Wednesday, June 13, 2012

The Tortfeasor Tortoise

Although I am not a lawyer, I enjoy reading and thinking about law.  One (somewhat funny) legal term that I keep coming across is torts or tort law.  In layman's terms, a tort is an action that (unfairly) causes someone else to suffer loss or harm.  The party that is responsible for the harm is called the tortfeasor.  One reason I come across this term often is that Antitrust Law is a subset of tort law (Antitrust is also a subset of Industrial Organization, my primary field within economics).

At any rate, why do I bring this up now?  Shanna forwarded this story from Yahoo news.
After living together in captivity for 115 years, a mated pair of giant tortoises at an Austrian zoo are refusing to share their cage.
Last week, the Austrian Times reported the turtles were getting a "divorce," after the female turtle, Bibi, bit off part of the male turtle, Poldi’s, shell.
Zoo staff reported the pair have reached the point where they “couldn’t stand each other,” and despite staff efforts to reconcile the reptiles, with aphrodisiacs and interactive games, nothing seems to have helped.
If wrongful biting were a well-established tort, I think Poldi might have a case.  Then, we could call Bibi the Tortfeasor Tortoise.

Sunday, June 10, 2012

Chicago Law and Economics

MR and Ryan point to an interesting article about the Chicago School of Law and Economics.  Here's an interesting excerpt:
But Hanson wonders whether law and economics scholars on the whole have gone far enough in incorporating humanity. A case in point: Should the question of motivation matter in assessing damages? A dispassionate law and economics analysis still might say no, while an ordinary juror would say unequivocally yes. As the great jurist Oliver Wendell Holmes Jr. once wrote, “Even a dog distinguishes between being stumbled over and being kicked.”
Defenders of Chicago-style law and economics want to be seen not as ideologues, but as realists. Posner again: “We ask not whether the economic approach to law is adequately grounded” in any particular ethical system, “but whether it is the best approach for the contemporary American legal system to follow.” That’s an appeal to an older Chicago intellectual tradition—pragmatism.
The article -- entitled Will Success Spoil the Chicago School? --  is definitely worth a read.

Friday, June 1, 2012

Incumbents and Entrants in the Casino Market

You may have noticed that I have not posted to this blog in over a month.  I'm coming out of radio silence to tell you a little about what I have been doing to give you a sense for why I have not been posting.  

In the last month, I made a concerted push to move my research forward for my thesis proposal.  This required a great deal of effort on my part, and I felt that diverting my effort into regular blog posts would lead to (A) lower-quality thesis proposal research, and (B) lower-quality blog posts.  I chose to spend all of my time on my proposal because my thesis committee (my primary concern) and my blog readers (secondary concern, no offense) deserve better.

Another way to put it is that there both cost-based (thesis proposal) and benefit-based (blog quality) reasons why I haven't been blogging.  The rest of this post is about the cost side, but I plan to devote a future post to the benefit side.


Now that I have completed my thesis proposal, here's an update of what I have found so far.  My paper is a study of the strategic interactions between incumbent firms and new entrants/ challengers, and I use some really detailed information about the American casino industry to make several points, which are my main findings:
  1. Around the time of an entry announcement of a close geographic rival, established incumbents make observable investments in casino capacity (expanding their gaming floor space).  As an interesting feature of the casino setting, these investments occur during the planning stage.
  2. Preemptive expansions in capacity (as in 1) seem to be predictive of failed entries.  I find 20 percent more failed entries for large capacity expansions (a standard deviation above the mean) than for the average.
  3. These results are consistent with stock market information about publicly-traded casino firms.  Three years after the first planning event (and controlling for a lot of things), I find that failed entries result in a 10 percentage point greater incumbent stock market value when compared to successful entries.
These facts do not fit with a demand-side story.  Maybe unobserved demand for casinos could explain #1 (incumbents expand capacity), but not at the same time as #2 (more failed entry when incumbents expand capacity).  Also, if you think that demand was driving things, you would be really surprised that failed entries (likely with low demand) result in higher stock market value for incumbents.  Taken together, I view these facts as evidence of strategic behavior by incumbents and entrants.

There's more to the research, including corroborating results and robustness checks, but this is the main idea.  In the future, if there is demand, I will post my thesis proposal slides on my research page.