New economic sociology and the Ostroms

June, 2021

Elinor Ostrom was the first female winner of the Nobel Prize in economics, and her achievement has generated renewed interest in the Bloomington School research program in institutional economics and political economy. These essays showcase Ostrom's extensive and lasting influence throughout economics and the wider social sciences. Contributors contextualize the Bloomington School within schools of economic thought and show how Ostrom's distinct methodology has been used in policy-making and governance. Case studies illustrate the value of civic involvement within public policy, a method pioneered by Ostrom and the Bloomington School. Elinor Ostrom and the Bloomington School provides a valuable resource for those keen to understand Ostrom's approach, especially when applied to policy-making and wider use in the social sciences. Readers new to the Bloomington School will be introduced to its central areas of research while those already familiar with the school will appreciate its subtle connections to other disciplines and research agendas.

This chapter addresses the possibility of a combined approach in studying the economic sociology of the Ostroms.

Repeal the Law That Is Sinking US Maritime Industry

Wednesday, January 23, 2019
Authors: 
Donald J. Boudreaux

For nearly 100 years the Jones Act has been restricting the U.S. shipping and fishing industry. It recently made news with the end of a long-fought battle to allow a brand-new fishing vessel, America's Finest, to be freed from its moors to work. The reason for its detainment? It was made of over 7 percent foreign steel (coming from the Netherlands), which exceeds the 1.5 percent limit stipulated by this restrictive and outdated law.

The Merchant Marine Act of 1920, commonly referred to as the Jones Act, is legislation that aims to promote and maintain the American merchant-marine fleet for commercial and defense purposes. It requires that all goods transported by water between U.S. ports must be carried by U.S. owned, crewed, and flagged ships (thus protecting them from foreign competition). Arguments in favor of the Jones Act center on national security, the need to be prepared for global conflict, and the need to respond to crises.

But time and time again, the effects of the Jones Act — just like other protectionist boondoggles — fail to satisfy the intended goals. This losing record is more than adequate to justify the act's repeal.

The domestic build and crew requirements of the Jones Act eliminate all foreign competition for U.S. coastal transport services. This stifled competition creates an artificial market for American-built cargo ships that cost as much as five times greater to build than similar ships built in China or Korea. Not surprisingly, the cost of operating an American flagged and crewed vessel is double that of foreign ones. Making matters even worse, this high cost and lack of competition means that the U.S. shipping industry has fallen behind in terms of innovation: Companies hang on to older, less efficient, and more dangerous ships rather than updating or retiring them.

One of the greatest costs of the Jones Act is the one it imposes on consumers. Emeritus professor of economics Thomas Grennes, who has written extensively on the Jones Act, found that for every $1 gained by U.S. sailors, ship builders, and carriers as a result of the Act, U.S. consumers lose more than $1, resulting in a net loss.

There have also been numerous studies of the potential benefits of repealing the act, showing there are huge gains to be made, particularly for those in non-contiguous states such as Hawaii. A 1999 report by the U.S. International Trade Commission finds that this welfare gain would be $1.32 billion, which is $2.0 billion in today's dollars.

The problem is that these costs are unseen because they're spread out among millions of consumers while the benefits, being concentrated in small pockets of industry, are more noticeable. And so those few who benefit have strong incentives to lobby to maintain their special privileges. Unfortunately, those who pay the costs have less of an incentive to lobby against these privileges.

The Jones Act is also responsible for far more obvious, sometimes lethal, costs. There is no more emblematic and utterly tragic case than the 2015 sinking of El Faro during Hurricane Joaquin, in which 33 lives were lost. This tragedy likely occurred because of the Jones Act. Having driven up the cost to shippers of using new ships, older vessels continue to be used despite being more dangerous to operate than newer ones. The average age of commercial ships worldwide is 11 years, but for the United States it’s an astounding 31! Built in 1975, El Faro was far beyond the average at which ships are retired. Lacking the structural integrity and safety features of newer vessels, it capsized in the hurricane, killing all on board.

In times of crisis like this, the Jones Act can also cripple the transport of essential resources and aid, a particular problem for non-contiguous regions like Hawaii, Alaska, and Puerto Rico. After Hurricane Irma struck Puerto Rico in 2017, President Trump waived the act for 10 days in order to resupply the island commonwealth. The need for a presidential exemption from Jones Act requirements begs the question as to why this act is still in effect at all, especially when the security and safety of citizens is a purported goal.

The prohibition on foreign competition by the Jones Act has not improved U.S. shipping — to the contrary, it fosters monopolistic complacency and stifles innovation. This monument to cronyism not only massively raises shipping costs, it fails even to achieve its goals of strengthening national security. An American merchant-marine fleet that is on average nearly 200 percent older than merchant ships worldwide would not be fit for conflict. The Jones Act must be repealed.

Public Interest Comment on Consumer Protection, Ticket Bots, and the Better Online Ticket Sales (BOTS) Act

Wednesday, December 5, 2018
Authors: 
Christopher Koopman

Introduction

We appreciate the opportunity to submit comments regarding the Federal Trade Commission’s (FTC) Workshop Examining Online Event Ticket Sales. We applaud the FTC’s interest in exploring the potential consumer protection issues associated with the online event-ticket marketplace. As was noted in the workshop announcements, “The online event ticket industry has been a frequent topic of consumer and competitor complaints.”

Our comments address the issue of using ticket purchasing software (commonly referred to as “ticket bots”) and the Better Online Ticket Sales Act (BOTS Act). In particular, we discuss many of the misconceptions around ticket bots, and more specifically their use in buying (and eventual reselling) of tickets on a secondary market. The use of bots to purchase and resell tickets is an integral part of ensuring a healthy market that is responsive to consumers and performers. This comment not only addresses the perceived problems with ticket bots but also outline potential alternative solutions to the complaints being made about online ticket resales.

We begin with some background on the use of bot technology. We then outline the consumer protection and competitive considerations that ought to be made when considering bot technology. We then discuss why the federal response in the BOTS Act is unnecessary. Finally, we provide a roadmap for alternative solutions to anticompetitive or unwanted practices in ticket sales.

Learning to Improve Resiliency against Cyberattacks

Monday, September 17, 2018

In June 2017, one of the most destructive and widespread cybersecurity attacks yet — codenamed NotPetya — immobilized companies and government agencies across the globe. The story of one company’s response to the attack demonstrates the value of leaving space for companies to adapt to emerging cyber threats. U.S. policymakers now considering etching one-size-fits-all cybersecurity policies into stone should heed the lessons from the shipping giant Maersk’s recovery...

Continue reading: Learning to improve resiliency against cyberattacks

Data Privacy at a Price: The GDPR Just Isn't Worth It

Friday, May 25, 2018

Lately, the internet is awash with emails and pop-up messages about privacy, data policies or subscriptions. These emails herald the long-dreaded arrival of the expansive new regulations under the EU’s General Data Protection Regulation (GDPR) that go into effect today. The GDPR is a wolf in sheep’s clothing. The obligations to comply with the numerous and vague rules are harming innovation and experimentation and are disproportionately burdensome to smaller businesses, while providing only minimal gains in privacy and control over your data.

The GDPR defines and aims to protect the rights of individuals with regards to their data. As well as keeping data safe, companies that hold individual’s data are also obliged to keep data collection to a minimum and acquire clear affirmative consent to collect data. This last point is one of the trickiest parts of the GDPR and is why you may have received emails asking you to re-subscribe to certain mailing lists. The new regulations require valid, freely given, specific, informed and active consent which is hard to determine in practice. The GDPR also gives individuals the right to erasure, to remove themselves from certain search engine results, and the right to access data which has been collected concerning them.

Although it is an EU rule, the global nature of the Internet means that it will affect both companies and individuals worldwide. One survey suggested that 52 percent of US companies possess data on EU citizens which makes them liable for implementing the required privacy practices. It also applies to any company no matter the size or scope of their operation, including self-employed entrepreneurs, charities and research firms. Given that the fine for non-compliance is €20 million or 4% of global revenue, whichever is highest, businesses globally are scrambling to put plans in place that meet the guidelines.

Data protection is undeniably important, but the regulations introduced in the GDPR are so onerous, expansive and vague that the compliance costs far outweigh the potential gains to privacy. Those who are hardest hit are small businesses without the resources to ensure they meet the new rules. A recent PwC survey found that 88% of companies surveyed spent more than $1 million on GDPR preparations, and 40% more than $10 million. As well as the financial costs involved small businesses face a myriad of other problemsbigger companies can avoid.

Without trained legal teams entrepreneurs struggle to even understand what they need to do to comply with GDPR, and must dedicate huge amounts of time to combing through the information available which is confusing and contradictory. So confusing that members of the government of the UK, who were able to attend training sessions on the issues, are unclear on their responsibilities. Add to this the fact that even the regulators in charge of ensuring compliance are not ready to fulfill their duties, and the task of understanding the new rules seems like an impossible task.

Already, companies are responding negatively to the risk of operating under the guidelines, either because of the costs of compliance, or over fear that despite their best efforts they still might face the crippling fines. Many have chosen instead to shut downwithdraw from European markets, or block access to individuals in the EU. London-based website Streetlend, which permitted users to borrow and lend tools at no fee, shut down because of the added cost of GDPR compliance. For those sites that did not shut down, compliance costs are likely to come in the form of higher transaction fees for users.

Whilst small businesses are buckling under the pressure, large companies are able to mobalize company legal teams and come up with largescale solutions. Facebook changed their terms of service and transferred 1.5 billion users from the jurisdiction of their Irish HQ to the U.S. so as to avoid changing data practices in line with GDPR.

Businesses exiting the market and the billions of dollars spent on compliance are the visible costs of the new regulation, but just as important are the unseen consequences. GDPR makes experimentation costly, companies in the cybersecurity industry have already expressed concerns that the obligations will make exploring new technologies, such as cloud-based apps, too risky. Unseen outcomes of the GDPR include the reduced ability of small businesses to compete with large firms as well as potential innovations that are never realised because entrepreneurs are dissuaded from taking on the risk of compliance tasks and fines.

Data privacy comes at a price. The costs that the GDPR will bring upon both companies and individuals are substantial, and the regulatory environment it will generate will suppress innovation. For the internet, an industry characterized by growth and entrepreneurship, this is a bad omen.