The Answer Is Transaction Costs – Détails, épisodes et analyse

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Have you ever wondered how common law rules and market prices both "emerge"? Inspired by the works of James Buchanan, F.A. Hayek, and Bruno Leoni, Donald Boudreaux explains how decentralized processes can lead to the emergence of effective norms, such as queuing and speeding rules, without the need for top-down legislation. We discuss the significance of individuals spending their own money versus others' and how these incentives impact societal outcomes, highlighting the deep wisdom embedded in traditionally evolved rules.

We also venture into the nuanced distinction between law and legislation, drawing on insights from Buchanan and Hayek. We elaborate on Buchanan's concept of "relatively absolute absolutes," and on Hayek’s emergence process, emphasizing the continuous generation of information through human action and preferences. Discover the natural process behind the emergence of common law, its role in establishing predictable rules, and the challenges presented by the unpredictable nature of parliamentary law.

Guest: Donald Boudreaux at George Mason University

Some Links: 

• Econtalk, Sept 30, 2024: “The Underrated Bruno Leoni”
• Econtalk, Dec 11, 2006:  "Law and Legislation"
• Michael Munger and Georg Vanberg, 2023, Contractarianism, Constitutionalism, and the Status Quo. Public Choice. 
• Michael Munger, 2023, “The Socialist Generation Debate,” AIER. 
• Quotes from Bruno Leoni on Cafe Hayek (a search, as suggested by Don Boudreaux) 

Book o’da’month: Bruno Leoni, FREEDOM AND THE LAW

You can follow Mike Munger on Twitter at @mungowitz

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Ever wondered why firms exist in a market-driven economy? This month's episode promises to unravel this question by diving deep into Ronald Coase's seminal 1937 paper, "The Nature of the Firm." Join me, Mike Munger, as I reflect on our first 16 months of podcasting and share the insights and wisdom that have shaped our journey. You'll gain a thorough understanding of how transaction costs influence economic behaviors and organizational structures, with fascinating examples from Richard Langlois' analysis of the American Midwest's agricultural sector before the railroad era.

• Ronald Harry Coase, The Nature of the Firm (1937)
• Michael Munger, Why Bosses Don't Wear Bunny Slippers

You can follow Mike Munger on Twitter at @mungowitz

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Why would a baseball stadium limit the number of $1 hot dogs per customer on Dollar Hot Dog Night? Find out as we work on this intriguing question posed by a curious high school student named HJ. Through the lens of transaction costs, we reveal how these promotional events are less about selling hot dogs and more about enhancing the overall (cheap!) game experience to attract new fans. Using a real-life example from a recent Mets game, we explore how such promotions can change the crowd dynamics, boost attendance, and ensure a positive atmosphere for everyone, even when things get a bit rowdy.

And the TWEJ:  A dad joke, because of course it is

Three apple pie prices (for one pie!)

• Andy Anand $70 
•  Publix $7.75 
•  Joe’s Stone Crab $130

Samuel Bagg's book The Dispersion of Power (Oxford)

You can follow Mike Munger on Twitter at @mungowitz

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I have been interested lately in a paper Bill Keech and I were working on a decade ago,

It was called "The Anatomy of Government Failure."

Was AC Pigou the first "Public Choice" theorist?

There are two transaction costs problems in the background:
1.  Information asymmetries and the problem of ignorance
2. Incentive problems and institutional design

Market failure is actually a thing. And it can be complicated: Kleinman and Teles, "Market and Non-Market Failures."

But so is government failure.  There is no reason to expect government action to be Pareto Optimal. 

The problem is that every flaw in consumers is worse in voters!

It could even be argued (I did!) that a "good" industrial policy is impossible in a democracy.

Book o'da week:  The Next American Economy: Nation, State, and Markets in an Uncertain World . 2022, Encounter Books.  by Samuel Gregg. 

You can follow Mike Munger on Twitter at @mungowitz

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What if crossing a mere corner of private land could land you in legal hot water? This episode tackles the thorny issue of corner crossing, where public and private lands meet at a single point, creating potential trespassing conflicts. We'll dissect Dave Schmitz's insights on the limits of property rights and the Roman law doctrine of ad coelum, which extends property rights from the heavens to the earth's core. Through landmark cases like Hinman v. Pacific Air Transport and Jacques v. Steenberg Homes, you'll gain a deeper understanding of how airspace and land use rights have evolved.

Links:

• Corner-crossing  https://www.casebriefs.com/blog/law/property/property-law-keyed-to-singer/trespass-and-public-rights-of-access-to-property/jacque-v-steenberg-homes-inc/ 
•  Corner-crossing update https://wyofile.com/ranch-owner-corner-crossing-would-erase-billions-in-private-property-value/
•  More on corner-crossing https://oilcity.news/crime/court/2024/05/14/who-are-the-judges-hearing-tuesdays-corner-crossing-appeal/#:~:text=The%20panel%20for%20the%2010th,property%20in%202020%20and%202021. 

• Hinman v. Pacific Air Transport https://casetext.com/case/hinman-v-pacific-air-transport 
• Jacques v. Steenberg Homes: https://www.wicourts.gov/sc/opinion/DisplayDocument.html?content=html&seqNo=17010 

Book:  Jeffrey Rosen, The Pursuit of Happiness: How Classical Writers on Virtue Inspired the Lives of the Founders and Defined America. Simon Schuster. 

https://www.simonandschuster.com/books/The-Pursuit-of-Happiness/Jeffrey-Rosen/9781668002476

You can follow Mike Munger on Twitter at @mungowitz

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Can a single $100 bill solve an entire town's debt crisis? This riddle is a window into transaction costs. I rely on Jeffrey Rogers Hummel's insights, adding a few thoughts of my own. 

And a cool letter: Ever wondered why you haggle for a car but not for your morning Starbucks's coffee?  

Plus, a book recommendation: Nobel Prize-winning economist Edmund Phelps' "My Journeys in Economic Theory," a compelling read that blends economic insights with political theory.

Links:

• David Henderson gives a statement of "the riddle"
• J.R. Hummel's web site
• Similar story, from LvMI

Haggling:

Sebastian Schweighofer-Kodritsch, "The Bargaining Trap," Games and Economic Behavior, November 2022, v. 136, pp. 249-54.

Book recommendation:

• Edmund Phelps, My Journeys in Economic Theory.  Columbia University Press.  https://cup.columbia.edu/book/my-journeys-in-economic-theory/9780231207300 

You can follow Mike Munger on Twitter at @mungowitz

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What if understanding the hidden costs in every transaction could revolutionize how we see economics?  Stephen Medema of Duke University opens up about his academic pivot from computational tax policy to the history of economic thought, weaving in tales of detective-like intrigue and the thrill of uncovering the makers and movers behind economic theories.

Beginning with John R. Commons' critical insights, and moving through Ronald Coase's focus on transaction costs as the critical difference among institutions, we explore  how these issues shape our understanding of efficiency and the "If markets are so great, why are there firms?"  Don't miss four new economics jokes (one is lawyer joke, in honor of common law!), my book recommendations, and get psyched for a summertime return to shorter, more frequent episodes.

Meaning of "Kaleidic":  From Roger Garrison https://webhome.auburn.edu/~garriro/r8lachmann.htm

Letters:
Corner Crossing:  

• https://www.nytimes.com/2022/11/26/business/hunting-wyoming-elk-mountain-access.html?searchResultPosition=1 
• https://www.wyomingpublicmedia.org/natural-resources-energy/2024-05-13/corner-crossing-case-back-in-court 

Books:
•Glenn Loury, Late Admissions: Confessions of a Black Conservative.  https://wwnorton.com/books/9780393881349
(Econtalk Podcast on the Loury book:  https://www.econtalk.org/glenn-loury-tells-all/  )
•Kevin Munger, The Youtube Apparatus, from Cambridge Essentials.  https://www.cambridge.org/core/elements/youtube-apparatus/36600D69788530F805C650B70976A585

You can follow Mike Munger on Twitter at @mungowitz

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 We embark on a journey through the lenses of Hume, Smith, and Coase, piecing together the roles of observation and empirical study in shaping our understanding of societal conventions and moral philosophy. David Schmidtz recounts a defining moment from his academic path, sparking a robust discussion on the fusion of economics with moral considerations in the realm of ownership and resource distribution.

The discussion with David delves into the essence of property ownership, dissecting what it means to hold rights over something as abstract as an idea or as concrete as land. We grapple with the notion that property is not just a "bundle of sticks" but a set of societal constructs, born from necessity and shaped by our collective desire for harmony. Through examples of conflict resolution and the negotiation of public and private interests, such as eminent domain and navigation easements, we confront the delicate dance between individual autonomy and the greater good. The philosophical undercurrents of property law are laid bare, revealing the presumption in favor of liberty in those deep waters.

The "Desert Town" source:  https://www.cambridge.org/core/books/abs/elements-of-justice/desert/268B6C7A9B17949572933A4DAA0CAB09

Wall Street Journal article on Costco gold purchases: https://www.wsj.com/finance/investing/selling-costco-gold-bars-f14e966f 

Biden DOT rule on airline refunds:  

• https://www.transportation.gov/briefing-room/biden-harris-administration-announces-final-rule-requiring-automatic-refunds-airline
• https://abcnews.go.com/Politics/airlines-give-automatic-refunds-canceled-flights-delayed-3/story?id=109573733

Lynne Kiesling on The Essential Ronald Coase, Fraser Institute.

Books:

C. Johnson, R. Lusch, Schmidtz, Commercial Society: A Primer on Ethics & Economics (Rowman & Littlefield). 
Bryan Caplan and Ady Branzei. Build, Baby, Build. Graphic novel just published by the Cato Institute  

You can follow Mike Munger on Twitter at @mungowitz

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Come along on a journey through the corridors of economic history and methodology with our esteemed guest, Bruce Caldwell from the Center for History of Political Economy at Duke University.  Caldwell's personal voyage, from the nuances of economic methodology to his deep dive into Austrian economics, sets the stage for an enthralling discussion on the workings of institutions, transaction costs, and the profound impact of Friedrich Hayek's theories on modern economics. Get ready to unlock the secret meaning behind the unique TIPS acronym within Austrian economics.

We follow Hayek's intellectual transition from his focus on business cycles to the intricate challenges of economic calculation and knowledge distribution. The conversation illuminates the value of information in economic decision-making and highlights the importance of markets in reconciling diverse plans and purposes. Discover how Hayek's 1945 paper reshaped economic thinking, extending its influence beyond the Austrian school and into the realms of neoclassical economics.

Our exploration culminates with an examination of the very fabric holding our economic systems together – institutions. Delve into the evolution of economic institutions with insights from Doug North's intellectual quest and the relevance of Austrian capital theories in understanding economic flexibility.

Links:

Bruce Caldwell, Beyond Positivism  https://www.amazon.com/Beyond-Positivism-Bruce-Caldwell/dp/1138834238

Bruce Caldwell and Hansjoerg Klausinger, Hayek: A Life, 1899-1950  https://www.amazon.com/Hayek-Life-1899-1950-Bruce-Caldwell/dp/0226816826/

F.A. Hayek, 1945: The Use of Knowledge in Society, American Economic Review. https://www.econlib.org/library/Essays/hykKnw.html

Michael Munger,  "The Socialist Generation Debate" https://www.aier.org/article/the-socialist-generation-debate/

Surge Pricing, NPR.  https://www.vox.com/money/24105250/fast-food-restaurants-dynamic-pricing-algorithm-wendys

Hope Center at Duke. https://today.duke.edu/2018/08/duke-center-expands-commitment-history-economics

You can follow Mike Munger on Twitter at @mungowitz

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The digital realm is rife with invisible threats, and this episode doesn't shy away from the gritty realities of ransomware and the burgeoning industry of cyber insurance. We tackle the conundrum: How do these defensive expenditures impact our economy when they don't actually produce anything tangible? From the early days of cyber insurance to the ongoing battle against hackers, learn how organizations across the board—from the halls of government to the frontlines of business—are fortifying their defenses against a barrage of cyber threats, each with their own unique strategies and vulnerabilities.

Wrapping up with a human touch, our conversation turns to the pivotal role individuals play in the security of networks and the negotiation tactics employed once defenses have been breached. And because all work and no play makes for a dull podcast, we round off the session with a sprinkling of economic humor, answering listener queries with a blend of wit and wisdom. Don't forget, for those hungry for more knowledge, I've got some book recommendations to deepen your understanding of the legendary thinker Adam Smith. 

Links:
Anja Shortland Website:  https://www.kcl.ac.uk/people/anja-shortland-1
Duke CHOPE Hayek Lecture with Dr. Shortland:  https://www.youtube.com/watch?v=Czs2EYDo2sI

Books:
Arthur Herman: How the Scots Invented the Modern World https://www.amazon.com/How-Scots-Invented-Modern-World/dp/0609809997
James Otteson: Adam Smith's Marketplace of Life https://www.amazon.com/Adam-Smiths-Marketplace-James-Otteson/dp/0521016568/ref=monarch_sidesheet
Adam Smith: The Theory of Moral Sentiments  https://www.libertyfund.org/books/the-theory-of-moral-sentiments/
EconTalk Book Club (six episodes):  https://www.econtalk.org/klein-on-the-theory-of-moral-sentiments-episode-1-an-overview/

You can follow Mike Munger on Twitter at @mungowitz