Coase Colored Glasses

Archive for March 23rd, 2011

Brand names in Sports

Maybe I really can’t think of anything other then sports when I read. Or maybe I just think Sports and pirate have a lot in common but I couldn’t help but to think of the brand that athletes create for themselves out of themselves it reminded me of the pirate captains who developed their own reputations. Each athlete develops his or her own reputations. His or her own brand name.

No athlete has ever done with better then Michael Jordan who quiet literally created a global brand, a brand that stood for something. Then you saw the jump man logo or here the name Michael Jordan its synonymous with transcendent greatest on a basketball court. Jordan built up a reputation by his play that became almost greater then he was. Players didn’t just have to deal with his physical abilities but also the mental image of him that they had in there head. To many he never missed and he wouldn’t lose and in a way this image helped those ideas become a self fulfilling prophecy.

Another example was Tiger Woods, before his brand name was destroyed a lesson to all pirates to protect the brand at all costs. Tiger was so dominate that other players would play themselves out of a match with him trying to compete with the ‘idea’ of Tiger Woods. It wasn’t that he was just better then everyone else, even though he was, it was the fact that they knew he was better and that he was going to win.

As athletes develop they gain reputations that in ways are defined by how they play but also tend to define how we see them, and as such how they act for the rest of their careers. Kobe had the reputation of a ball hog who scored a lot, and he lived up to that standard, Tom Brady has a reputation as being Mr. Cool under pressure, A-Rod is known for choking. These players become these things not just because thats what they are but because that’s what the brand that was created for them made them become. We don’t remember the times Jordan missed a shot, Kobe passed the ball, A-rod won a game or Brady threw an interception, those aren’t part of the Brand. We chose to remember the brand that we see.

So it is with pirates. Why do legends like Walking the Plank, or the old ‘Dead men tell no tales’ persist? Because we want them to persist and frankly so do the pirates and athletes that worked so hard to develop those reputations… So they all could take our hard earned gold.

“Rather than resulting from flamboyance, madness, or eccentricity, pirates like Blackbeard deliberately constructed their bizarre and frightful physical appearances to facilitate piratical plunder,” says Leeson. I sometimes feel this way about those that work the graveyard shifts at all of our favorite late night haunts such as 711, Walmart, and the likes. It is the image that creates the feelings. What I’m getting from Leeson’s analysis of torture though seems to be what we need to do as businesses, but in the reverse. Pirates go to those that they prey on, or get goods from; businesses need to attract customers and clients. The mechanisms are much the same though. Just reversed. To help a business you need incorporate a good reputation rather than a brutal or helpful and friendly rather than violent and crazy. One factor does need to stay the same, being true to your word. The pirates threatened and delivered, as do most of my favorite businesses. I can go to Sportsman’s Warehouse and know that I will find what I need, and if it isn’t there someone will help me to find it. The pirates also had a reputation to maintain so when someone with held information or booty from them they had to deliver with a show of violence. A multi-game prisoners dilemma leads to cooperation.


Friedman’s chapter on tort law was very fascinating.  I really liked the part where he discussed the different incentives created by assigning proportions or probabilities to accidents.  The example of the drug company that manufactured a drug that caused defects in the patient’s children was interesting.  The cost associated with the increase in testing would have resulted in greater costs to society than the terrible side-effects caused by a drug that hadn’t been tested across generations.

In almost all the analysis that Friedman does he analyzes the costs associated with the tort and the benefits received by increasing liability.  An example that I thought of involved my previous job working construction framing homes.  I now realize the great risks that my boss took by reducing safety in order to compensate for speed and efficiency.  He increased his liability by jamming back the guards on our saws and nail guns and also by not buying harnesses for his crew to work on 10/12 and 12/12 roofs.  In this case, my boss judged the potential gains from the quicker production to be more valuable than the costs associated with being sued for negligence in the case of an accident.  I’m sure that my boss knew the risk involved and weighed them according to the skill that his crew possessed and the probability of an accident.

I have actually heard of crews whose bosses run routine “OSHA” drills.  These drills usually involve removing the nails that hold the guards back on the saws or getting the under aged workers back on the ground floor as law requires, and any other violation that they are practicing.  These contractors value the efficiency greater than the risk of injury.

Under tort law, how much would they be liable for negligence?  I’m pretty sure that if a judge were to see one of these cases the cost to the employer could be enough to send them into bankruptcy or at least result in severe financial loss after punitive damages.  I would ask if the efficient outcome is happening.  Do individuals actually evaluate the costs and benefits adequately?  Is all of Friedman’s reasoning on costs and benefits really applicable because of the irrationality of individuals?  In the example that I used with construction, the reduced benefits associated with safety precautions would probably be outweighed by the expected value of an accident. I like economics because it explains outcomes and gives us a basis for analysis. However, we do always need to recognize its limitations as far as describing particular individuals.

What determines the amount of punitive damage? It almost seems like a random number the jurors or judge select. I understand that it is to punish the offender, but how is that determined? Like in a mechanics garage, do the lawyers have a matrix or a price index? This injury or this loss for this amount of time should be worth x amount of dollars. What would be difficult would be determining another person’s worth and estimated future earnings – during the “” era it would be significantly different than in today’s recession. How would someone evaluate “potential?” In today’s society, if you get screwed over, you want the offender to be very wealthy; otherwise there is no point in putting forth the effort, time, and money. Though if they are wealthy, they will have a talented legal staff to protect their wealth. If they do not have substantial assets, you can’t squeeze blood from a turnip.

I have dealt with a tort law case, and, as I was in the search of a lawyer, there were some specific demands the case had to meet. For one of the lawyers, the case would have to be worth six figures and his share would be thirty-three percent of the winnings on the condition that we won. Others also had similar demands. I found it surprising to find out that one of the requirements was that the case had to be worth six figures Then again, it makes sense. If the case were not worth six figures or more, the amount of time the lawyers were to put in would not be worth the pay he would receive.

In any case, no damages should ever be taxed. These are not earnings. Just as disability pay is tax-free, the government shouldn’t profit from somebody’s suffering some significant injustice or egregious crime.

Do the ends justify the means?

“Walk the Plank” has been my favorite chapter of Leeson thus far, especially the section, “Mixing Business with Pleasure.” (126-131) I found it very interesting that pirates’ revenge on bad captains probably improved captain behavior, and thus, merchant sailors’ welfare. In Leeson’s words, “…administering justice to unscrupulous merchant captains may have generated public benefits for other men employed on the seas.”(127) Talk about unforeseen consequences! The problem of course, is with the initial action, because it is something negative producing the positive externality. An application to modern society would be the return to the question; do the ends justify the means? Luckily for 18th century society, pirates were outside the law, so such a question didn’t have to be answered. They were able to enjoy the “benefits” of pirate brutality without questioning the morals of such actions. They didn’t have to legislate the requirement that merchant captains be good to their crews. An extralegal mechanism incentivized it. This brings me to J.S. Mill’s “On Liberty.” In this classic work, Mill articulates the “harm principle” which basically says that a man’s freedom shouldn’t be limited until it interferes with another man’s liberty. Or in other words, nobody should be forcibly prevented from acting in any way he chooses, provided his acts are not invasive of the free acts of others. So Mill goes on to say that the enforcement of laws can be done either through legislation, or through social norms. I have significant problems with some of the ways in which the harm principle is applied, but I do like the fact that Mill suggests that not all harms need to be prevented through the force of law. Not everything has to be legislated. I feel like in today’s politics, everything is a law, and many things are now “rights,” like the RIGHT to Internet access or the RIGHT to healthy foods. I’m all for Internet access and nutrition, but I feel like sometimes government legislates to the point that more fundamental rights are being breached so as to secure less fundamental rights. (Property rights being breached to ensure equality, or whatever example you want to use.) This post is really unorganized, sorry about that, but to bring it full circle, it might be nice to have some pirates around today to enforce a few things so that the government wouldn’t have to have its hands in everything. Not that I’m promoting organized crime or anything… I don’t really know what I’m promoting actually. I’m just letting my thoughts fall out on this blog so that I have something to turn in. 😉 But the final question I’ll be considering is this: Are there any illegal activities in our society today that provide positive externalities?


I have thought a lot about the older woman who sued McDonald’s for her coffee spill since we talked about it in class.  I think that she can be compared to the pirates in chapter 5 of Leeson.  Pirate torture threats are incredibly similar to the ways that sharkish people can stick it to big corporations who struggle to protect themselves.  A small, rogue group can successfully make a killing taking advantage of the fears of larger entities by challenging a weak point.  In the case of pirates, they take a merchant ship that may have more crew members by challenging their willingness to endure torture while holding on to their money.  It’s too big of a risk for the merchants to take to fight, but not too big for the pirates.

The old woman at McDonald’s and others who will go after bigger entities by attacking their weakness, will threaten court action until they receive the payment they demand (just like the pirates holding out for the hidden money through torture).  The McDonald’s lady would be considered by most people (law makers included) as a social deviant.  She manipulates the “good faith” between people, just like the safety and friendship sailors would expect to encounter from other ships they find on the open sea.  The difference is that the socially unacceptable behavior is permitted by law in the case of the McDonald’s lady.  This could be one of the few instances in which legal behavior is widely unacceptable.  If we as a people indirectly make the laws, why do we allow this kind of behavior? There is a thin line between reasonable grievance, and downright extortion.  We must preserve the right to bring grievance, but extortion can be masked as a grievance through argument.

Punitive Damages

If I was going to look at the legal system of the US and told to identify one thing that you think is wrong with it, I would say it was the ability for people to be awarded punitive damages. To me, punitive damages, thinking economically, are pointless. Economics is all about finding the most efficient point, and if you are awarding damages above the point where the other party would be no worse off if the tort hadn’t happened, then someone is making a profit off of it. And this will encourage rent seeking behavior. This is not something that we want to encourage. People will put themselves into situation where they may have a tort imposed on them so they can collect on a huge punitive damage award.

I think that if we did away with this system then people would take reasonable accommodations as to not be victims of a tort. Yes they will get compensated for the time they have lost and the cost imposed on them, so that they are no worse off than if the tort hadn’t happened. But they won’t get any more compensation then that. In my mind the galaxy will balance itself and everyone will go on their merry way. Now only if I can get the rest of the world to think like an economist…

BLAME thrower

It seems that the old saying “when you point your finger at someone there is three other pointing back at you” isn’t always the case when it comes to legal matters.  Let’s take the example that we talked about in class, the seemingly frivolous lawsuit that was brought against Mc. Donalds.  In this case a older lady spilled coffee in her lap that led to third degree burns and skin grafting.  Most customers would have just taken the blame and full responsibility for their action.  But the lawsuit was persued and the judgement was for the plaintiff.  It seems that the lawsuit was won for a few reasons, gross negligence being the legal base.  I think the jury saw Mc Donalds on this and other similar cases trying to point the finger of blame on the customers when in fact they had three other fingers pointing back at them.  I just thought that it was interesting that the reason this case was won had very little to do with gross neglect, but more to do with Mcdonalds trying to point the finger.  If they would have taken responsibility they could have settled for much less money.

Stick it to the Man.

Leeson says that Pirates inflicted punishment as a way to discourage future misbehavior, as a way of dispensing ‘justice,’ and sometimes out of mere ‘sadism.’  It could be argued that courts also inflict punishment for all of those reasons at different times and in differing degrees.  So pirates = the courts, and we, the poor citizens = the sailors and merchant captains.

Thinking of it in this sense, it’s difficult to understand why some sailors would refuse to admit where the ‘coffer’ was even under torture.  Were they just trying to stick it to the man?  But if we turn the tables, this is a way for the merchants to ‘inflict punishment’ on the pirates by not letting the pirates get their booty.  If that continues to happen, the pirates are going to be discouraged from future piracy.  But apparently it didn’t work.  Plus it sounded incredibly painful.  And if the merchants couldn’t discourage the pirates, I don’t think there’s any way for us, the poor citizens, to discourage the courts.  Unfortunately.

Leeson also said that “pirates couldn’t afford to torture prisoners indiscriminately,” because such torture would render the torture ineffective–if you know you’re going to be tortured anyway, might as well try to hide your loot.  It’s a problem of moral hazard.  If cops pulled us over all the time whether we were speeding or not, it would be in our best interest to speed (if you wanted to, I guess).  We better warn law enforcement about this moral hazard problem.

Torture, Booty, and Cupcakes!

Reading Leeson with dealings with pirate plundering has led me to consider a different look on brand names. I’m sure that pirate captains weren’t sitting around a table with their social economists to consider all of these scenarios dealing with the art of scare tactics. Of course it was something that just happened over the years of pirating and what they had found in their times to work best and produce the most booty. Leeson talks about all of the intimidating tactics performed and torturous acts done to try and locate the treasures on the ship. But in order for torture to be just a tactic to try and boast a reputation for the pirates and deter merchants from hidden their goods, doesn’t that mean that sometimes they would have to let merchant sailors off easy for complying to their obvious wants. Would a counter reputation also have to be made that if a merchant just gives them what they want then they will set you on your way with little harm? Leeson started by talking about how the pirates were not as barbaric as history has made them out to be, but then followed it up with story after story of how they would torture merchants to try and locate their goods. It sounds like to me a reputation has to work both ways in order to be affective. The merchant sailors would have to consider either trying to hide their goods and chance that they ran across a set of pirates that didn’t have the stomach for torture, or just giving up there goods and chancing that they ran across a set of pirates that believed they weren’t hiding anything else.

Also the reputation would work not only for the pirates but also for the merchants as well. I would have to consider that there would be ports around pirate stomping grounds where word would travel more effectively. That the pirates could see a ship that was out of a certain area and determine a first impression of how the plunder was going to be. If you factored in the reputation of the pirates to the equation surely you would have to factor in the reputation of the merchant sailors as well. I’m sure that pirates would see a ship, determine the ethnicity of sailors aboard and make a judgment call like, “Oh, that ship is out of Greece. Those sailors are a bunch of wussy’s and always give up everything.” Or, “That ship is out of England and it would be a big bloody fight to take over that ship.” Kind of like a now a day bullying scenario. A bully is not going to walk up to the captain of the football team and try to bully his way into a cupcake. He is going to strut through the halls of school looking for the everyday weak to take the cupcake from his lunch bag. Not only does the victim see his captor coming and make a judgment call like, “Oh crap, here comes O’Doyle. If I don’t give him my cupcake he is going to give me a wedgy and lock me in my locker. So I am just going to give it to him so I only get punched in the arm once.” But also the bully makes a judgment call by determining that just by approaching this victim he will get a cupcake for little work. You would have to conclude that pirates did do these types of analysis in determining on weather to engage a potential target. Maybe if we had an underground pirate crew now-a-days that went around and preyed on people for committing frivolous lawsuits we could have a more current reputation that would do us some good.