Bioethics, Rent-Seeking, and Death: Examining the Opposition to Kidney Markets

The market for kidneys offers a case study of Baptists and Bootleggers. In almost every country, sales are currently illegal and donated organs are allocated by a central planner. Thousands of people die every year, because of the shortage caused by the absence of markets. This paper starts by examining the free-market alternative, and shows that a market would solve the shortage (and thus unnecessary deaths). It then uses gains-from-trade analysis to explain why current vested interests oppose a move to a market, despite the immense potential for saved lives. In a shift to a market, gains from trade would be distributed away from lucky patients (who receive a zero-price kidney) and various industries that benefit from the shortage (dialysis, medical equipment, etc.); these “Bootleggers” form an alliance with “Baptists” (altruistic donors, large segments of the bioethics community, and organ allocation central planners).

Partial ex-post verifiability and unique implementation of social choice functions

This study investigates the unique implementation of a social choice function in iterative dominance in the ex-post term. We assume partial ex-post verifiability; that is, after determining an allocation, the central planner can observe partial information about the state as verifiable. We demonstrate a condition of the state space, termed “full detection,” and show that with full detection, any social choice function is uniquely implementable even if the information that can be verified ex-post is very limited. To prove this, we construct a dynamic mechanism according to which each player announces his (or her) private signal, before the other players observe this signal, at an earlier stage, and each player also announces the state at a later stage. In this construction, we can impose several severe restrictions such as boundedness, permission of only tiny transfers off the equilibrium path, and no permission of transfers on the equilibrium path. This study does not assume either expected utility or quasi-linearity.

Equilibrium Theory: A Simple Production Model

This is the first of several chapters dealing with the dynamic equilibrium theory. As an instructive first example we study a simple Cox–Ingersoll–Ross type of production model. The equilibrium concept is given a precise formulation and we derive the equilibrium short rate as well as the equilibrium stochastic discount factor. We also study the associated optimization problem for a central planner and prove that this is equivalent to the equilibrium problem.

The Cox–Ingersoll–Ross Factor Model

In this chapter we present a slightly simplified version of the general Cox–Ingersoll–Ross factor model. We derive the equilibrium short rate, the equilibrium stochastic discount factor, the relevant market prices of risk, and the equilibrium Girsanov kernel. A central planner is also introduced, and we prove equivalence.

OVERCOMING FINANCIAL FRICTIONS WITH THE FRIEDMAN RULE

A general equilibrium model with financial frictions in which individuals may encounter unobservable investment opportunities is developed along the lines of Kiyotaki and Moore (2012). I study efficiency properties induced by money and monetary policy when financial frictions prevent optimal equilibrium allocations. By providing closed-form solutions to all prices, allocations, welfare, and, especially, the distribution of individuals with respect to assets, I show that the Friedman rule achieves maximal social welfare, independent of how tight the financial constraints may be. The same level of welfare would be induced by an omniscient central planner able to verify who has an investment opportunity.

Efficient Combinatorial Allocations: Individual Rationality versus Stability

We investigate combinatorial allocations with opt-out types and clarify the possibility of achieving efficiency under incomplete information. We introduce two distinct collective decision procedures. The first procedure assumes that the central planner designs a mechanism and players have the option to exit. The mechanism requires interim individual rationality. The second procedure assumes that players design a mechanism by committing themselves to participate. The mechanism requires marginal stability against blocking behavior by the largest proper coalitions. We show that the central planner can earn non-negative revenue in the first procedure, if and only if he cannot do so in the second.

CONNECTIVITY AND ECONOMIC GROWTH

We present a simple theoretical model that illustrates the benefits of regional connectivity and specialization for growth. Starting with one community, we show how welfare measured by utility per head increases as the number of connected communities increases. We assume a common connectivity infrastructure through which a central planner is able to add new communities to the pool of already connected communities, a costly but rewarding activity that is funded by levying a tax on those already connected. We find that increasing production costs lead to faster transitions toward the steady state, whereas increasing transportation and communication costs tend to lengthen the transition. The results point to reductions in transportation and communication costs, in particular, as a suitable vehicle for speeding up growth and underline the existence of a positive scale effect that induces integration and reinforces both transitional and steady state growth.

Comparative Criminal Law: An Economic Perspective

This paper develops an economic model to explain how societies make decisions about criminal law based on efficiency. The scope of criminal law depends on activities considered harmless or harmful. Besides different scope of criminal law, different societies can also have different punishments for certain kinds of crimes. This divergence stems from the relative importance of factors that societies consider in optimizing social loss from criminal activities. These factors are: the harmfulness of the crime, retributive or regretful emotions towards offenders or what is called “humanity of punishment” and the deterrent effect of certain punishments. Different attitudes towards these aspects lead to differences in criminal law. Once sources of divergence have been identified, the key question is who decides the above features? The answer depends crucially on the political constitution of the society. In authoritarian systems, the central planner formulates the criminal law; in democratic systems “public opinion” can have different degrees of influence. The most common style in forming criminal justice policies in advanced democracies is “insulated delegation” or “professionalization of punishment,” in the hands of the academic elite.