Take the purest example of blackmail: a photographer snaps shots of an adulterous couple, and sells the photos back to them for much money. Blackmail! But what if they just happened to be in a shot that the photographer was taking of other people? Then the photographer is suppressing the photos to help the couple, and charging a reasonable fee for that (what if the fee is unreasonable? does it make a difference?). But what if the photographer deliberately hangs around areas where trysts often happen, to get some extra cash? Or what if they don’t do that deliberately, but photographers who don’t hang around these areas can’t turn a profit and change jobs, so that only these ones are left?
Right. I think the best definition of extortion, if there’s one, has to do with expending costly resources in order to gain a better bargaining position in a zero-sum way. There’s also a general notion that agreements should be “free and non-coercive” if we are to avoid extortion, which then calls for some notion of property rights (quite possibly a better name than “defaults”). But what default property assignments should we choose?
Generally, the most efficient assignment will attempt to simply replicate the post-trade outcome—here, we’re either going to say that a photographer can be found liable for snapping shots of adulterous couples, or that couples should expect to take precautions in order to avoid being photographed, depending on what’s most sensible. This of course involves a “least cost principle”, so in some way we’re back to the earlier notion that avoiding zero-sum resource waste is what’s key to this distinction. But of course there are other considerations, including equity and preserving good incentives under limited information—all of these issues are quite familiar to social scientists.
The idea is that an assignment of property rights should be such that agents do not need to engage in trade negotiations thereafter simply to fix a bad assignment. This is because negotiation is itself costly, and sometimes even impossible (as in the case of asymmetric information). Thus, property assignments should try to anticipate the outcome of these “fixup” negotiations. For instance, when the Soviet Union has the right to station nukes in Cuba then we need to negotiate in order to fix this, when it’s quite clear ex-ante that the negotiations will result in no nukes being allowed in Cuba.
Thus, property assignments should try to anticipate the outcome of these “fixup” negotiations.
Generally speaking, yes, but the whole point of relying on the market as opposed to central planning is that quite often you do not know (or are mistaken about) the outcome of the negotiations.
For instance, it’s not obvious to me at all that ex ante it was clear that the Soviet nukes would not be allowed in Cuba.
Right. I think the best definition of extortion, if there’s one, has to do with expending costly resources in order to gain a better bargaining position in a zero-sum way. There’s also a general notion that agreements should be “free and non-coercive” if we are to avoid extortion, which then calls for some notion of property rights (quite possibly a better name than “defaults”). But what default property assignments should we choose?
Generally, the most efficient assignment will attempt to simply replicate the post-trade outcome—here, we’re either going to say that a photographer can be found liable for snapping shots of adulterous couples, or that couples should expect to take precautions in order to avoid being photographed, depending on what’s most sensible. This of course involves a “least cost principle”, so in some way we’re back to the earlier notion that avoiding zero-sum resource waste is what’s key to this distinction. But of course there are other considerations, including equity and preserving good incentives under limited information—all of these issues are quite familiar to social scientists.
I like this, and I think I know what you mean, but does “simply replicate the post-trade outcome” have a precise meaning here?
The idea is that an assignment of property rights should be such that agents do not need to engage in trade negotiations thereafter simply to fix a bad assignment. This is because negotiation is itself costly, and sometimes even impossible (as in the case of asymmetric information). Thus, property assignments should try to anticipate the outcome of these “fixup” negotiations. For instance, when the Soviet Union has the right to station nukes in Cuba then we need to negotiate in order to fix this, when it’s quite clear ex-ante that the negotiations will result in no nukes being allowed in Cuba.
Generally speaking, yes, but the whole point of relying on the market as opposed to central planning is that quite often you do not know (or are mistaken about) the outcome of the negotiations.
For instance, it’s not obvious to me at all that ex ante it was clear that the Soviet nukes would not be allowed in Cuba.
That is not clear, especially given the precedent of Turkey.
But thanks for clarifying that definition!