Monthly Archives: November 2008

Information Asymmetry – A case of what you don’t know will hurt you

This blog entry describes how and why opaqueness is a must on Wall Street and notes the obvious — that a drive to maintain informational advantage frustrated attempts to regulate (and continues to do so) dangerous practices of asymmetry.

Transparency is the enemy of information advantages, and opacity is the friend of high margin investment products.  In the wake of unprecedented regulation after the dot-com bubble and the Worldcom and Enron scandals, Wall Street turned transparency and disclosure on its head by layering so many documents onto each other, few people ever bothered to read them.  This obfuscation of otherwise transparent information recreated new informational asymmetries leading to new high margin businesses.  Informational advantages are what drive Wall Street profits.

A drive to maximize informational advantage defeats market mechanisms and public regulatory efforts leading to both market and public value failure.

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Filed under Market Failure, public failure

Is technology a solution to information asymmetry?

While the author of this article is focusing on the “privacy” issues arising from research (Reality mining) using data found with new technologies, I think he highlights a means to battle information asymmetries (IA).  IA leads to situations including moral hazards and I think act like a cancer on markets — and can lead to market failures.  So, can technologies that defeat IA be a good (thing)?

And, so far as privacy is concerned, perhaps we should remember the not too distant past:

“The new information tools symbolized by the Internet are radically changing the possibility of how we can organize large-scale human efforts,” said Thomas W. Malone, director of the M.I.T. Center for Collective Intelligence.

“For most of human history, people have lived in small tribes where everything they did was known by everyone they knew,” Dr. Malone said. “In some sense we’re becoming a global village. Privacy may turn out to have become an anomaly.”

Some links to follow:

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Filed under Economies, Market Failure

Recession – Market Failure?

a search using the terms “is recession market failure” referred someone to this site.

It is a question to study — and to discuss whether public values failure contributed to the market failure.

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Filed under Economies, Uncategorized

Public Values – Legislation

A letter to the editor in the AJC (which does not support permalinks — so this link will die) raises some issues about a law in Georgia requiring a “comprehensive character education program” (see O.C.G.A. § 20-2-145).

(a) The State Board of Education shall develop by the start of the 1997-1998 school year a comprehensive character education program for levels K-12. This comprehensive character education program shall be known as the “character curriculum” and shall focus on the students’ development of the following character traits: courage, patriotism, citizenship, honesty, fairness, respect for others, kindness, cooperation, self-respect, self-control, courtesy, compassion, tolerance, diligence, generosity, punctuality, cleanliness, cheerfulness, school pride, respect for the environment, respect for the creator, patience, creativity, sportsmanship, loyalty, perseverance, and virtue. Such program shall also address, by the start of the 1999-2000 school year, methods of discouraging bullying and violent acts against fellow students. Local boards shall implement such a program in all grade levels at the beginning of the 2000-2001 school year and shall provide opportunities for parental involvement in establishing expected outcomes of the character education program.

(b) The Department of Education shall develop character education program workshops designed for employees of local school systems.

HISTORY: Code 1981, § 20-2-145, enacted by Ga. L. 1997, p. 1386, § 1; Ga. L. 1999, p. 362, § 2; Ga. L. 1999, p. 438, § 2.

Jonathan Herman wrote the letter, and, among many points, he says:

To be fair, I should say that of the 41 values and character traits articulated in the guide, many of them struck me as innocuous. I don’t really have any problem with “cleanliness,” “fairness,” “honesty,” or “respect for others.”  Others bothered me only slightly, though they left me a bit confused. Why was “moderation” listed, but not “passion?” Why was “cooperation” listed, but not “leadership?” Why are both “honesty” and “truthfulness” included? Are these somehow understood as different qualities? Is it really the charge of public educators to instill
“cheerfulness” in the student? And what on earth do they mean by “virtue?” Aren’t the other forty traits supposedly “virtues?”

Trying to understand which “values” drive what “policy” can be an interesting test of detective skills.  But, what of legislation that directly reflects public values within the text.  You can’t be more explicit than the bill that created OCGA 20-02-145.  And, you cannot have a more explicit example of public values failure than when you measure the outcomes of such legislation.


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Filed under Government, public failure, public values

Failure – Market, Public, and Ethics

Friedman thinks we hit the trifecta of failures with regards to the financial crisis.

This financial meltdown involved a broad national breakdown in personal responsibility, government regulation and financial ethics.

No time to do it now – -but need to find the Michael Lewis piece he mentions.

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Filed under Market Failure, public failure

Public Value Failure — Truth as casualty?

So, an oil company hires a professor to write a peer reviewed article designed to prove that punitive damages “make no sense”.  While writing the article, the professor concludes that greater transparency encourages “responsible corporate behavior.”  However, the oil company’s lawyers took offense to this unsolicited conclusion and cut off the professor’s funding.  To wit:

“Advocating greater openness to a lawyer,” the professor said, “is about as effective as advocating greater temperance at a bartender’s conference.”

This article points to an interesting area of examination regarding public value failure, the courts.  Perhaps a discussion on science and its use/abuse in the legal system could be constructed to “pick apart” the many ways that public values are treated within an institution where justice is the goal.

But, the professor concludes with a real zinger:

“The legal system and the scientific method,” he said, “co-exist in a way that is really hard on truth.”

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Filed under Government, public values

Market Failure – Public Value Failure : An Intersection

When you have a program, such as the one described in this NYT article on private Medicare insurance, that relies on the market to solve a public value problem, and that program fails — you end up in the total failure quadrant.

(need a picture here)

Private health insurance plans, which serve nearly a fourth of all Medicare beneficiaries, have increased the cost and complexity of the program without any evidence of improving care, researchers say in studies to be published Monday.

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Filed under Market Failure, Policy