Tiberiu Dragu. 2010. Is There a Trade-off between Security and Liberty? Executive Bias, Privacy Protections, and Terrorism Prevention

Tiberiu Dragu. 2011. "Is There a Trade-off between Security and Liberty? Executive Bias, Privacy Protections, and Terrorism Prevention." American Political Science Review 105(1): 64-78.

Model:

• Privacy is given as exogenous.
• Terrorists maximize their utility with respect to terrorist activity a.
• Anti-terrorist agencies maximize their utility with respect to effort against terrorism e.
• The terrorist activity levels and the effort against terrorism jointly determine the probability of a successful terrorist attack.
• Solve the problem the way you would a Cournot problem.

Assumptions:

• Privacy shifts the best response functions. 
• Increasing privacy decreases costs of attack for the terrorist. The marginal cost also decreases in privacy.
• Increasing privacy increases costs of attack for the anti-terrorist agency. The marginal cost also increases in privacy.
• The terrorist organizations costs increase in a and are convex.
• The anti-terrorist organization costs increase in e and are convex. 

Results:

• The probability of a terrorist attack does not necessarily decrease when privacy decreases. 
• The expected utility of the anti-terrorist agency always increases when privacy decreases, even if the probability of terrorist attack increases when privacy decreases.

Andrei Shleifer and Robert W. Vishny. 1993. Corruption

Andrei Shleifer and Robert W. Vishny. 1993. "Corruption." Quarterly Journal of Economics 108 (3): 599-617.

• Corruption
• Corruption is the sale by government officials of government property for personal gain.
• Corruption without theft occurs when the government sets a price p for a good, such as a license, but the the official charges a price greater than p, turns over the official price to the government and keeps the excess.
• Corruption with theft occurs when the official makes a sale for the good at any price and doesn't turn p over to the government.

• Market forces at work
• Profit maximizing incentives of government officials: those who would pay most to be an official get to be an official + those who can pay the most are those that can collect the most bribes = maximal bribes collected 
• Buyers want to be more competitive in the market. When there is corruption without theft, buyers can reduce the cost of goods that officials sell through bribery.
• Role of agency organization
• If there is just one agency selling different complementary goods, a joint monopolist, then it can strategize so that the low price of one good spurs the demand for a complementary good. The agency extracts greater rents this way. 
• When different agencies with different jurisdictions operate independently when selling complementary goods, each agency will sell its respective good at the monopoly price. The cost becomes exorbitant for the buyer who must buy all complementary goods in order to operate and fewer goods will be purchased in comparison to when there is a joint monopolist. 
• When agencies have overlapping jurisdictions (redundancy), then there is competition and there will be minimal to no corruption because buyers can just find the agency that charges the lowest price. 
• The role of secrecy in corruption
• Agency efforts to avoid detection of its corruption and subsequent punishment causes corruption to be more distortionary than taxation. Government officials will use their power to induce substitution into the goods on which bribes can be more easily collected without detection, such as banning certain imports.
• The menu of goods in available in a country is determined by corruption opportunities rather than tastes or technological needs.
• A cap is put on the number of people who are involved in giving and receiving bribes in order to maintain secrecy, which contributes to a hostility to newcomers, which inhibits change and innovation. Economic growth suffers as a result.

Edward A. Parson. 1993. Protecting the Ozone Layer

Edward A. Parson. 1993. "Protecting the Ozone Layer." In Institutions for the Earth: Sources of Effective International Environmental Protection. Peter M. Haas, Robert O. Keohane and Marc A. Levy, eds. Cambridge: MIT Press, 27-73.

This chapter traces the history of international action on the ozone layer and national ratifications and responses, and analyzes the determinants of the international agenda and action, in particular the influence of international institutions on the outcomes. 

• Late 1970s: 
• United States regulators ban CFC aerosols except for a few essential uses since aerosol sprays were regarded as a frivolous and expendable use. Other countries that did similarly include: Canada, Sweden, and Norway. 
• First significant international initiate of ozone took place: a UN Environment program-sponsored (UNEP) Washington meeting in March 1977, with representatives from thirty-three nations and the Commission of the European Community (EC).
• Late 1970s and early 1980s:
• Anti-regulatory pressure from industries encouraged deadlock on discussions regarding controls. Growth and new application markets for chlorofluorocarbons (CFCs) reversed the declines in CFCs that followed the aerosol bans. U.S. and world production surpassed their pre-ban levels in 1984.
• Research into substitutes for CFCs stopped in the early 1980s.
• Late 1980s:
• Research into substitutes for CFCs resumed. Hydrofluorocarbons (HFCs) and hydrochlorofluorocarbions (HCFCs) were more difficult and expensive to manufacture. HFCs caused no ozone depletion. HCFCs and HFCs both contributed 
• Bills introduced in the United States in during 1987 called for unilateral CFC cuts by the United States and trade restrictions against countries who did not reciprocate. 
• The end of international negotiations in Montreal in September 1987 results in, among other things:
• 50 percent cuts from 1986 levels of production and consumption of five principal CFCs by 1999, with interim controls consisting of a freeze in 1990 and a 20 percent cut in 1994.
• several restrictions on trade with non-parties; bulk imports of restricted substances from non-parties were prohibited in 1990; bulk exports were prohibited from 1993; imports from non-parties of products containing controlled substances were banned (with the possibility of opting out by formal objection) from 1992. 
• parties pooling information about the effect of CFCs and agreeing to meet at regular 4-year intervals. 
• In 1988, the EPA, European industry council, the Imperial Chemical Industries, and a major CFC producer Dupont all endorsed a phaseout of CFCs. 
• In May 1989 in Helsinki, 80 nations signed an endorsement of phaseout by 2000.

• Determinants of agenda and international decisions:
• Information and the certainty of the science
• Lack of information resulted in innocuous measures. 
• Science defined key elements of the negotiating agenda.
• Public and media attention
• United States leadership on the issue from early 1986
• Assessment panels provided a channel for science to feed directly into the negotiation process from a forum with the stamp of international objectivity and authoritativeness.

• Altering state behavior: what did the institutions do?
• Institutions advanced the process by building concern and improving the contractual environment. 
• International institutions developed capacity to cut CFCs where it did not formerly exist and provided incentives to laggards. Trade sanctions were decisive in some countries' decision to join and in the energetic compliance by non-parties such as Taiwan and Korea. 
• International institutions limited spurious scientific disagreement as a tactic to obstruct negotiations, increased the general level of concern and urgency, and provided formal standing for Tolba (executive director of the UNEP), enabling him to exercise strong personal leadership.
•  Institutional changes concerning meetings, expert assessment, and treaty review ere of decisive importance for realizing stronger controls in 1990s. 

S. J. Liebowitz and Stephen E. Margolis. 1995. Path Dependence, Lock-In, and History

S. J. Liebowitz and Stephen E. Margolis. 1995. "Path Dependence, Lock-In, and History." Journal of Law, Economics, and Organization 11(1): 205-26.

1. First-degree path dependence- sensitivity to starting points exist but has no implied inefficiency
2. Second-degree path dependence- sensitive dependence on initial conditions and imperfect information leads to outcomes that are regrettable and costly to change. Outcome is not inefficient in any meaningful sense and the paths taken cannot be improved upon given the assumed limitations on knowledge.
3. Third-degree path dependence- sensitive dependence on initial conditions leads to an outcome that is inefficient, but the outcome is remediable.

Some deficiency in information is required for lock-in to an inferior technology to occur. In order for third-degree lock-in to occur, there must be agents who know enough to make correct choices but who fail to take advantage of the implied profit opportunities, and at the same time, adopters who generally know nothing more than the payoff going to the next adopter.

Path dependence literature elevates the importance of a historical chronicle relative to other methods of explanations—outcomes depend critically on insignificant and unpredictable events rather than on underlying conditions such as endowments and technology.

Roger G. Noll. 1989. Economic Perspectives on the Politics of Regulation

Roger G. Noll. "Economics Perspectives on the Politics of Regulation," In R.D. Willig and R. Schmalensee, eds. Handbook of Industrial Organization, Vol. 2, North-Holland (1989): 1254-1287.

This chapter surveys the research on the political causes of regulatory policy.

Public interest theory - the view that, as a matter of positive theory, the normative goal of curing market failures animates the choice of regulatory policies.

• Assumptions:
1. Regulation is adopted only in the presence of genuine market failure
2. At the time, regulation is the best available policy instrument
3. Regulation does not persist once it begins to impose costs greater than the efficiency gained.
• How regulation can act to the benefit of the public:
1. Government regulation corrects market failures. 
2. Information pertinent to identifying market failures is most cheaply acquired and disseminated by government. 
3. Governments may be able to correct market failures with lower transaction costs than direct negotiation between producers and sufferers. 

Agency relationships mediate the relationship between the policy preferences of citizens and the policy outcomes pursued by agencies.

• The degree to which agents comply with the preferences of principals depends on: 
1. The extent to which principals and agents have conflicts of interest
2. Tthe costs and accuracy of methods for principals to monitor the performance of agents
3. The power of the principals; enforcement mechanisms for redirecting the incentives of the agent. 
• If a single interest group is effectively organized, the result is Stigler's simple "capture"—the one organized group will tend to be monopoly or cartel that is protected by regulators. 
• Theoretically, regulation will depart from efficiency only when it is necessary to create and divide rents among represented interest. Departure of regulation from efficiency is constrained by:
1. Political entrepreneurs who can effectively pay the organization costs of an unrepresented group.
2. Technological change and rising incomes that can cause previously unrepresented interests to eventually have sufficient stakes in a particular domain of regulation to become represented in it.
• Difficulties in controlling the behavior of regulatory agencies: 
1. Agencies can engage in shirking
2. Agency officials may have their own political agenda 
3. Agency personnel may b motivated by personal career objectives 
4. Agencies may be populated by professionals who have a narrow or uninformed perception of how to achieve public interest objectives.

W. Kip Viscusi, John M. Vernon, Joseph E. Harrington, Jr. 2000. Introduction to Economic Regulation

W. Kip Viscusi, John M. Vernon, Joseph E. Harrington, Jr. "Introduction to Economic Regulation," in W. Kip Viscusi, John M. Vernon, and Joseph E. Harrington, Jr. Economics of Regulation and Antitrust, 3rd ed. (Cambridge, MA: MIT Press, 2000), pg. 297-336

Regulation - a state imposed limitation on the discretion that may be exercised by individuals or organizations, which is supported by threat of sanction.

Variables controlled by regulation:

1. Price
• Imposition of a single price
• Specification of a price structure
2. Quantity
• With price regulation
• Without price regulation
3. Number of Firms
• Restrictions on entry and exit
4. Quality
5. Firm investment

Theory of Regulation - why is there regulation? / Hypotheses about empirical regularities 

1. Public Interest Theory - also known as normative analysis as a positive theory (NPT) - government regulates to correct market failures.
• Inconsistent with empirical evidence where firms supported or lobbied for regulation and where industries are regulated despite lack of market failure.
2. Capture Theory - the agency that should be regulating the industry is "captured" by it, instead, so regulation promotes industry profits rather than social welfare.
• Does not explain regulation not supported by firms.
• Performs better at explaining the timing of deregulation bank branching restrictions in the banking industry than NPT.
3. Economic Theory of Regulation - interest groups control regulation. 
• Stigler/Peltzman model: legislators balance desires of the interest groups and consumers to determine appropriate action.
1. Regulatory legislation redistributes wealth.
2. The behavior of legislators is driven by their desire to remain in office, so legislation is designed to maximize political support. 
3. Interest groups compete by offering political support in exchange for favorable legislation.
• Becker model: regulation is used to increase the welfare of more influential groups. Those who stand to gain the most and who suffer the least from free rider issues hold the most sway.

Torben Iverson. 2005. Capitalism, Democracy and Welfare

Torben Iverson. 2005. Capitalism, Democracy and Welfare. Cambridge University Press. Chapters 1 and 3.

Both workers and employers have interests in supporting the welfare state and providing workers with unemployment/social insurance and/or redistribution. Social protection solves market failures in the formation of skills. Workers have little incentive to invest in skills when they are at constant risk of losing their jobs and thus being unable to reap the benefits of their investment; employers have little incentive to invest in employee skills and training without institutions that prevent poaching and discourage unions from exploiting the potential holdup power that specific skills confer. Thus, social insurance encourages the acquisition of skills in the labor force, which in turn enhances the ability of some firms to compete in international markets.

Generally, portable skills do not require extensive nonmarket protection. The implication is that countries that focus on giving people general skills that are easily transferable should have less income redistribution because the cost of losing their jobs is relatively low (wage is based only on general skill and not special training and is therefore lower; also, the chances of finding a job after being laid off is high). Countries that focus on giving people firm or industry-specific skills complement increased costs to job loss with stronger social welfare programs. The result is that general skill systems are more likely to generate wage inequality and poverty traps because they limit opportunities and incentives for skill acquisition at the low end of the academic ability distribution.

Women should expect to experience greater wage inequality in firms/industries/countries that focus on specific skills rather than general skills. Positions that require specific skills are difficult to fill and, thus, cause firms to be more sensitive to interruptions. Women, saddled with the joy of carrying progeny around in their stomachs and family care, are at a greater risk of dropping out of the labor market than men. The result is that firms that require specialized training for its employees have less of an incentive to hire women. The weak position of women in the private labor market in specific skills countries is generally mitigated by public policies designed to give them greater employment opportunities and provide them goods such as daycare services.