. The way I phrased it is exactly how I phrased it. Reinterpretations to incite indignation are not my problem.

In other words, you are saying there is some legitimacy to describing ANY instance of rape by this standard.

If you change my words to other words, then yes, they do say something different. Again, not my problem.

Although I agree with both of these sentences, in this context I think you implying a false inference. Because 57% of those exonerated were rape cases DOES NOT mean that in those cases rape did not occur.

No, it merely says that far too many men (and, yes, they are almost entirely men) have been falsely convicted (and presumably falsely accused, since the accuser is usually asked “is this the man who raped you?”) when they committed no rape. If a man can be falsely accused and convicted even when a real rape happened, then he can just as easily be convicted when no rape happened. Many of the same errors are being committed in both cases. So, yes, this is a fair and necessary rebuttal to the claim that false rape accusations are quickly recognized and thrown out.

Jun 24 2011 at 11:40am


Just to clarify, I am not trying to say you are a bad person or anything.

I am simply trying to clarify why someone who was forcibly raped (which is sadly common) would find it offensive to describe the violent attack on them as simply “sex they later regretted.”

I am quite amazed that this is not a rather obviously offense statement to you. What if I told someone who had been beaten and had their wallet stolen that it was actually “charity they later regret?”

Again, it is obviously absurd, and if you don’t recognize that, then I doubt any further explanation will help.

Personally I would rather talk about the actual contents of the podcast, but just to finish up.

You said “If a man can be falsely accused and convicted even when a real rape happened, then he can just as easily be convicted when no rape happened.”

This does not logically follow. Rapes often have physical evidence, defensive wounds, bruises, etc. Which support the claims of someone who has been raped. These can be faked, but that is not “just as easy,” and can be more easily questioned do to the state of modern forensics.

“Many of the same errors are being committed in both cases.”

This is obviously not true. Someone who HAS been raped, buy is either subconsciously influenced by police, or natural circumstances, is COMPLETELY different from someone who is intentionally lying and falsely accusing a specific person for selfish reasons, or accusing a random person to support some other lie.

“So, yes, this is a fair and necessary rebuttal. to the claim that false rape accusations are quickly recognized and thrown out.”

We can never know for certain how many false rape accusations result in convictions. I do disagree with Promethee on this point. It COULD be very high, but the amount of exonerated accused rapists do to DNA shed NO light on this. Because we have NO WAY of knowing what percentage of these are false identifications, as opposed to false accusations. It COULD be 100% false accusations, or 100% false identifications… This statistic sheds no light on which they are.

Jun 24 2011 at 12:02pm

@Everybody who says the price affects the disparity of the BATNAs.

BATNA stands for Best Alternative To a Negotiated Agreement. It’s what you do if you don’t effect the transaction. (It’s basically the opportunity cost reversed) The price affects the transaction itself, not the best alternative to the transaction. Whether I charge 1, 2, 3 or 1 million dollars, the BATNAs are the same. The person wandering around in the desert dies and the water salesman has a bottle of water. I would argue that Mike’s theory does not actually explain the reaction here. What is made illegal is price gouging. Yet, the price does not affect your relative BATNAs. If the issue was relative BATNAs, anything but a pure donation would be made illegal in a disaster situation. I think this theory needs much refining.

Jun 24 2011 at 2:59pm

I submit that the ‘uncomfortable’ feeling when exposed to large BATNA differentials is a complex social weapon for self preservation. Just like a sharper claw or swifter foot, this is a tool used by humans to help survive against those more powerful than themselves.

People can acutely sense power differentials and seek to minimize their exposure to powerless situations. The BATNA examples are simply specific instances of the larger social dynamic. We are willing to accept a lower overall level of “X”, as individuals, we think it increases our personal chance at acquisition (or safety) vs everyone more powerful than ourselves.

Ultimately the reasons behind these laws/actions are due to our ‘fight or flight’ instincts. Quite simply, they are reactions to fear. Fear of being powerless and unable to protect ourselves. Fear against those with more power than our own. It is because of these fears that we have developed very complex methods for protecting our self as individuals vs those who may exert power over us.

We are uncomfortable with clear power disparities because we do not wish to be subject of the ‘negative’ side.

1) Why it is legal to ‘give away’ your Kidney, but illegal to sell it?

It is illegal to sell one’s kidney is because by making it illegal society increases a “normal” individual’s chance of receiving a kidney vs. another individual who’s wealth (power) is greater than average. It may be true that overall people are “worse off” in that there are fewer total kidneys, but we are accepting the cost trade off. We’re implicitly saying: “It’s more valuable to me, the individual, that in my time of need I have an even chance of receiving a Kidney than it is for more kidneys to be available to the highest bidder. Because if they were for sale, I am convinced that those with more power than myself will get them first, and there is a good chance there are many, many people more powerful than I.”

Isn’t that amazing? The vast majority of people can’t explain why they feel something is ‘wrong’ … when what we are really doing is protecting ourselves. If feels wrong because we are afraid. At its most basic, this is the classic ‘fight or flight’ scenario. Mike hits it dead on, but unfortunately neither of you follow that statement further: “What we are really objecting to is the underlying, pre-existing distribution of wealth and power.” I am stating that this is the central driver for all of the examples and the root cause of the behavior. We are not judging how everyone will fair against each other (more kidneys, more people saved, better choice?), but rather how I compare specifically with those who are more powerful (I, personally, need a kidney and now I might actually get one even though I’m poor/not powerful!).

2) Why is it legal to give information away for free, but illegal to charge someone for silence? (Bribery)

Notice the power disparity? If I tell Mike “Give me $10 a week for life or I’ll tell”, what is my motivation to hold up to my end of the bargain? I could take Mike’s $10 for 10 years, then decide to tell his wife anyway! What recourse does Mike have against me? By making it illegal we have once again ‘balanced’ the power. Now, if I don’t hold up to my end of the bargain Mike can throw me in jail! Or sue and get his money back. I can go to prison for even attempting it! Notice the implication … bribery is illegal not because it is “wrong”, but because we (as individuals) don’t want to be held hostage and have figured out a way to bring power to ‘our’ side. (*Quick side — we are much more likely to protect ourselves against negative risks than positive gains. It hurts more to lose $10 than it feels good to find $50. Thus it makes more logical sense to punish those who wish to profit at our expense as we would rather ‘not pay’ than find ourselves in a situation to gain)

Jun 25 2011 at 2:29am

I am simply trying to clarify why someone who was forcibly raped (which is sadly common) would find it offensive to describe the violent attack on them as simply “sex they later regretted.”

I actually think I see the problem here – imprecision with language. What you’ve written above is that a violent rape victim would be offended if he or she described his or her own attack as sex later regretted. You probably meant to write something different, and I can guess what that is, but your imprecision in writing may be similar to your imprecision in parsing statements that others have made. That is why, during much of the history of this thread, you appear to be arguing with phantoms.

Someone who HAS been raped, buy is either…


can be more easily questioned do to the state of modern forensics.


but the amount of exonerated accused rapists do to DNA


These are small, forgivable mistakes. But when your imprecision with language leads you to make wild assumptions about the beliefs of others, it becomes a problem.

This does not logically follow. Rapes often have physical evidence, defensive wounds, bruises, etc. Which support the claims of someone who has been raped. These can be faked, but that is not “just as easy,” and can be more easily questioned do to the state of modern forensics.

Rape trials need to answer two questions: Was the alleged victim raped? Did the accused do it?

What we see from the innocence project is that men were convicted when there was absolutely zero verifiable evidence against them (because none was available; they were innocent). That represents a complete breakdown in court competence at answering the second question.

Once courts answer in the affirmative to the first question, and I understand that they can do so even in cases where the alleged victim has no wounds, innocent men are at terrible risk from failings of the court at answering the second question. If men can be convicted without evidence in one scenario, they can be convicted without evidence in other scenarios.

Someone who HAS been raped, bu[t] is either subconsciously influenced by police, or natural circumstances, is COMPLETELY different from someone who is intentionally lying and falsely accusing a specific person for selfish reasons, or accusing a random person to support some other lie.

Rape victims deserve sympathy, but nothing can justify accusing the wrong man. Accusing the wrong man of rape is a heinous crime.

We can never know for certain how many false rape accusations result in convictions.


Jun 25 2011 at 1:32pm

This podcast took a while to sink in, but no complaints at all great job to the R & M duo.

I would add that the no externality portion may bring doubt into any transaction being euvoluntary. Take for example a purchase of a taco from the local taco truck in a town in the US of A. Maybe both particapants at the time feel like they meet all the conditions, but to enable that transaction what portion of the overhead is related to Military power of the US in things such as acquire the land of the US, guarding and restricting the borders of the US. May be one of the surface euvoluntary bargainers is the son of a hit man and is spend money he earned based on the education paid for by his fathers illicit activities.

I would think it is more reasonable to think that there are degrees of free trade and that none are complete coerced or voluntary.

I think that one reason that I see that many don’t think the market system is fair is directly related to seeing people that you knew that if you were in their position you could not get out. Much of the sucess in my life is based on my ancestor and their commitment in the past to my present.

This transfer is interpreted by many to not to be fair, and to a moral sense I can agree. But the point of the R & M duo is that, regardlless of the normative values, the objective well being is improved by as close as possible to euvoluntary barginning.

Jun 26 2011 at 1:36pm

A transaction or decision not to make the transaction is voluntary if neither party would be worse off than before if the transaction does not occur and a third party does not influence/force the decision. Mike’s example of blackmail fails this test, he would be worse off if he doesn’t pay the blackmail fee or he will be as soon as his wife finds out that he had a beer. Voltaire’s gauntlet example fails the voluntary test because a third party is forcing the choice and there is no option to not participate in the transaction, i.e. not run the gauntlet or not have my head chopped off.

The case of the $1,000 bottle of water is also voluntary, the fact that the thirsty man may not like the outcome, death does not make it non voluntary as he would be no worse off than before. The possibility that he may have been lured into the desert by the water salesman is some what of a straw man, you could just as easy argue that he escaped to the desert after stealing the $2500 killing his victim and that he shouldn’t be able to buy water at any price. Or that he failed to properly prepare for his hike in the desert didn’t take a map or any extra water. As an actual example many rescue teams in the Cascade mountains (west coast) charge for rescues if they determine that the climber/hiker fail to adequately prepare.

While I agree with the voluntary euvoluntary distinction at a superficial level, where you put the dividing line depends on your belief in the role of individual rights and responsibility vs. the role of social norms and influence. The renal transplants problem is a classic example, I would rather let you die from renal failure than for me to have to live in a society where you could “purchase” a kidney. It seems to be an odd form of “justice” where my third party “feeling” of discomfort with a voluntary transaction forces actual discomfort or death on someone else as in the kidney transplant or the sweatshop example.

Jun 26 2011 at 2:03pm

Certain aspects of the conversation reminded me of Arthur Okun’s _Equality and Efficiency_, which I recently discovered via That work has some interesting things to say about why certain items might best be kept out of the market – not kidneys to the best of my recollection, but say votes. I can’t sell you my vote, even in the case where I don’t care about an election result and you do, and selling you my vote would make us both better off. Okun has some interesting things to say about why not. I’d be interested to hear Munger’s thoughts on that example, and on Okun’s book in general…

Jun 26 2011 at 4:52pm


Since none of this debate really relates to economics I would be glad to discuss it with you in another forum. Although if you wish to simply nitpick grammatical mistakes instead of presenting a coherent argument, don’t bother.

AHBritton at gmail dot com.

Jun 27 2011 at 1:34am

I was very interested in a section of the “Exchange” discussion that dealt with poor people, abandoned to the streets in a city.

Pittsburgh, Pennsylvania had a realtively unique way of addressing this situtation. People living on the streets were gathered up and assigned to a “Poor Farm”, where the Family would work at various farm, education and medical activities.

Pittsbugh owned a working farm and hospital on the property, called Mayview.

The result is that people would learn skills that would make them employable in the society. The objective was to permit them to go out in the world on their own.

I believe this is an acceptable alternative for people who are living in wooded areas, parks and on our streets, today.

Is there an obvious downside to this method of dealing with poverty?

Maribel Tipton
Jun 27 2011 at 4:05am

Just a comment on feeling uncomfortable with having someone cook for you or do your laundry in a third world country, keep in mind the cultural aspect,maids aren’t as common in the US because most Americans can make more money or be more productive in other sectors of the economy, for people that live in developing countries having a maid, like someone that makes your food or does your laundry is not inherently uncomfortable. My point is that feeling uncomfortable with those kinds of things is not universal, culture plays a huge role. In third world countries being a maid is, not a great job, but a dignified job, so for people that grow up in that country hiring a maid is not uncomfortable. Also about someone being offended about getting paid money if they volunteer to help someone with their car stuck, I can tell you that if someone is having hard time financially they will gladly welcome that money, at least that is the way it is in Mexico, no one ever in Mexico is going to be offended by you giving them money, especially if they are having a hard time. So I think a number of the examples you are talking about have to do with CULTURE. America is the richest country in the world so when Americans interact with poorer countries they are put in situations THEY aren’t used to and that’s why they are uncomfortable, that is not the case necessarily for the locals. I am originally from Mexico.

Josh Harris
Jun 27 2011 at 9:57am

Wow. This is going need several repeat listens!

Agree with Prof Munger’s proposition or not, he is doing a great service and pushing economics forward. Economist’s response to transactions that get the general public’s dander up too often is “You shouldn’t feel that way because of X, Y, Z!!!” Instead, Munger asks the question “Why do we feel this way?” and then proposes explanations/definitions/categories that attempt to answer this. Well done.

Tim Vlamis
Jun 27 2011 at 2:44pm

Great podcast. I also had to listen a few times to digest the material. My first thought was of Rawls and A Theory of Justice. Since it’s been many, many years ago that I read it, I had to go back and review some of the key principles that Rawls sets forth. Rawls second principle of Justice states that social and economic inequalities are to be arranged so that they are to be of the greatest benefit to least advantaged members of society. The discussion seems to echo Dr. Munger’s concept of unequal BATNAs (not exactly, but several parallels exist). I’m not trying to comment on the structure of government here, just on exchange between individuals. However, if one considers the state as one side of a “societal exchange” and the two parties as the other (should government limit this exchange between the parties?), then a different set of “BATNAs” would exist, one for the state/society and one for the set of individuals. These would be influenced not only by the cultural situation and “norms” of society, but also by the written laws and law enforcement mechanisms. When the state starts serving itself rather than society as a whole (perhaps another set of BATNAs?) and has greater power than society as a whole, then it looses its legitimacy. While my logical Hayekian brain alarm was triggered several times during the podcast and during my subsequent reading, I think there’s plenty of room for it. After all, it seems that a sense of fairness is hard-wired into us as even other species have been found to reject grossly “unfair” distributions. (You can google “dogs monkey sense of justice fairness” to get a flavor for the research that’s been done.) Thanks again for a great podcast and interesting discussion.

Jun 29 2011 at 12:52am

[Comment removed for policy violations. See our email discussion.–Econlib Ed.]

Tom Davies
Jun 29 2011 at 11:30pm

Very interesting Podcast, as usual.

I wonder if the revulsion at some of the exchanges mentioned could result from their ‘non-repeatability’ — that is, you cant make a living selling your kidneys (you only have two) and you can’t make a living selling expensive water to people lost in the desert (there aren’t enough of them).

The ability for humans to trade and cooperate depends on the fact that transactions are repeated, so there are incentives not to cheat. (e.g. iterated prisoner’s dilemma vs. one of prisoner’s dilemma — see Matt Ridley’s Origin of Virtue). Perhaps we instinctively distrust transactions which don’t have the potential for repetition.

Jul 2 2011 at 1:24pm

Uuvoluntary doesn’t resonate with me! I think the blood supply system is a good place to discuss the concept. Some people do it for free; others for pay and those with rare types make special donations of plasma where the red cells are returned to the donor. Many folks who donate for pay do so because they need the money. Blood may not equate to a kidney donation, yet in someways it is. How would the kidney situation change if cells from a removed kidney could be mixed with stem cells and placed in the body cavity to regrow a new kidney for the donor?

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0:36Intro. [Recording date: June 13, 2011.] Mike in Erlangen, Germany to give talk; one of the largest beer festivals going on. What a shame! You don't drink beer. I've been going as an anthropologist, not to drink, to observe the natives in their typical habitat. In a more serious vein, what is the nature of a beer festival there? What does that mean, exactly? In this case, six breweries, kellers, which have stored beer inside the mountain. Bergkirchweih, the opening of the mountain church. What they seem to mean by mountain church is the beer cellars. Spring, it's warm enough; all of the beer that has been chilling is now ready to be served. A lot of days there are 100,000 people here, sitting in big, outdoor pavilions, tables, singing really cheesy American songs. Sounds fun. I know you don't really like beer--have you sampled any of it? I've done extensive field work. And what's your verdict? More research is needed and I think government funding. Do they ship the good beer out? Or is there some pretty good beer left behind? There's pretty fine beer left behind. It is nice to have it locally brewed, Old in the United States is 50 years. Some of these kellers have been operating since the 14th century. Has anybody accosted you about your recent stardom in the rap video "Turn of the Century"? I have been getting some love about that. Are you pretty anonymous, still? Can you move about freely? On the street I have not had any difficulty moving about freely.
3:06Our topic for today is the nature of exchange, and some of our feelings about it and some of the work you've been doing, thinking in some depth relative to what economists usually do in this area. What issues have you been interested in? I have to say, this kind of draws together about 4 or 5 different EconTalk podcasts, so the basis for this is thinking that you and I have tried to do on several different shows where we asked questions. A lot of times the answers seem pretty easy, but then when you think about it, you think: Well, why is that true? As you may remember, several EconTalk podcasts ago, we talked about price gouging--about the ice in Raleigh that was sold at a price that was higher than was allowed, and so the police came and took the ice. And people actually clapped because they were glad that that high price wasn't going to be charged. Even though they weren't going to get any ice. That was bad, it was important--it's hard to say just what they were thinking. Ticket scalping: Why is it that we have laws against reselling? The common theme in all of this that I've been interested in is there are some transactions--I can't have nuclear weapons, nuclear material that's really dangerous; I can't have a machine gun. There are all sorts of things that I can't own. I can't own heroin. But there are other transactions where it is fine for me to have it. In fact, it's fine for me to have and exchange it. I just can't exchange it for what it's worth. The only reason we have that law is to make sure we cannot exchange it for what it is worth. I can give ice away. That wouldn't have been a problem. The problem is they were charging its market price. And what do these different examples have in common--perhaps? I have a thesis, I have a claim; and that is this has happened to you. I know it's happened to me, to anyone who has thought about economics. You end up saying: Well, if exchange is voluntary, what's the problem? And the person you are talking to may be someone from a different field who hasn't studied economics and who says: Well, it's not really voluntary. In their mind, there's a difference between voluntary and really voluntary, and that's what my research lately has been on. And I came up with a new word. If you google it, you'll actually find me and only me. Let's hope it's the start of a trend. And that word is? Euvoluntary--e, u, and then the word voluntary. And it looks like your spell-checker is going to change that to voluntary. Why did you choose that coinage? Well, voluntary is the one that we are arguing about; and the Greek prefix eu means well or truly. So, there are some insects that are social, that kind of gather together and do things together. But there is a whole other class of insects that are truly social. Eusocial insects are like ants are like bees, and it's really not even clear you really can say they are separate organisms or a super-organism. I wanted something that is super-voluntary, really, really voluntary. And here's my thesis. I don't know if it's revolutionary, but I want to try it. The reason is: Euvoluntary exchange is always just. No one can ever object, and the State would never have an excuse to regulate, euvoluntary exchange. So, it must be that all the regulations we have, and in fact all the moral intuition about exchange is that: Well, that's not really voluntary. Two things that come to mind. The first is Voltaire, in Candide, where Candide talks about the best of all possible worlds and he's usually invoking--and making fun of economists, actually--voluntary exchange. So, given a choice--I read the book a long time ago--but given a choice between running a gauntlet where people are going to slap you with unpleasant things and having your head lopped off, you choose running the gauntlet. And isn't that glorious, because you were free to choose and you chose the gauntlet. So you are better off. And you are in some dimension. But economists--to go back to what you said before--we are really into what we call mutually beneficial exchange. And usually what that means is that if it's voluntary, it must be mutually beneficial. If you chose to enter into that transaction, it must make each party better off who is party to the transaction. And that's all you need to know. We have a subjective sense of what's right and wrong. So, the very fact that you did it voluntarily means that it must have been beneficial. So, what's wrong with that? Give me some examples that jar non-economists' sensibilities and let's talk about them. We already gave one, but I think it's important. Let me make it a little bit simpler. Suppose I have a wallet and you have a gun. Now, you have a wallet and gun. Because I voluntarily gave you my wallet. I decided it's better to give him the wallet than to get shot. Now, in many senses, that's voluntary. Now, it takes, it assumes, there's a distribution of power or income, let's say, that is not protected by property rights. It's only protected by force. But I might make voluntary choices in a regime without enforceable property rights. So, economists start first of all with some underlying things they are going to assume happen by sort of a context that provide background for exchange. And one of those is property rights. You can't just take something from me by threatening force. Whenever we say something is voluntary, we are ruling out all of the Voltaire example. We are ruling out the guy with the gun and the guy with the wallet. But even then, there are a lot of things we think are not voluntary. The biggest example, the one almost everybody agrees about is blackmail. Or organ sales.
9:48So, let's start with blackmail. I know that you've been drinking in Germany. And my wife must not find this out! After we finish this podcast, I say: Mike, if you don't send me $10 a week for the next two years, I'm going to send your wife a copy of this call. Most people would say that's repulsive and horrible. Not unrelated to various views we have on privacy, which some people argue: Well, the only reason people want privacy is to hide inappropriate things, and if you do something inappropriate, it should be public. If, Mike, you knew I could blackmail in advance of your trip to Germany, maybe you wouldn't tell me; and maybe you wouldn't go drinking, because someone else there might see you, take a picture. You'd be in trouble with your wife. So the blackmail is actually a good thing. That would be some argument--a stupid argument in my opinion. That's a possibility, that blackmail might actually enhance. But let's suppose you didn't say anything about the $10; all you did was call my wife: I think Mike has a drinking problem, he's been drinking in Germany. No one would complain. There's nothing wrong with the transaction. The problem is charging for it. And why is that? You are allowed to exchange. In fact, you can do that--people might say it is admirable and you are honest. I'm not so sure about that in this particular case. But in many cases, it might be repulsive, might be a violation of privacy; but it clearly does not violate the law. Unless you charge for it. That's correct. So, your point is that it's an interesting thing that my incentive to profit is not allowed to legally take place. But suppose at the last moment, before you called my wife, you said: You know, I sort of feel bad about this; if I were to get $10 it would make me feel better. And goodness sakes--Mike would much rather pay the $10 than deal with his angry wife. It would be a bargain. So, compared to what you are about to do, that's better. I'm doing you a favor, by charging you. And you are charging less than in fact I would pay. Correct. So why don't we allow that? Because it's not euvoluntary. It's voluntary in a sense, but it's not euvoluntary. In a moment I'll give the definition. It isn't very complicated. But it has a part that most of the time economists leave out. I'm trying to build a bridge between economists and philosophers. Nice idea. Narrow bridge, I'm sure. It's a long bridge, I don't know how long; and there are no railings; people keep falling off. One of those bridges with vines and slats; you plunge through the slats. What's below that bridge? I would get in trouble even for answering that question. There be monsters.
13:12So, one way to think about it--my first thought: It's not much of a choice when there is only one alternative and it stinks. That would be one way to frame it. That's basically the entire intuition. It's more complicated than that, but that's basically the entire intuition. On the other hand, if you have a choice--I think we can probably find some transactions like that. But what about organ sales? What I like about this theory of euvoluntary exchange is it unites all f these different kinds of transactions that appear to be illegal for different reasons. I think they are all illegal for the same reason. So, I am a struggling person, trying to support my family, and I want to sell my kidney. I cannot legally sell my kidney in the United States. Why not? You read an ad, and it says you need to match a particular DNA profile. You go and you get tested, and it turns out that that's you. That's your blood type, your DNA profile. You are free to donate your kidney. There is no problem with the transaction. You just can't get paid for it. And then you think about it: Well, I'm giving up my kidney. So, there's a person who, maybe they have insurance, maybe they have a whole bit of money--I know I'd pay a whole lot of money for my son if he was dying of renal failure. Sure. I'd pay a million dollars. I'd find a way. So, that person, were I to offer them, they'd said: Yeah, I'll do it. But since the law says it has to be free, well, maybe he doesn't do it. My son doesn't get a kidney, and he dies. This guy doesn't get a way out of his financial problems. But the transaction is fine. There is no problem giving the kidney. So, how is that analogous? I'm not sure that's true in America, by the way. I'm not sure you can earmark a kidney now. But it's certainly of a different nature than the problem of the selling of kidneys. Well, I chose my example kind of carefully. I said we were asking for a particular blood type for one person who was about to die; and let's suppose we could agree. In fact, the reason I chose it--and I started my talk here in Germany with this example--you may have seen this, and we'll put a link to it on the website: A young man in China decided he wanted a new iPad. Didn't have much money and so he went down to the hospital and sold his kidney. He got $3000. Came home with a new iPad and a laptop computer. His Mom asked him where he got the money. He was kind of sleepy; she wasn't happy. Right. So, why is that like blackmail? I have information, it's mine. In the blackmail case, there's no problem with your giving it to my wife. She wants it. But there is a transaction that makes both of us better off instead of that bad thing; and that transaction is outlawed. But there is no problem with your giving the underlying commodity. You just can't charge for it. It's exactly the same with a kidney. I could give the kidney, but I can't charge for it. And, the fact that I can't charge for it makes something worse happen because the exchange is not consummated. Everyone is worse off.
17:07There would be two ways of thinking about why these are outlawed. One would be some sort of efficiency/meta-efficiency. Something simple, like: We think this is bad, and we don't want there to be very much of it; and we know that if we allow these market transactions there would be more of it than there otherwise would be. Okay? So, we think it's bad for blackmail, but we don't think it's bad that people have organ transplants. It doesn't really work so well there. So, the second argument would be--and I think these are the casual intuitions, and I want you to try to give me the definitions and try to unify them--the second argument would be there is something morally repulsive about bringing money into a bodily transaction, an organ transaction. It's undignified; it ruins human dignity. They don't go together. We want to keep these outside the commercial sphere. The question is why. Of course, we sell our time, our labor--which is clearly something bodily. But I think most people just go "yuck." Economists go "great; we need more kidneys donated, so let's create an incentive." Most people say they'd rather there be fewer kidneys but that they not be sold. There is also an idea in the back of the mind somewhat like that blackmail is bad--you just shouldn't do it--and donating kidneys is good--and you should just do it. And the fact that the monetary incentive could create more of that I think disturbs people. They wish the world weren't that way; they'd rather have a legal ban on it and let's cheer people on to do the right thing without the money, and we'll try harder that way. But that's not your argument. That's the sort of argument I've always encountered, and I found it unsatisfying because--the ice example. Some guys came in to sell ice in Raleigh. They were free to give it away. And most people think you shouldn't take advantage of other people's misfortune, so they should have given the ice away. Of course, the problem was you'd need an awful lot of people to come and give ice away to mitigate the problem. The only possible answer is if you are allowed to sell it, a lot of people might come. But because there is an anti-gouging law, they don't. So, you are free to donate the ice; you just can't charge for it. That means the transaction doesn't take place; and the result is, on its face, that people seem to be worse off. Well, here's what I think the problem is, and that is that we have the idea that exchange that is not truly voluntary should be restricted by the state. And you really put your finger on something important. But I think it's a confusion that I've only just recently started to understand. So, the original example, about the guy who was going to sell his kidney--let's suppose his daughter needs $20,000 for some medicine or else she is going to be very sick. But if he sells his kidney, he can get the $20,000 and he can get the medicine. Well, we think that's not right; he shouldn't have to do that. But then, we take another step and say: We're going to outlaw it. Well, that in no way addresses the problem. It actually makes him worse off. But we have this sense that that transaction is wrong. What we are really objecting to is the underlying, pre-existing distribution of wealth and power. That's why euvoluntary exchange is an important concept. So, I want to say truly voluntary--or euvoluntary--exchange is always just. What if exchange is not euvoluntary? It violates a moral intuition that many people have. Maybe it should be illegal; but even then, exchange that is not euvoluntary often helps those who are least well off. Only people who are desperate are the ones who would try to engage in that kind of not-euvoluntary exchange. Well, I've used the word a bunch of times; I should define it. First, for exchange to be truly voluntary, we need the common law conditions for contracts. You have to be of age, you have to be competent; you have to be informed--so there is no fraud, so I am not selling you a car and there is no engine. Have to have a convention of ownership and a convention of transfer of ownership, so we all know what that means and all agree about it. Second, and this is a strong condition, but there is no later regret. I can't make a mistake; there can't be a problem with time-consistency. You've seen me, Russ--I'm a large man. Sometimes when I buy a donut I think: why did I do that? If I drink too much beer; if I'm a heroin addict. If it's something I do but then later think that was wrong, that's not euvoluntary because there is some compulsion or mistake that I've made. Interesting. Large, and donuts--I don't think that really captures the issue. Well, I said heroin addict. The donut thing pulled me up short for a minute. You are of a large frame. I'm big boned. I would not say you look like, say, Wimpy in the Popeye cartoons. I appreciate that, Russ. I've always appreciated you and I don't say it enough. Carry on. Third, no externalities. Obviously, if I do something in a transaction that affects someone else without their permission, it can't be euvoluntary. So, all of the participants and those affected have to have given their consent. Or be irrelevant because they are not affected. Because the effect is zero. Instead of zero it could just be negligible. If I smoke a cigarette in the next county, maybe you really care about second-hand smoke, but there is a threshold. Fourth, no duress or force saying that you must act or pay. So, I can't be holding a gun to your head because that's obviously not euvoluntary. Here's the new condition: those are probably things we would have had before. Except for the regret, which I think is pretty interesting. Well, I added that because people want to say there are compulsions, there is advertising. I wanted--an exercise in question-begging--let's put a wall around the things we all agree, even philosophers, who hate markets, everyone would agree that it's voluntary. I didn't mean to say philosophers all of whom hate markets. Even someone who has deep questions about markets would agree that this is really voluntary. Can't help mentioning Elizabeth Taylor, who passed away recently: How many times was she married to Richard Burton? It was more than once. They got together and separated a couple of times; I think they were formally married and remarried two or three times. Would you call that euvoluntary? Obviously they had some regret at some point, and decided to end it; but came back anyway. That would be sort of a compulsion, perhaps. You are interested in this regret thing. I think the challenge of imagining how you will feel in the future. It's a rational expectations condition. It's voluntary in the sense that I'm really, really informed, not just common law level of informed. Okay; and now the new condition. It's not that big a deal. Up at the beer festival I think they are playing bad American singalong songs. Terrible sign of homogenization. You'd think they'd be polkaing and singing German beer songs. "Sweet Caroline." All night; nightmare. Red Sox fans everywhere rejoice. Become a Red Sox anthem.
25:41BATNAs. Sounds like the kind of thing cut open by Luke Skywalker. Spell it. B-a-t-n-a. It's an acronym. Best Alternative to a Negotiated Agreement. A transaction is not euvoluntary if the disparity in BATNAs is too great. All a BATNA is--some people at the Kennedy School of Government came up with this idea--because you need to capture how much I need access to the transaction. So, it's my next best alternative. If I'm going to a grocery store and I have my cart and I think I need some water; I look and bottles of water are on sale for $1000/bottle. I just laugh. I assume it's mismarked or that's just stupid. I go to another grocery store and I get them for $.99, like always. So, my best alternative to a negotiated agreement in that store is I spend five more minutes and I get it for $.99. That's fine. But suppose that I have in my pocket $5000; I've gotten lost and I'm wandering in a desert; and I see like a vision coming over the hill Tony's Taco Truck, with a sign on the side that says: Today's special, three tacos for $5 and there is a drink special--one bottle of water for $1000, or three bottles for $2500. I say: Tony, what are you doing? I'm dying of thirst here! Even better is he sees you and then he changes the sign. He's decided somehow what to charge and it is based on the conditions. There's no question: when he's in town he charges a different price than when he's roaming the desert who just might be running out of water. So, he's clearly trying to take advantage of my desperate position, if he finds someone like me. So, he asks: You have the money, right? Yes, I do, in fact. But I don't want to have to pay that. All right; he starts the car. Wait! Tony, all right; I'll have the three for $2500, please. And throw in some tacos. That's not euvoluntary, because the disparity in BATNAs is enormous. For me, not having access to that exchange means that I will die of thirst. For him, it's a little bit of money; but he goes back to the city, and it doesn't change very much. So, power in economics is an enormous disparity in BATNAs. And that happens any time when you have monopoly power. But we worry about it not so much if you have monopoly power--I don't care that much that I can only buy iTunes from Apple--because there are some other things. If I only care about iTunes, I'm stuck. But my BATNA, best alternative, is I'm not going to die. I'll get my music somewhere else. In the case of Tony's Taco Truck, when I'm in the desert, the disparity in BATNAs is enormous. And I'm arguing that it's that disparity in BATNAs that makes us say those transactions should be outlawed. Let me just ask a technical question. I'm a little confused about the acronym. So, best alternative to a negotiated agreement. What does that mean? Between the two of us. You are trying to negotiate an agreement. So, the best alternative I have to the three for $2500 is death. And that stinks. Of course, the economist in me says: But he's wandering the desert in a truck; he's got a lot of expenses. It could be that his margin is quite low. Right? It could be he's barely profiting from this. But even in that situation, you are suggesting, and I think a lot of people would agree, especially non-economists: there's something alarming, disturbing, uncomfortable about that. It's not euvoluntary. Now, there's no way it should be illegal. But it probably would be, which means he isn't out there in the first place, and I die. So, just like the ice--the fact that we make the transaction illegal means that there isn't any of it, because you don't get the response. In all these cases, whenever we talk as economists and non-economists about these sort of situations--I'm going to challenge you with a couple of examples in a minute where I have encountered these kinds of conversation--when you confront the person who wants these transactions to be illegal with the fact, which he'll often accept, that you are going to make the people involved worse off, I think the usual reaction is: I don't care. Even though they care about the person, because they are making it illegal; they don't care about the person because, as I said before about the organ donation, they want to live in a world that is not a bad world to live in. It's a world I'd want to live in, maybe even be happy in that world, where people "do the right thing" voluntarily without the monetary incentive. You think about somebody--a car gets stuck in a ditch on a snowy night; and someone comes along to push them out, and they person whose car is pushed out of the ditch offers them money. This is really voluntary, in technical terms. There's no hold-up, no exploitation; the person didn't say I'll push your car out if you give me $20; does it voluntarily, and as he turns to leave, the person in the car says: Here's $20 for your trouble and time. A lot of times, I think the person who pushes the car out would be insulted and would reject the money. Angrily. At least start friendly, but eventually angrily; and would do that regardless of their income. Even if it were a rich person whose Lexus was stuck in the snow and poor person in a beat up car who pushes them out, I think there would be a lot of cases where they'd turn the money down. Now, one argument would be: Does it matter how much money it is? If it was $1000, would the person still say no? And I think the answer would be he'd still say no. And part of it would be because--I don't know if this has anything to do with your argument--it's simply not the deal I got myself in for. I'm going to do this because it's the right thing to do. And it's not a tip; I don't want a tip. If I push your car out, and if I'm poor and disheveled and you are rich and comfortable, in a tuxedo in your Lexus on your way to a fancy dinner and I'm struggling to get home after my work day, and I push you out of the ditch and you offer me a $100 bill; I probably would refuse it. But if you offered me a bottle of wine or some other acknowledgment or you sent me something as a gift, later I'd say thank you. I do think there is something to this argument that the monetary aspect is part of the story. That's what I wanted to come back to. We start out, we want to regulate things that are not euvoluntary; but even if you point out it might have made them better off, people will say: I don't care. This shouldn't be about money. That's why the people clapped when the police arrested the ice sellers. They weren't confused; they knew they weren't going to get ice now. They just don't want to live in a world where people can profit from exploiting other people. When you bring money into a situation that's an emergency, that sort of monetary incentive is not what should motivate people's actions, in their opinion. I want to credit that argument. I think that's a widely held opinion. I just want to say that it only happens in situations where the exchange is not euvoluntary. The guy stuck in the ditch is in trouble. For me to pass him by would be bad; but for me to do it for money is even worse.
34:51That's what's interesting. Why we as economists find that puzzling is puzzling, given how widespread the alternative view is. I would go so far as to say you need to think of it as a preference. That's right. Let me give you a couple of examples. What about someone who works at Wal-mart, who is often viewed, I think by some, not by me, as exploited. Do you think someone who works at Wal-mart, is that a euvoluntary decision? It is not because their BATNA, because their best alternative to a negotiated exchange is unemployment. I would extend beyond Wal-mart to sweatshops in the Third World. Some people think of Walmart as being a U.S. sweatshop, though I think that's quite unfair. But people who work in sweatshops, it's not euvoluntary. Often, when economists say: They're better off working in a sweatshop, the other person will say: I don't care. What the mean is, it's not euvoluntary; that person doesn't really have choices so you can't say it's voluntary. Their betna, the disparity of betnas is too large. This large corporation is able to take advantage of what Marx called the reserve army of the unemployed. There are thousands and thousands of people who need some kind of little job; they don't have many alternatives. I'm going to challenge that. I'm just saying that's what they believe. First of all, I make more than the minimum wage at Wal-mart; I make $9 or $10 an hour. I switched to sweatshops. I'm a Walmart employee; I make $10 an hour. I can make $10 an hour in a lot of places. Maybe $9.50. Just like the sweatshop. The multinational corporation in a poor nation often pays a lot more than the alternatives. Why they do that doesn't make sense actually, so maybe that's not true. But why is that a BATNA situation? Why is there a disparity of BATNAs? My best alternative is a job similar to Walmart. Where is the disparity there? People believe that, like the organ donor, is the only way you would work at Wal-mart is if you just have no other alternative. Then they say: We don't want you to be that restricted. Like the father who was going to sell his kidney: You shouldn't be in such a desperate position. So, the claim is that's the only reason you would work at Wal-mart. But again, I could have alternatives like it. You'd have to generalize and say the only reason I'd work at a place like that. The problem I have with that is I think a lot of people who work at Walmart are proud and happy and cheerful. That would be very different from the seller of the kidney. A lot of the people who object to Wal-mart have never been to Wal-mart. They've been academics all their life; they can't imagine having a real job--how degrading that must be! I have very little sympathy with the argument for Walmart. I think it does work better--no one is suggesting we should outlaw jobs at Wal-mart. They do. They make it hard for Wal-mart to come to their area. The problem I have with that general argument is it's usually a response to union pressure and propaganda, which is encouraging people to feel that way about Wal-mart, whether it's actually true or not. Self-interested propagandists spread a hatred for Wal-mart. There might be a legitimate reason to hate them, but the main reason I think a lot of people accept that view that Wal-mart is exploitive is they've been told that's the case; but they are told that by people who are actually self-interested, who are profiting from the fact that Wal-mart isn't around. The other kinds of transactions, like for organ sales, or to a lesser extent to working in a sweatshop where we would want to outlaw it--the claim, and I'm pretty convinced of this; I think I can document it, though I'd have to change the language a little bit--what people are saying is that if you don't have any alternatives, we should outlaw it. That's basically the same as saying it's a disparity in betnas. I think there's something to that. Let me tell you a story. I don't think I've told it on the program before, but it's a story I tell a lot when I speak because it's so illuminating to me. I once taught a group of social-work graduate students economics. This was at Washington University in St. Louis. Very good social work school, I think number 1 or 2 in the country in terms of ranking. These students came to me and said: We are taught economics in our social work classes, but we have a feeling we are getting a particular viewpoint and we'd be interested in something else. What they meant is they were getting something Marxist or close to Marxist, and they wanted something market oriented. They chose me, which is flattering. I made a deal with them that they would not pay me and I would not give them any grades. It was just a voluntary, a euvoluntary, exchange. Metaphorically, their car was in the ditch. Well, that's true. I don't know if I pushed them out. But I thought it would be an interesting experience to teach without anything being at stake except just the knowledge. I said we'll do it three or four meetings, and if we both think it's enjoyable we'll extend it. We'll commit to a certain number. We did and we continued; and it was a very illuminating experience for me; I hope for them as well. But one of the students in the class told me a story I found fascinating and that relates to what we've been talking about. She had been visiting in Nepal, and she had clothes that needed cleaning; and she found out she could hire a washer woman to do your clothes for you. No washing machine or laundromats where she was. So, she went to hire someone and the wage was so appallingly low--let's say it was ten cents an hour--she was so horrified that she decided not to hire this woman. It would be exploitative. I said: You've exploited her by not exploiting her. Maybe she'll only find something much worse. Maybe she'll take it voluntarily, not euvoluntarily. She was looking for work. Maybe she had a hungry child or needed money for medical care; she was desperate enough to work for ten cents and hour; and the student refused to engage in this transaction allegedly because she cared about the woman. As an economist this is very difficult to understand. The more I thought about it, the more I understood it. When I tell this story to my students, one of the reactions is always: She should have paid her more. Then you ask the question: How much more? American minimum wage? American living wage? And if you offered her $10 an hour instead of ten cents an hour, what would her reaction be? Would she be thrilled? Offended? Where would the line form when the word got out that you were paying 100 times the going rate. There'd be a giant rent-seeking contest. How would you deal with that. I put myself in my student's shoes and tried to think about why you could come to that conclusion and feel good about it. It's the disparity in betnas. Right, exactly. This is a student who was going to come back to American life, earn an extraordinarily large income by Third World standards and perhaps even a decent income by Western standards, and certainly compared to this woman. The gap between their wellbeing was so large over a lifetime that this was simply an unimaginable transaction. It's as if that transaction is inherently exploitative, not because of the features of the transaction, but because of the disparity in betnas. Because both people clearly could be made better off? Why wouldn't you joyfully engage in this transaction? She couldn't do it. The punchline to the story is that she did her own laundry, threw out her shoulder, and ended up hiring the woman anyway eventually.
44:37The personal experience that I had like this was I was once house sitting for someone while I was in Santiago, Chile, working at a think tank there the summer between years in graduate school. And it turned out that with the house there was a cook. So, I came home the first day I was house sitting and I put my feet up on the coffee table to read the newspaper, and a woman comes out of the kitchen and asks me in Spanish what I'd like for dinner. And I said: What do you mean? And she informed me she was the cook and was going to make whatever I wanted. And I was extremely uncomfortable with this; I said: Well, make whatever you feel like. And she was extremely uncomfortable. So we eventually came to some conclusion about what she was going to cook, and she's in the kitchen cooking and I'm in the living room reading and I realize this is making me very uncomfortable. This woman is cooking for me who I'm only implicitly paying. She was being paid, but only a small amount. I went into the kitchen to chat with her, which totally violated the social norms; she was very uncomfortable. We proceeded to have an awkward conversation in very bad Spanish. I asked what music she liked; she liked Frank Sinatra and Julio Iglesias. I came to like Frank Sinatra. It's painful to hear this. The next part was the more interesting part. I thought, sports is something people have in common; I asked her what her favorite football, soccer team. She rooted for Colo Colo, which is what the poor people in Santiago rooted for. You could see that coming. And of course, all my friends rooted for Universidad de Chile. And I have to mention--what I loved about soccer in Chile, when my friends told me that was their favorite team I asked how it was tied to the University of Chile. They said: Well, there isn't one. I said: What do you mean? They said: They just use the name of the school. I thought how nice, because in America we pretend that the people with the name of that team are associated with the school--in fact, they are kind of like employees, unpaid employees in college. But here they actually totally sever the connection. The Duke University basketball team could be, like, the Celtics. But anyway, I realized again the disparity in our lifetime situations was just inherently uncomfortable. I did not like this woman cooking for me. You felt you were exploiting her somehow. Right, and I was trying to soften that by chatting with her. As if that was going to help. Oh good, he came in to chat with me--is he going to grab me? Not just that. I don't think that was the worry. First, I violated the social norm that I'm trying to make conversation with her, and two, my conversation is not very good; all it does is enhance the feeling that I'm the Universidad de Chile fan and she's the Colo Colo fan. It was a total failure. I would have much preferred that she would not cook for me. I didn't want her there. I didn't want her to do that. Maybe even to the extent of if they had offered, you wouldn't have fired her, but if you said--maybe they'll give her a sabbatical, we'll give her the month off. And they wouldn't have paid her. I would have said: Great! My question is: how much would you have paid to avoid having to deal with that, with that sense of exploitation? The answer is some. Maybe even up to the point of saying: Lay her off for a month. Even though you wish her no ill. Correct. It was an uncomfortable experience. It gave me an insight into my student, when I thought back on it. I think it's really no more complicated than that--just having such a big disparity in life situation. And in particular, if some of my life situation is contingent on the consummation of this contract. That explains why all of these different transactions are illegal, why all of these different situations we feel bad about if not formally illegal. Maybe it's not a transaction, but a sort of social relationship. Great example.
49:19What kind of reaction have you gotten to this idea? Once I explain it--the problem is, once I explain it, people say: Oh, that's simple. And it is. But I wanted to be able to give some economic intuition to it. But very positive. The first article is coming out in a month in a philosophy journal, and then I have two other papers coming out in philosophy journals about it. Philosophers, at least, think it's a useful concept. Now, here's the problem. I want to say that all euvoluntary exchanges are just. And someone asked me: Aren't you minutely analyzing the contents of an empty box? There are no euvoluntary exchanges. Well, maybe that's true, but there are some things that are pretty close. And thinking about it in those terms--I think is still helpful in understanding people's reaction. I think the interesting question is: How many only semi-voluntary transactions will you tolerate? When you consider all the incentives and other effects down the road. I really am drawn to this idea that people--including myself--have romantic ideals about how the world should work even if it doesn't work that way, and are not so eager to put into law or practice some of the realities. They'd prefer to imagine a world where people are motivated by non-monetary incentives to do the right thing. The reason I wrote this paper is exactly the core of it. They prefer that and they can continue to prefer it after I point out that it makes no economic sense. Used to be, I thought, that I would be the great bringer of wisdom. Once you make your argument: All my life I was wrong; it changed my view. That does not happen. What they say instead is: I don't want to live in that kind of world. I don't like you. Sometimes they are not always very defensive: That may be true; I don't care. I'm going to persist in this belief because I find it uncomfortable to have transactions like that monetized and be so important. So, here's where I think it gets a little trickier; and where maybe there's room here for some compromise. I think about my grandfather on my father's side, who dropped out of school in 6th grade--probably around 1910--because he can't afford to go to school. His family probably needs the money. My son asked me: What did he do? The answer is: I have no idea. He scrapped on the streets somehow. Never finished anything beyond 6th grade, and became a peddler after a number of unsuccessful careers. Probably somewhere along by the age of 30 or so, he sold stuff door-to-door to poor people in Memphis, TN, who couldn't get credit; and he gave them credit. And this is before--in the 1930s and 1940s, before the major department stores came around, before there was layaway. Unless people think he was loaning money, which he was not; he was giving credit in the sense that he would give goods and they would pay later. Correct. And they paid a lot. He had, an implicitly--I'm sure--large rate of interest. Many of them didn't complete the payments. He'd have to threaten to take the goods back, which he hated, of course; and it was always a threat. Didn't do him any good; wasn't sellable as collateral. That's a pretty tough life. I'm sure he got beat up sometimes; I'm sure there was stuff that happened to him that was really unpleasant. And certainly it was not a very easy life. But it allowed his family to get by. And my father became the first person in his family, I think, to go to college. And his son--that's me. And I have a very, very, very different life than my grandfather. I think my grandfather is pretty happy with that deal. At the time it wasn't fun. But it was part of a dynamic set of incentives that, in a growing economy, allow people and their kids--I'm thinking about immigrants now who come to America. The immigrant story. My grandfather was born in Philadelphia, but it didn't matter. It's the same story. They come to America; they do something very unpleasant, many times doing two or three jobs doing unpleasant stuff, often at a much lower set of activities than their skill set. My grandfather knew Shakespeare by heart; he loved poetry; he would have made an interesting college professor. Instead he had a pretty tough life. But he took care of his family. And his family, because he did that in America, it turned out had a different set of circumstances than he did. Do we really want to make that hard for him? Do we really want to make it hard for immigrants to come to America, do menial things at low wages that are unpleasant to make better lives for their children and grandchildren, even though at the point in time when it's happening we might be a little uncomfortable with it? The answer is: it shouldn't be that hard in the first place. Meaning? It just shouldn't be that hard in the first place. People who have this sense of what he did was not euvoluntary--it shouldn't have been that hard in the first place. The state or someone should provide an ability to make sure that education and other things are provided. He shouldn't have had to work so hard. Oh, I see. So, we should have helped him avoid those choices. The guy in India who has to sell his kidney to help his daughter--he shouldn't have to be in that position. We should make sure he has access to medicine. It's a false dichotomy to say: Should we allow this person to make a choice that makes him better off or not. They want to choose C, and that means take away the starkness of the choice in the first place. The problem is: That's not actually what's being proposed. The only thing that's being asked is: Is this transaction going to be allowed? Is your grandfather--maybe there's a Yiddish word for rag-picker. That's not what he was, but suppose someone's going to be a rag-picker, which is they pick through rags and resell it so it could be made into sort of musty clothing. The question is: Should we outlaw that profession because it's undignified? Well, that's the only question that's being put to you. Not: Do we restructure the entire society so that no one is in that position in the first place? But is that the difference--and by the way, the Yiddish word for rag is "schmatta," very good word--but the schmatta trade, it doesn't really refer to people who are going through rags. It refers to people in the clothing and textile business, called the rag business, the schmatta trade. I really think that's the bottom line here, comes back to my earlier point: What kind of world do you want to live in? Imagine a different world in which those choices would not be possible; they want to make the choices outlawed. It's a non-sequitur. So, you have mandatory education; so my grandfather in 1910 shouldn't have been allowed, as some would argue, to drop out of school because that's a bad thing. They should be forced to stay in school even though their family is going to be hungrier, maybe even desperately hungry; and we need to create a world where that person doesn't have to work at 12 years old. I think the economists's answer is: We don't know how to create that world; in 1910 we didn't know how. And the economist would say B: and you make it worse, by outlawing that activity, by saying that you can't. That you think it shouldn't have to, it's a mistake to then go and say: Then you can't. Those are different things. What do you think the philosophers would say? Do many of them talk about these things? Yes. And they agree that it is an important point, that that distinction is a useful one. It's a small distinction, but a useful one. Though, what I want to argue is: Euvoluntary exchange is always just; there are relatively few euvoluntary exchanges and they are uncontroversial because no one worries about them. What about exchanges where the exchange is not euvoluntary? Understanding that that's what we are worried about may help us diagnose where those kinds of transactions actually should be allowed. Because in many circumstances, that's the only thing that the desperate person can do to better their lot in life and maybe have a better life for their children. Tough one.
58:45What about the regret issue? We ban trans-fats. Some of these are do-goodisms. Some as I suggested in the Wal-mart case--it's a bootlegger and baptist kind of argument. Somebody pushing their own self-interest, cloaking it in kindness. Should we ban donut sales? When you come through the door, should you have to get on a scale and they take your height and weight? You can do what Cass Sunstein suggested and just make it a little harder. Try to have libertarian paternalism. Ideally you'd know what people really want. But what Cass Sunstein would do is try to guess what people should want, if you were as smart as Cass Sunstein, which of course is not very easy. The problem I've had with that, which we've talked about when we had Ed Glaeser talking about the problem, is that the people who would say: Put the donut shops way out of town--that would be one way to do it, right? You are allowed to have a donut shop, but it can't be close to a population center. Increase transactions costs. Exactly. That's the argument, usually. My problem with that is that if you give people the power to nudge that way, they are not always going to respond to what's best for Mike Munger. They are going to respond to what's best for the person with the power, and that's not usually what's best for Mike Munger. The problem with regret is: You are already saying that people can't make their own choices correctly. They are consistently going to make choices that they later regret. I threw that in there because I wanted to get agreement from the philosophers--okay, if that condition is met then it really is true; fair enough, it's voluntary. But I think even if the regret condition is not met, generally that's not something the state should interfere with. Is the beer festival over? It happens that I'm leaving well before it's over. How do we explain that? I have to go to another conference in Utah starting in a few days. My busy work life is in the way. Slopes of mogul venue for the 2002 Olympics. Difficult to be me. I don't know which is more euvoluntary: you leaving to go to that or you staying behind because you are constrained by the regret you are going to have later. I don't know. Complicated. Alexander University.

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