Eric Rasmusen's Recent Papers (June 19, 2015)

Abstracts and downloads of all my published and unpublished papers are at and . Business Economics and Public Policy, Kelley School of Business, Indiana University. [email protected]

Project: "What Does It Mean To Be a Liberal? An Objective Approach.'' with J. Mark Ramseyer. How does one define what it means to be a liberal? We suggest a measure based on what the average person thinks it means, regressing a person's self-reported liberalism on his characteristics and answers to political survey questions. This method allows one to test whether people think of liberalism as social identity (``I'm an unmarried black female, so I must be liberal'') or political belief (``I'm pro-abortion, so I must be a liberal'').

"Requirements Contracts and Transactions Costs.'' Requirements contract ensure reliable supply at a pre-arranged price without having to resort to efficient breach if the buyer is unsure of his future demand and the seller must invest in capacity or specialization. Transaction costs are key; without them a better outcome can be obtained with a fixed-quantity contract.

Project: "Understanding Shrinkage Estimators: From Zero to Oracle to James-Stein." Constructing an estimator by shrinking the sample mean results in a biased estimator, with an expected value less than the population mean. On the other hand, shrinkage reduces the estimator's variance and mean squared error. This paper tries to explain how that works. I start with estimating a single mean using the zero estimator and the oracle estimator, which is allowed to use in an ancillary role the very parameter being estimated. I continue with the unrelated-average estimator and the James-Stein estimator.

Project: ``Why Immigration Is Different from Free Trade.'' Can immigration hurt the welfare of a country? Yes, if there are decreasing returns to the factor, or if the dilution of ownership of public capital is even moderately important. Free trade is different because it has no direct effect on domestic marginal productivity. Capital inflow is different because it does not convey ownership of public capital.

Project: "Machiavelli: The Han Fei of Italy?" (with Dan Zhao). 1,700 years before Machiavelli, Han Fei also put aside morality and emphasized maintaining order in a world where intrigues could not be prevented by education in virtue. Both were vilified over the centuries, but nonetheless had immense influence.

"Quasi-Concavity versus Concavity,'' with Christopher Connell. We show that if and only if a real-valued function f is strictly quasi-concave except possibly for a flat interval at its maximum, and furthermore belongs to an explicitly determined regularity class, does there exist a strictly monotonically increasing function g such that g of f is concave. We prove this sharp characterization of quasi-concavity for functions whose domain is any Euclidean space or even any arbitrary geodesic metric space.

The Economics of Regulation. I have notes for an undergraduate textbook on regulation. I start with 4 chapters of theory (supply-and-demand, market failure, government failure, discounting and life valuation) and have just 2 chapters of antitrust, with 6 more chapters on other topics. My aim, if I do end up trying to publish this, is to write a relatively short book (350 pages) with lots of photos and stories, skipping many topics and being interesting enough for someone to read for recreation.

"The Concealment Argument: Why No Proof for God’s Existence Will Be Found," Logic and Biblical evidence suggest that God wishes that some but not all humans become convinced of His existence and desires. If so, this suggests that attempts to either prove or disprove such things as God's existence, past miracles, or present supernatural intervention are doomed to failure, because God could and would take care to evade any such efforts.

"Fine Tuning, Hume’s Miracle Test, and Intelligent Design," with Eric Hedin. Fine tuning is the puzzle that several physics parameters need to take certain precise values. Hume’s miracle test says that we should balance the probability an event truly occurred against the probability the witness is lying. Fine-tuning is conceptually the same as a miracle: physicists propose a theory that works only if extreme coincidences occur. We must compare this with the probability the scientists are lying or deceived. If we postulate an intelligent designer, the coincidences are explained. Intelligent design thus makes the falsifiable prediction that current physics theory will continue to make correct predictions of reality.

"Exclusive Dealing: Before, Bork, and Beyond," with J. Mark Ramseyer. Journal of Law and Economics, forthcoming. Antitrust scholars have come to accept the basic ideas about exclusive dealing that Bork articulated in The Antitrust Paradox. Indeed, they have even extended his list of reasons why exclusive dealing can promote economic efficiency. Yet they have also taken up his challenge to explain how exclusive dealing could possibly cause harm, and have modelled a variety of special cases where it does. Some (albeit not all) of these are sufficiently plausible to be useful to prosecutors and judges.

"Lowering the Bar to Raise Up the Bar: Licensing Difficulty and Attorney Quality in Japan," Journal of Japanese Studies (2015) with J. Mark Ramseyer. A relaxation in licensing standards can increase the quality of those who enter the industry. The effect turns on the opportunity cost of preparing for licensing. Making the test easier can increase the quality of those passing by increasing the number willing to take the test. We explore the theoretical circumstances under which this can occur and the actual effect in Japan from 1992 to 2011.

"Coarse Grades,'' with Rick Harbaugh. Certifiers of quality often report only coarse grades to the public despite having measured quality more finely, e.g., "A" instead of "98". Why? We show that using coarse grades can actually result in more information reaching the public, because it encourages low-quality individuals or firms to become certified. In our model the certifier aims to minimize public uncertainty over quality subject to the feasibility constraint of voluntary certification at a fixed cost. Moving from the best exact grading scheme to the best coarse one (a) induces more participation and (b) reduces public uncertainty.

"Project: Hilbert's Side-Angle-Side Axiom in Proposition I-4 of Euclid's Elements". I search for a better axiom with which to fix up Euclid's flawed proposition that two triangles are the same if two of their sides and the angle created by them are the same.

"Can the Treasury Exempt Companies It Owns from Taxes? The $45 Billion General Motors Loss Carryforward Rule" (with J. Mark Ramseyer), The Cato Papers on Public Policy, Vol. I, article 1 (2011) edited by Jeffrey Miron. . After the government joined private parties in purchasing most of General Motors, the Secretary of the Treasury issued the "EESA Notices” which said that the usual tax rules would not apply and the purchasers could deduct $45 billion from their future corporate income. We argue that the EESA notices have no legal justification. .

"How Useful Is a Product Umbrella for Reputation?'' forthcoming, Journal of Economics and Management Strategy. A firm with a reputation for high quality in one product may usefully extend that reputation to other products. I look at how that works in a moral hazard model of product quality.