More on Realtor's contracts and practices, and the recent court decision

 Here are some further articles with some details about the recent court decision that real estate contracts are anticompetitive. Both are from the Washington Post:

Jury awards $1.8B in realty case that could shake up brokerage commissions. A Kansas City jury unanimously found that the National Association of Realtors and other organizations conspired to artificially inflate home sale commissions   By Julian Mark 

"The plaintiffs pointed to an NAR rule that required sellers to make a nonnegotiable commission offer before listing homes on the property database, the Multiple Listing Service, or MLS, which feeds widely used real estate sites including Zillow. That commission hovers around 5 to 6 percent of the sale price and is paid by the home seller to the sellers’ agent and the buyers’ agent. If sellers do not agree to the commission terms, they go virtually unseen in the market, Ketchmark said.

"The rule has stifled competition and has resulted in higher prices, the plaintiffs alleged. They argued that if the rule were not in place, buyers would pay commissions to their own agents while buyers’ agents would have to compete by offering lower rates. The lawsuit pointed to countries whose total real estate commissions average 1 to 3 percent, such as the United Kingdom, Singapore, the Netherlands, Australia and Belgium.

########

Real estate industry trembles over commissions on home sales. After jurors recently found that there was a scheme to inflate commissions, experts say changes could shake up the business  By Julian Mark

"The judge overseeing the case has the power to issue an injunction that could break up the century-old “bundled” or “cooperative” commissions system, in which sellers’ and buyers’ agents split a commission that typically ranges between 5 and 6 percent of the home sale price. 

...

"The cooperative compensation structure was established in 1913, when National Association of Real Estate Exchanges, the precursor to NAR, said its member agents should share commissions with agents that produced buyers, according to a 2015 study by economists Panle Jia Barwick and Maisy Wong. The commissions rate hit 5 percent in 1940 and has remained virtually unchanged ever since, according to the study.

"Commissions work differently in countries such as the United Kingdom, where sellers pay typically less than 2 percent, and buyers pay their own agents, according to the study."

######

And here's the cited paper:

Barwick, Panle Jia, Parag A. Pathak, and Maisy Wong. 2017. "Conflicts of Interest and Steering in Residential Brokerage." American Economic Journal: Applied Economics, 9 (3): 191-222.

Abstract: This paper documents uniformity in real estate commission rates offered to buyers' agents using 653,475 residential listings in eastern Massachusetts from 1998–2011. Properties listed with lower commission rates experience less favorable transaction outcomes: they are 5 percent less likely to sell and take 12 percent longer to sell. These adverse outcomes reflect decreased willingness of buyers' agents to intermediate low commission properties (steering), rather than heterogeneous seller preferences or reduced effort of listing agents. Offices with large market shares purchase a disproportionately small fraction of low commission properties. The negative outcomes for low commissions provide empirical support for regulatory concerns over steering.

Sex work contracts are enforceable in small claims court, in Canada

 In Nova Scotia (where selling sex is legal but buying it is not), a sex worker sued a delinquent client for her fee and won (despite his argument that contracts requiring a party to commit a crime were unenforceable).

Former sex worker's victory in small claims court sets precedent, lawyer says. Decision clarifies that contracts for sex work are enforceable. by Moira Donovan · CBC News 

"A former sex worker in Nova Scotia has successfully sued a client in small claims court for non-payment of services. She and her advocates hope the decision will change the legal landscape for sex work in Canada.

"The case relates to an incident in January 2022 when Brogan, whom CBC News is only identifying by her first name because she is a survivor of human trafficking, spent an evening with a client.

"Afterward, the client refused to pay the agreed-upon fee.

"Brogan then turned to small claims court to recover the money — in what advocates believe is the first time such a case has come before the courts in Canada — and won a judgment that she was entitled to the unpaid amount, plus interest and costs.

...

"Brogan met the client in question, ... through a website called LeoList that's used by sex workers and their clients. After some discussion about rates and services, Brogan travelled to Samuelson's apartment, where she spent the evening.

...

"There was offer, there was an acceptance of the offer, there was certainty of terms, so all the hallmarks of an enforceable contract were there," said Jessica Rose, Brogan's lawyer.

"But the central question in the case was whether contracts for sex work are enforceable — a question that relates to the legislation governing sex work in Canada. 

"The Protection of Communities and Exploited Persons Act, which passed in 2014, is supposed to protect people from the risks involved in sex work. It amended the Criminal Code to remove the criminal penalty for individuals who sell their own sexual services, and eliminated criminal charges for those who support sex workers, such as drivers or security personnel.

"But aspects of that work remained criminalized, including the purchase of services.

"In this case, the defendant argued that contracts for sexual services were not enforceable because you could not have a contract in which one party — in this case, the client — had to do something illegal.

...

"adjudicator Darrel Pink concluded that because sex work is legal and the business arrangements supporting sex work are legal, it follows that the benefits of commercial law apply, including access to a civil claim — the same as any other service provider.

...

"Failure of the court to provide a remedy for a wrong or a breach of duty owed by a client would contribute to the very exploitation the legislation was designed to prevent," he wrote."

HT: Kim Krawiec

Lawsuits involving NKR's kidney exchange contracts

 Kim Krawiec, the Sullivan & Cromwell Professor of Law at the University of Virginia, sheds some light on recent legal exchanges between the kidney exchange nonprofit National Kidney Registry and some of the Transplant Centers that are (or were) members of its network. Both suits (which seem to have been settled out of court) involved the TC's desire to withdraw (or partially withdraw) from NKR's system, and NKR's attempt to charge them $1000/kidney/month in perpetuity (or until they supply the kidneys) for kidneys they received in excess of kidneys they supplied. (In particular, NKR wanted $8000 per month from Colorado forever, or until they supplied 8 kidneys.)  Her post is long and learned, and well worth reading in its entirety, but here are some snippets.

She leads off with this graphic of a judge's gavel hammering a stethoscope

Recent Contract Disputes In The Transplant World November 3, 2021 / By Kimberly Krawiec 

"Readers may be interested in two relatively recent lawsuits involving the National Kidney Registry (NKR) and the University of Colorado Hospital Authority (“UCH,” filed 3/26/21) and the University of Maryland Medical Center (“UMMC”, filed 4/2/2018), respectively. (Citations and links to both lawsuits are at the end of this post)

...

This option to specifically perform is interesting in its own right, and I may say more about it later, but what if a Member Center couldn’t deliver kidneys to the network, say because the UCH kidney transplant program had been closed? Or because they determined that kidney exchange was bad for their patients? In the event that delivering kidneys to NKR is impossible, is a court likely to award NKR these fees into perpetuity – a present value of nearly $5 million? (using an interest rate of 2%, which may understate the amount, given the current low interest rate environment)

"Under the penalty doctrine, NKR would have to describe its loss, and why $1000/kidney/month is a reasonable estimate of it, even if it can’t provide a precise amount. Here, the “in perpetuity” aspect may be troubling to courts, even if the present value is not high relative to whatever the alleged loss is, as it seems unlikely that NKR is harmed in perpetuity if a member center backs out.

...

"when federal law prohibits the exchange of valuable consideration for a kidney, by definition there is no market price for either the court or the contracting parties to reference. Here, the parties attempted to overcome that problem by specifying a recurring charge, but it’s continuation into perpetuity may raise eyebrows, even if the present value of the charges is otherwise reasonable.

***********

The various legal documents can be found at these links

https://kimberlydkrawiec.org/wp-content/uploads/2021/11/Member-Terms-and-Conditions.pdf

 https://kimberlydkrawiec.org/wp-content/uploads/2021/11/Complaint.pdf

 https://kimberlydkrawiec.org/wp-content/uploads/2021/11/May-7-motion-to-dismiss.pdf

 https://kimberlydkrawiec.org/wp-content/uploads/2021/11/1Summons-Complaint.pdf

***********

Given NKR's non-profit status, paragraph 30 of the Colorado complaint caught my eye:

Contract design (by lawyers for users...)

 Here's an interview from the legal blog Above the Law:

Why The Time For Better Contract Design Is Now. Q&A with Stefania Passera and Paula Doyle. By OLGA V. MACK

"In an age of fast-growing complexity, the winners are those who simplify the lives of others.

As part of its mission to promote ease of doing business for social and economic benefit, World Commerce & Contracting has long been a vocal advocate for simpler, user-centered contracts. But what does good contract design look like, in practice? And how do you make a compelling business case for it in your organization?

I caught up with Stefania Passera, contract designer in residence, and Paula Doyle, chief legal innovation officer — the leading ladies behind WorldCC’s design and simplification initiatives — to discuss their most recent initiatives.

Olga Mack: So, I hear you love contracts. How did this happen to you? 

Stefania Passera: I don’t actually love contracts per se, but I love the challenge of transforming them into something clear, useful, and engaging for all stakeholders. I love seeing business people look at contracts with new eyes and understand them for the first time! I love seeing lawyers realizing that they don’t need contracts to be full of legalese for it to be binding and that sticking in everything, including the kitchen sink just in case, is not actually good risk management. My background is in information design, which is the art and science of making complex information usable and understandable. There is a lot of work to be done in the world of contracts!

Paula Doyle: I completely agree with all that Stefania has said. I have been a lawyer in industry for more than 20 years. Frankly, I am bewildered, given all of the other advances in the world during that time period, that contracts remained largely static up until about 5 years ago! Contracts are in essence instruments to help organizations and individuals get things done. At their core they should be understandable. They should not be the domain of only lawyers! 

****************

Here's a Contract Design Pattern Library on the WC&C website.

Contracts can be more than salaries: Hassidim, Romm, and Shorrer in EL

Not all matching with contracts is simple: here's a recent paper that helps put that in perspective.

Assaf Romm writes: "despite the insightful embedding results of Echenique (2012), Schlegel (2015) and Jagadeesan (2019), some real-life matching with contracts markets cannot be represented as markets with salaries. Specifically,  college admissions markets often contain schools that have preferences that do not satisfy unilateral substitutability, but do satisfy bilateral substitutability (Hatfield and Kojima, 2010) and/or hidden substitutes (Hatfield and Kominers, 2015). In this kind of markets the student-proposing deferred acceptance algorithm always concludes with a stable matching, but the existence of a student-optimal stable matching is not guaranteed, and this rules out any embedding into a Kelso-Crawford type of market (in which a student-optimal stable matching does exist)."

Economics Letters

Volume 181, August 2019, Pages 40-42

Contracts are not salaries in the hidden-substitutes domain☆

Author links open overlay panelAvinatan HassidimaAssaf RommbcRan I.Shorrerd

https://doi.org/10.1016/j.econlet.2019.04.025

Highlights

•

Real-life two-sided matching with contracts markets may not be embeddable into labor markets.

•

Hidden substitutes and bi-lateral substitutes preferences do not assure embeddability.

•

We provide examples of centralized college admissions markets that fall under this category.

Abstract

We show that many-to-one matching markets with contracts where colleges’ preferences satisfy the hidden substitutes condition of Hatfield and Kominers (2015) may not be embedded, in the sense of Echenique (2012) into a Kelso and Crawford(1982) matching-with-salaries market. Our proof relies on a configurations of preferences that is observed in many college admissions markets.

Blockchains, smart contracts, and incomplete contracts (and Prysm Group, a startup consulting firm on all that)

There's a lot of talk lately about smart contracts, i.e. contracts written in executable code, but less talk about how all contracts are incomplete (and therefore subject to renegotiation, dispute resolution and issues of residual control), a subject for which Oliver Hart won a recent Nobel.

So I was glad to see this article in Forbes:

Nobel Prize Winner Joins Blockchain Startup To Fix Smart Contracts
by Michael del Castillo

"Long before blockchain was cool, Nobel Prize-winning economist Oliver Hart was into contracts. As far back as 1976, the doctor of economics from Princeton University had been exploring how corporations use contracts to interact, and what happens when things go wrong."

The article is sparked by the fact that Oliver and Preston McAfee, who recently retired from being Chief Economist at Microsoft, have become advisors to a startup consulting company called Prysm Group, which aims to advise blockchain companies about contracts, incentives, and economics generally.

Here's the press release:

Prysm Group Adds Nobel Prize-Winning Economist And Former Microsoft Chief Economist To Board Of Senior Advisors

"Prysm Group provides blockchain organizations with counsel in the complex economic fields of contract theory, market design, game theory, and social choice."

The founders of Prysm Group are two economists who I met when they were graduate students at Harvard, Cathy Barrera and Stephanie Hurder (who I've blogged about before, here, and here).

Wife swapping: it's hard to make binding contracts for repugnant transactions

Yannai Gonczarowski writes:

"A week ago, the following question was asked on a popular Israeli web forum that discusses legal questions: The author says that he and his wife agreed with their neighbor and his wife that they will exchange partners for a day: the neighbor will be with the author's wife for one day, and after the neighbor's wife returns from her current trip abroad, she will be with the author for a day. As you can already imagine, the author writes that the first part happened, but when the neighbor's wife returned from abroad, the neighbor and his wife denied any such agreement and ignored the author's messages. The author says that he has text messages on his phone to prove the agreement and that he spent a considerable amount of money on beverages for the intended day with the neighbor's wife, and asks the readers of the web forum whether he has a cause for legal action against the neighbor and his wife for violating the agreement.

A link to the question on the web forum (the actual Hebrew text is somewhat more colorful/offensive): http://www.lawforums.co.il/SingleMessage.aspx?MessageID=1186029

Indeed, in repugnant markets (at least ones in which an altruist donor beginning a "chain" is unlikely...) simultaneity is key."

Matching with (sexual) contracts, by Arcidiacono, Beauchamp, and McElroy

Quantitative Economics, Volume 7, Issue 1 (March 2016)

Terms Of Endearment: An Equilibrium Model Of Sex And Matching

Peter Arcidiacono, Andrew Beauchamp, Marjorie McElroy

Abstract

We develop a two‐sided directed search model of relationship formation that can be used to disentangle male and female preferences over partner characteristics and over relationship terms from only a cross section of observed matches. Individuals direct their search for a partner on the basis of (i) the terms of the relationship, (ii) the partners' characteristics, and (iii) the endogenously determined probability of matching. Using data from the National Longitudinal Study of Adolescent Health, we estimate an equilibrium matching model of high school relationships. Variation in gender ratios is used to uncover male and female preferences. Estimates from the structural model match subjective responses on whether sex would occur in one's ideal relationship. The estimates show that some women would ideally not have sex, but do so out of matching concerns; the reverse is true for men. Counterfactual simulations show that the matching environment black women face is the primary driver of the large differences in sexual activity among white and black women.

No-nup agreements: contracts for cohabitation

The NY Times has a story on contracts that some unmarried couples are signing: All the Conventional Cohabitation, but No Nuptials

"With more couples choosing to live together without marrying — the Census Bureau estimates that more than eight million couples were cohabiting in the United States in 2013, up from five  million in 2006 — the potential pool of clients for these types of agreements is far from small.

Maria Cognetti, president of the American Academy of Matrimonial Lawyers, said most of the clients who ask for a cohabitation agreement have gone through marriage and divorce, and are in no hurry to revisit the travails of that journey. “They don’t want to get remarried, but they want the protection a pre-nup would provide,” said Ms. Cognetti, a divorce lawyer in Camp Hill, Pa.

...

Mr. Hertz said that behavioral stipulations, such as so-called weight clauses, are becoming obsolete, and any reference to intimate acts could render the agreement null and void due to prostitution laws and no-fault rules. “Agreements between unmarried couples are becoming more like marital agreements, and are equally ‘no-fault’ when it comes to allocating assets,” Mr. Hertz explained in an email. Mr. Hertz said fewer same-sex couples are seeking cohabitation agreements now that marriage has become an option for them in many states.

Could academic tenure become a repugnant transaction?

In an essay in the NY Times Book Review, Christopher Shea reflects on some recent books that suggest it might: The End of Tenure?

"In tough economic times, it’s easy to gin up anger against elites. The bashing of bankers is already so robust that the economist William Easterly has compared it, with perhaps a touch of hyperbole, to genocidal racism. But in recent months, a more unlikely privileged group has found itself in the cross hairs: tenured ­professors.

"At a time when nearly one in 10 American workers is unemployed, here’s a crew (the complaint goes) who are guaranteed jobs for life, teach only a few hours a week, routinely get entire years off, dump grading duties onto graduate students and produce “research” on subjects like “Rednecks, Queers and Country Music” or “The Whatness of Books.” Or maybe they stop doing research altogether (who’s going to stop them?), dropping their workweek to a manageable dozen hours or so, all while making $100,000 or more a year. Ready to grab that pitchfork yet?

"That sketch — relayed on numerous blogs and op-ed pages — is exaggerated, but no one who has observed the academic world could call it entirely false. And it’s a vision that has caught on with an American public worried about how to foot the bill for it all. The cost of a college education has risen, in real dollars, by 250 to 300 percent over the past three decades, far above the rate of inflation. Elite private colleges can cost more than $200,000 over four years. Total student-loan debt, at nearly $830 billion, recently surpassed total national credit card debt. Meanwhile, university presidents, who can make upward of $1 million annually, gravely intone that the $50,000 price tag doesn’t even cover the full cost of a year’s education. (Consider the balance a gift!) Then your daughter reports that her history prof is a part-time adjunct, who might be making $1,500 for a semester’s work. There’s something wrong with this picture.
...
"The higher-ed jeremiads of the last generation came mainly from the right. But this time, it’s the tenured radicals — or at least the tenured liberals — who are leading the charge. "

He goes on to say that the books he reviews call for a separation of research and teaching, with universities to concentrate only on teaching.

Tenure is tied up with a different bundle of issues at research universities, but even here it can raise questions, as the Harvard Crimson reports in connection with a recent, widely reported case of academic misconduct (about which relatively little has yet been made public): Hauser Losing Tenure Not Likely, Harvard’s History Shows--A review of recent cases of faculty misconduct reveals tenure termination is rare

Behavioral contract design; Steve Leider

Steve Leider defended his dissertation last week. He's an eclectic experimenter, but among his varied interests is how insights from psychology might change our view of contract design. In particular, if people are nicer than the standard economic model supposes (e.g. more inclined to reciprocate favors, more inclined to keep promises and uphold social norms), how might that change our views of how contracts might function, and therefore how they should be structured?

Among his papers, the following best exemplify that part of his work.

Norms and Contracting (with Judd Kessler) (Job Market Paper) Abstract: We argue that agents create norms specific to their relationships, particularly through the contracts they establish. We build a theory of how the enforceable and unenforceable aspects of a contract determine the norm, and how norms impact behavior. We then demonstrate experimentally that even totally incomplete contracts (i.e. contracts with no enforceable restriction on actions) move behavior substantially towards the first best in a variety of games. A contract with only unenforceable agreements is often more effective than a contract with only enforceable restrictions. Combining enforceable restrictions with an unenforceable agreement is frequently no more effective (and sometimes strictly less effective) than an unenforceable agreement alone. Consistent with our modeling approach that violating the norm creates disutility, many subjects often choose not to make unenforceable agreements, despite earnings substantially higher payoffs with the agreement.

Directed Altruism and Enforced Reciprocity in Social Networks (with Markus M. Mobius, Tanya Rosenblat, and Quoc-Anh Do) [Forthcoming in the Quarterly Journal of Economics] Abstract: We conduct online field experiments in large real-world social networks in order to decompose prosocial giving into three components: (1) baseline altruism towards randomly selected strangers, (2) directed altruism that favors friends over random strangers, and (3) giving motivated by the prospect of future interaction. Directed altruism increases giving to friends by 52 percent relative to random strangers, while future interaction effects increase giving by an additional 24 percent when giving is socially efficient. This finding suggests that future interaction affects giving through a repeated game mechanism where agents can be rewarded for granting efficiency-enhancing favors. We also find that subjects with higher baseline altruism have friends with higher baseline altruism.

Contractual and Organizational Structure with Reciprocal Agents (with Florian Englmaier) [Submitted] Abstract: Empirically, compensation systems generate substantial effort despite weak monetary incentives. We consider reciprocal motivations as a source of incentives. We solve for the optimal contract in the basic principal-agent problem and show that reciprocal motivations and explicit performance-based pay are substitutes. A firm endogenously determines the mix of the two sources of incentives to best induce effort from the agent. Analyzing extended versions of the model allows us to examine how organizational structure impacts the effectiveness of reciprocity and to derive specific empirical predictions. We use the UK-WERS workplace compensation data set to confirm the predictions of our extended model.

Gift Exchange in the Lab and in the Field - It is not (only) how much you give ... (with Florian Englmaier) Abstract: We build on the theoretical results from our companion paper, Englmaier and Leider (2008), that an important aspect in determining the effectiveness of gift exchange relations is the ability of the agent to “repay the gift” to the principal. To test this hypothesis, we conduct a real effort laboratory experiment and a field experiment where we vary the effect of the agent’s effort on the principal’s payoff. Furthermore we collect additional information that allows us to control for the agents’ effort costs and whether they can be classified as reciprocal or not. From our model we derive nontrivial predictions about which is the marginal agent in terms of ability affected by our experimental variation and how different types of individuals, selfish and reciprocal, will react to it. The experimental data lend support to our hypotheses.

Steve's email address will have a "umich.edu" in it starting next semester, when he starts work at the University of Michigan's Ross School of Business.

Welcome to the club, Steve.

Economics of Contracts

The Institute for Advanced Study at the Hebrew University of Jerusalem will hold its 20th annual Economics summer school this year from June 19-30, on the Economics of Contracts. The faculty is awesome: Philippe Aghion (Harvard), Omri Ben-Shahar (Chicago), Mathias Dewatripont (Brussels), Oliver Hart (Harvard), Bengt Holmstrom (MIT), Eric Maskin (IAS Princeton), and Jean Tirole (Toulouse).

Send your students...

Contracts for basketball players: the principal-agent problem in a team sport

The NY Times has a fascinating article on basketball, focused on the Rockets' Shane Battier: The No-Stats All-Star. But the larger focus of the article is on basketball as a team sport in which there is considerable tension between self interest and team interest for players who are measured and rewarded by their individual statistics. That is, players may be tempted to shoot rather than pass, or vice versa, in order to improve their statistics even when a different action would have a greater chance of improving the score, and many of the important defensive things a player like Battier does are not even measured by conventionally reported statistics. The article suggests that basketball contracts may change, as teams start to understand incentives better.

"There is a tension, peculiar to basketball, between the interests of the team and the interests of the individual. The game continually tempts the people who play it to do things that are not in the interest of the group. On the baseball field, it would be hard for a player to sacrifice his team’s interest for his own. Baseball is an individual sport masquerading as a team one: by doing what’s best for himself, the player nearly always also does what is best for his team. “There is no way to selfishly get across home plate,” as Morey puts it. “If instead of there being a lineup, I could muscle my way to the plate and hit every single time and damage the efficiency of the team — that would be the analogy"
...
"When I ask Morey if he can think of any basketball statistic that can’t benefit a player at the expense of his team, he has to think hard. “Offensive rebounding,” he says, then reverses himself. “But even that can be counterproductive to the team if your job is to get back on defense.” It turns out there is no statistic that a basketball player accumulates that cannot be amassed selfishly. “We think about this deeply whenever we’re talking about contractual incentives,” he says. “We don’t want to incent a guy to do things that hurt the team” — and the amazing thing about basketball is how easy this is to do. “They all maximize what they think they’re being paid for,” he says. He laughs. “It’s a tough environment for a player now because you have a lot of teams starting to think differently. They’ve got to rethink how they’re getting paid.”"

The principal-agent problem is everywhere.

Contract Design: Rights of First Refusal

Brit Grosskopf and I have just published a paper on an interesting variant of a familiar contract. It's called: "If you are offered the Right of First Refusal, Should you accept? An Investigation of Contract Design," Games and Economic Behavior, Special Issue in Honor of Martin Shubik, 65 (January), 2009, 176–204.

It came about when our attention was drawn to the unusual right of first refusal that NBC had been given by Paramount Studios when it came time to renew the broadcasting agreement for the tv show Frasier, in January 2001.

Here's the Abstract of the paper:

"Rights of first refusal are contract clauses intended to provide the holder of a license or lease with some protection when the contract ends. The simplest version gives the right holder the ability to act after potential competitors. However, another common implementation requires the right holder to accept or reject some offers before potential competitors are given the same offer, and, if the right holder rejects the initial offer, allows the right to be exercised affirmatively only if competitors are subsequently offered a better deal (e.g. a lower price).
We explore, theoretically and experimentally, the impact this latter form of right of first refusal can have on the outcome of negotiation. Counterintuitively, this “right” of first refusal can be disadvantageous to its holder. This suggests that applied contract design may benefit from the same kind of attention to detail that has begun to be given to practical market design."

Here's an interview I gave on the subject: When Rights of First Refusal Are a Bad Deal

Incidentally, in case you think contract design falls outside the range of "market design," I agree that we haven't hit on the unconstrained optimum terminology for our new field. I tried to spark the use of the term "design economics" in a 2002 manifesto, which might have more naturally included all the things that economists can help design (e.g. marketplaces, contracts, organizations, laws, treaties...). But languages are like economies (and both are like oceans to the extent that you can't hold back the tide), so I'm cheerfully resigned to having all sorts of economic design included under the heading of market design. I guess we're just taking a very broad view of what constitutes a market...:)

Bankruptcy

Contracts are shaped in part by the legal framework that determines what happens when contracts break down. The long time scholar of bankruptcy Michelle White has a timely new NBER working paper "Bankruptcy: Past Puzzles, Recent Reforms, and the Mortgage Crisis." (It is a revised version of her 2008 Presidential Address to the American Law and Economics Association.)

One arresting sentence:
"By the early 2000’s, more people were filing for bankruptcy each year than were graduating from college, getting divorced or being diagnosed with cancer."

Markets for durables when credit is tight

Two stories in the NY Times reflect changes in markets for durable goods and for real estate in the context of tight credit: layaway plans and rent with option to buy, respectively.

The Last Temptation of Plastic reports on the revival of layaway plans, which used to be popular before credit cards. In a layaway purchase, you make installment payments before taking possession of your purchase (e.g. a big furniture purchase); it's a form of enforced savings that locks in a price and helps supply self control and commitment (to save for the purchase) where it might be lacking.

Rent Now, Buy Later reports on the growing number of offerings in the NYC real estate market. These transactions allow potential purchasers to delay purchase until they have a bigger downpayment (and until they see which way the market is going), and they give sellers some rental income in the meantime.

These are both signs of tough times...

Market for wind, and information

A Land Rush in Wyoming Spurred by Wind Power
"The man who came to Elsie Bacon’s ranch house door in July asked the 71-year-old widow to grant access to a right of way across the dry hills and short grasses of her land here. Ms. Bacon remembered his insistence on a quick, secret deal (emphasis added). ...
"Ms. Bacon did not agree to the deal from the Little Rose representative, Ed Ahlstrand Jr. Instead, she joined her neighbors in forming the Bordeaux Wind Energy Association — among the new cooperative associations whose members, in a departure from the local culture of privacy and self-reliance, are pooling their wind-rich land.
This allows them to bargain collectively for a better price and ensures that as few as possible succumb to high-pressure tactics or accept low offers. Ranchers share information about the potential value of their wind."

"The financial arrangements of each association are unique, but in the case of the Slater Wind Energy Association, 55 percent of the total annual royalties is to be distributed among the landowners who have turbines on their properties. The rest is to be distributed among all association members, both those with turbines and those without. "

NBER working papers on design of partnerships and auctions

Two new NBER papers touch on market design: Hilt and O'Banion discuss the introduction of limited partnerships, and Bajari and Yeo look at how changes in the rules of FCC spectrum auctions changed bidding behavior.


The Limited Partnership in New York, 1822-1853: Partnerships without Kinship
by Eric Hilt, Katharine E. O'Banion - #14412 (DAE LE)

Abstract:

In 1822, New York became the first common-law state to authorize the formation of limited partnerships, and over the ensuing decades, many other states followed. Most prior research has suggested that these statutes were utilized only rarely, but little is known about their
effects. Using newly collected data, this paper analyzes the use of the limited partnership in nineteenth-century New York City. We find that the limited partnership form was adopted by a surprising number of firms, and that limited partnerships had more capital, failed at lower rates, and were less likely to be formed on the basis of kinship ties, compared to ordinary partnerships. The latter differences were not simply due to selection: even though the merchants who invested in limited partnerships were a wealthy and successful elite, their own ordinary partnerships were quite different from their limited partnerships. The results suggest that the limited partnership facilitated investments outside kinship networks, and into the hands of talented young merchants.
http://papers.nber.org/papers/W14412


Auction Design and Tacit Collusion in FCC Spectrum Auctions by Patrick Bajari, Jungwon Yeo - #14441 (IO)

Abstract:

The Federal Communications Commission (FCC) has used auctions to award spectrum since 1994. During this time period, the FCC has experimented with a variety of auctions rules including click box bidding and anonymous bidding. These rule changes make the actions of bidders less visible during the auction and also limit the set of bids which can be submitted by a bidder during a particular round. Economic theory suggests that tacit collusion may be more difficult as a result. We examine this proposition using data from 4 auctions: the PCS C Block, Auction 35, the Advanced Wireless Service auction and the 700 Mhz auction. We examine the frequency of jump bids, retaliatory bids and straightforward bids across these auctions. While this simple descriptive exercise has a number of limitations, the data suggests that these rule changes did limit firms' ability to tacitly collude.
http://papers.nber.org/papers/W14441

Kol Nidre: Contract law when your counterparty is omnipotent

Michael Weiss recounts in Slate how the Kol Nidre prayer , has changed over time.