Law firm recruitment begins with the recruitment of summer associates, many of whom are traditionally made offers for permanent employment starting the next year (a tradition that has been somewhat disrupted by the recession, which has led to both the withholding of offers and sometimes to their subsequent cancellation or postponement). How might this affect the norms, customs and rules by which recruiting is conducted? (The organization that tries to foster these norms and rules, through a statement of principles and standards, is NALP, formerly known as the National Association for Law Placement.)
Last year, the blog Above the Law urged students holding multiple summer offers to accept one quickly: Accept Your Offers: Stop Screwin' Around You Kids Screw Around Too Much.
"If you are a 2L sitting on multiple offers, could you please -- for the love of God -- accept one of them already, so the spots you don't want can be filled by other candidates? ... And it might be in your best interest as well. The career services office at U. Penn Law School sent around a letter to students today, urging them to make a decision:
We recommend that you do not wait until the expiration of the offer to render a decision... Wednesday, we learned that one of your 2L colleagues had their offer for employment rescinded before the expiration of the offer because the firm experienced a higher than usual acceptances from outstanding offers..."
This year, Above the Law suggests (tongue in cheek?) Accept Your Offers: All of Them.
"It seems to me that the "social compact" between firms and students has completely broken down. We've been living in a Hobbesian state of nature for almost a year now.
NALP tells students that they should not hold more than two offers open, or else. Or else what? As Jim Leipold, executive director of NALP, recently observed, "There are no NALP police."
As far as we know, NALP hasn't done anything to firms that have disrespected the 45-day "open offer" period. What are they going to do to students that accept more than two offers?
We asked NALP these questions directly. We asked why a student should be willing to follow the NALP guidelines when firms have flouted them with impunity during the recession. We asked why students should adhere to NALP guidelines when law school deans are saying that the firms will not.
We received no response. So now we're asking you:
Shouldn't an intelligent 2L accept every offer of summer employment he or she gets? If some firms revoke that offer quickly, so what? It's probably a firm you don't want to summer with anyway.
Once you've decided which firm to go with, you can politely decline the other offers you accepted..."
While I think that reputational concerns will prevent law students from accepting multiple offers, there is obviously a great deal of justified concern when law firms make offers and then rescind them (we're not just talking about summer offers now). Here is NALP's statement on rescinded offers (which begins "Please note: NALP's Principles and Standards do not condone rescinding offers. However, in recognition that rescission does occasionally occur, NALP presents this article with suggestions for ameliorating the situation. ")
Wednesday, September 16, 2009
NRMP to implement "managed scramble"
After the medical match, some applicants and positions remain unmatched. Right now, that is handled through a fairly decentralized "scramble." (Fairly decentralized, but with some centralized distribution of the information about who is matched and unmatched. It is more centralized than the economics job market scramble, since the NRMP knows immediately who all the unmatched applicants and participants are). Giving the medical scramble some more structure is now under active consideration.
"The NRMP Board of Directors, meeting in Washington, DC on May 4, 2009, voted to proceed with implementation of a "managed" Scramble for the Main Residency Match. A joint NRMP-AAMC work group will continue to refine the plan, which will require programs to offer and applicants to accept unfilled positions through the NRMP R3 System during Match Week. A "managed" Scramble would be implemented no earlier than the 2011 Match, according to NRMP Executive Director Mona M. Signer. " (http://www.nrmp.org/ on 9/13/09)
"The NRMP Board of Directors, meeting in Washington, DC on May 4, 2009, voted to proceed with implementation of a "managed" Scramble for the Main Residency Match. A joint NRMP-AAMC work group will continue to refine the plan, which will require programs to offer and applicants to accept unfilled positions through the NRMP R3 System during Match Week. A "managed" Scramble would be implemented no earlier than the 2011 Match, according to NRMP Executive Director Mona M. Signer. " (http://www.nrmp.org/ on 9/13/09)
Tuesday, September 15, 2009
Playing the admissions game
A recent NBER paper focuses on how student behavior has changed in reaction to the increasing competition for admission to elite colleges (resulting both from the growing size of the high school graduation cohorts, and the increasing rates of application to and attendance at college). They report that more students are taking AP exams, volunteering, and applying to more colleges.
Playing the Admissions Game: Student Reactions to Increasing College Competition by John Bound, Brad Hershbein, Bridget Terry Long - #15272 (ED LS)
Abstract: Gaining entrance to a four-year college or university, particularly a selective institution, has become increasingly competitive over the last several decades. We document this phenomenon and show how it has varied across different parts of the student ability distribution and across region, with the most pronounced increases in competition being found among higher-ability students and in the Northeast.
Additionally, we explore how the college preparatory behavior of high school seniors has changed in response to the growth in competition.
We also discuss the theoretical implications of increased competition on longer-term measures of learning and achievement and attempt to test them empirically; the evidence and related literature, while limited, suggests little long-term benefit.
http://papers.nber.org/papers/W15272
"Overall, high school students in 2004 engaged in significantly more behavior associated with college preparation, on average, than did their counterparts from 10 and 20 years before. The share taking at least a semester of calculus in high school rose from 9.2 percent to 15.2 percent between 1982 and 2004. In just the 12 years from 1992 to 2004, the fraction of seniors having taken at least one Advanced Placement (AP) exam nearly doubled, from 16.5 to 30.9 percent." (p12) (but reported time spent on homework is down)
"...data from CIRP's Freshman Survey shows that the percentage of college
freshmen who regularly volunteered during their senior year of high school increased rapidly from about 45 percent in 1987 and 1988 up to about 70 percent by 2000, where it has roughly remained since." (p14)
"While 25 percent of students had applied to four or more schools in 1972, more than half had by 2004. Figure 4 shows that the percentage of students applying to seven or more schools rose from about 3 percent in 1972 to 18 percent in 2004. This implies that more than half of the increase among those applying to four or more schools is driven by those applying to seven or more schools; within the last ten years, more than three quarters of the increase
is from those applying to seven or more schools. The increase in application rates has been widespread throughout the selectivity distribution, with students at highly selective institutions not only sending more applications on average, but also increasing the number of applications sent at a faster pace earlier on.
Another proxy for college application behavior is the number of SAT score reports sent to various colleges.16 When taking the SAT, students are allowed to send up to four score reports at no additional marginal cost. However, in recent years, students have been sending far more score reports. As shown in the three panels of Figure 5, the number of scores sent (and the likelihood of sending more than four) rises dramatically with the student's score. For those with scores above 1400 (around the 97th percentile), the median number of reports sent is around eight, which suggests that even students with very high scores do not feel that they can rely on being accepted into a top school." (p19)
Playing the Admissions Game: Student Reactions to Increasing College Competition by John Bound, Brad Hershbein, Bridget Terry Long - #15272 (ED LS)
Abstract: Gaining entrance to a four-year college or university, particularly a selective institution, has become increasingly competitive over the last several decades. We document this phenomenon and show how it has varied across different parts of the student ability distribution and across region, with the most pronounced increases in competition being found among higher-ability students and in the Northeast.
Additionally, we explore how the college preparatory behavior of high school seniors has changed in response to the growth in competition.
We also discuss the theoretical implications of increased competition on longer-term measures of learning and achievement and attempt to test them empirically; the evidence and related literature, while limited, suggests little long-term benefit.
http://papers.nber.org/papers/W15272
"Overall, high school students in 2004 engaged in significantly more behavior associated with college preparation, on average, than did their counterparts from 10 and 20 years before. The share taking at least a semester of calculus in high school rose from 9.2 percent to 15.2 percent between 1982 and 2004. In just the 12 years from 1992 to 2004, the fraction of seniors having taken at least one Advanced Placement (AP) exam nearly doubled, from 16.5 to 30.9 percent." (p12) (but reported time spent on homework is down)
"...data from CIRP's Freshman Survey shows that the percentage of college
freshmen who regularly volunteered during their senior year of high school increased rapidly from about 45 percent in 1987 and 1988 up to about 70 percent by 2000, where it has roughly remained since." (p14)
"While 25 percent of students had applied to four or more schools in 1972, more than half had by 2004. Figure 4 shows that the percentage of students applying to seven or more schools rose from about 3 percent in 1972 to 18 percent in 2004. This implies that more than half of the increase among those applying to four or more schools is driven by those applying to seven or more schools; within the last ten years, more than three quarters of the increase
is from those applying to seven or more schools. The increase in application rates has been widespread throughout the selectivity distribution, with students at highly selective institutions not only sending more applications on average, but also increasing the number of applications sent at a faster pace earlier on.
Another proxy for college application behavior is the number of SAT score reports sent to various colleges.16 When taking the SAT, students are allowed to send up to four score reports at no additional marginal cost. However, in recent years, students have been sending far more score reports. As shown in the three panels of Figure 5, the number of scores sent (and the likelihood of sending more than four) rises dramatically with the student's score. For those with scores above 1400 (around the 97th percentile), the median number of reports sent is around eight, which suggests that even students with very high scores do not feel that they can rely on being accepted into a top school." (p19)
Penny wise and pound foolish on kidneys and antirejection drugs
Medicare pays for kidney transplants (which are both better and cheaper than the dialysis it replaces and that Medicare also pays for). But Medicare pays for only three years of anti-rejection drugs, which transplant recipients must take as long as they still have a transplanted kidney. It doesn't make any sense, not even financial sense. Here's a nicely reported story by Kevin Sack from the NY Times: U.S. Cost-Saving Policy Forces New Kidney Transplant
"The story of Ms. Whitaker’s two organ donations — the first from her mother and the second from her boyfriend — sheds light on a Medicare policy that is widely regarded as pound-foolish. Although the government regularly pays $100,000 or more for kidney transplants, it stops paying for anti-rejection drugs after only 36 months."...
"Most of the cost of [her] dialysis and the transplant, totaling hundreds of thousands of dollars, was absorbed by the federal Medicare program, which provides broad coverage for those with end-stage renal disease.
Despite that heavy investment, federal law limits Medicare reimbursement for the immunosuppressant drugs that transplant recipients must take for life, at costs of $1,000 to $3,000 a month."...
"By late 2003, her transplanted kidney had failed, and she returned to dialysis, covered by the government at $9,300 a month, more than three times the cost of the pills. Then 15 months ago, Medicare paid for her second transplant — total charges, $125,000 — and the 36-month clock began ticking again.
“If they had just paid for the pills, I’d still have my kidney,” said Ms. Whitaker, who shares an apartment in the La Jolla neighborhood with her boyfriend, Joseph D. Jamieson. “I’d be healthy, working and paying taxes.” "...
"Bills have been introduced in Congress since 2000 to lift the 36-month limit and extend coverage of immunosuppressant drugs indefinitely. They have never made it to a vote, largely because of the projected upfront cost; the Congressional Budget Office estimates that unlimited coverage would add $100 million a year to the $23 billion Medicare kidney program.
But the cost-benefit analysis would seem obvious. The most recent report from the United States Renal Data System found that Medicare spends an average of $17,000 a year on care for kidney transplant recipients, most of it for anti-rejection drugs. That compares with $71,000 a year for dialysis patients and $106,000 for a transplant (including the first year of monitoring)...."
"A provision to cover the drugs is in the sweeping House health care bill, which has cleared three committees. It is uncertain whether the Senate Finance Committee will include it in its bill.
Since 1973, end-stage renal disease has been the only condition specifically covered by Medicare regardless of age. In 1988, coverage was extended for 12 months to anti-rejection drugs, which had recently been developed. Congress gradually lengthened the cutoff to 36 months, and then in 2000 made the benefit unlimited for those who are at least 65 or disabled. The rationale for leaving out younger transplant recipients was simply that the money was not there, Congressional aides said. "
In other kidney news, I understand through the grapevine that the planned September pilot of a national kidney exchange program to be conducted by UNOS has been put on hold for the time being.
"The story of Ms. Whitaker’s two organ donations — the first from her mother and the second from her boyfriend — sheds light on a Medicare policy that is widely regarded as pound-foolish. Although the government regularly pays $100,000 or more for kidney transplants, it stops paying for anti-rejection drugs after only 36 months."...
"Most of the cost of [her] dialysis and the transplant, totaling hundreds of thousands of dollars, was absorbed by the federal Medicare program, which provides broad coverage for those with end-stage renal disease.
Despite that heavy investment, federal law limits Medicare reimbursement for the immunosuppressant drugs that transplant recipients must take for life, at costs of $1,000 to $3,000 a month."...
"By late 2003, her transplanted kidney had failed, and she returned to dialysis, covered by the government at $9,300 a month, more than three times the cost of the pills. Then 15 months ago, Medicare paid for her second transplant — total charges, $125,000 — and the 36-month clock began ticking again.
“If they had just paid for the pills, I’d still have my kidney,” said Ms. Whitaker, who shares an apartment in the La Jolla neighborhood with her boyfriend, Joseph D. Jamieson. “I’d be healthy, working and paying taxes.” "...
"Bills have been introduced in Congress since 2000 to lift the 36-month limit and extend coverage of immunosuppressant drugs indefinitely. They have never made it to a vote, largely because of the projected upfront cost; the Congressional Budget Office estimates that unlimited coverage would add $100 million a year to the $23 billion Medicare kidney program.
But the cost-benefit analysis would seem obvious. The most recent report from the United States Renal Data System found that Medicare spends an average of $17,000 a year on care for kidney transplant recipients, most of it for anti-rejection drugs. That compares with $71,000 a year for dialysis patients and $106,000 for a transplant (including the first year of monitoring)...."
"A provision to cover the drugs is in the sweeping House health care bill, which has cleared three committees. It is uncertain whether the Senate Finance Committee will include it in its bill.
Since 1973, end-stage renal disease has been the only condition specifically covered by Medicare regardless of age. In 1988, coverage was extended for 12 months to anti-rejection drugs, which had recently been developed. Congress gradually lengthened the cutoff to 36 months, and then in 2000 made the benefit unlimited for those who are at least 65 or disabled. The rationale for leaving out younger transplant recipients was simply that the money was not there, Congressional aides said. "
In other kidney news, I understand through the grapevine that the planned September pilot of a national kidney exchange program to be conducted by UNOS has been put on hold for the time being.
Monday, September 14, 2009
Your penny for my two cents: micropayments on the web
Even if you are prepared to pay a penny for my thoughts, the transaction costs would likely deter you, unless the payment can be made automatically. This is the problem facing micropayments in particular, and it makes it hard for newspapers to charge for news.
Harvard's Neiman Journalism Lab reports on Google's marketplace proposal, which would allow customers to maintain a Google account that could be billed without requiring the customer to maintain accounts or reveal information to each content provider: Google developing a micropayment platform and pitching newspapers: “‘Open’ need not mean free”
Harvard's Neiman Journalism Lab reports on Google's marketplace proposal, which would allow customers to maintain a Google account that could be billed without requiring the customer to maintain accounts or reveal information to each content provider: Google developing a micropayment platform and pitching newspapers: “‘Open’ need not mean free”
Authors' Registry: Clearinghouse for small payments
How should small fees for copying copyrighted material be collected and distributed? About once a year, I get a communication from The Authors Registry , which works to find authors on whose behalf such fees--presumably collected by the penny in copyshops and libraries--have been collected.
"The Authors Registry is a not-for-profit clearinghouse for payments to authors, receiving royalties from organizations and distributing them to U.S. authors. It was founded in 1995 by a consortium of U.S. authors' organizations: The Authors Guild, The American Society of Journalists & Authors, the Dramatists Guild, and the Association of Authors' Representatives. To date, the Authors Registry has distributed over $8,000,000 to authors in the United States."
They seem to be closely affiliated with the Authors' Licensing & Collecting Society (UK).
"The Authors’ Licensing and Collecting Society (ALCS) represents the interests of all UK writers and aims to ensure writers are fairly compensated for any works that are copied, broadcast or recorded. Writers’ primary rights are protected by contract, but it is the life of the work over the following decades that needs to be monitored and fairly rewarded. It is with secondary rights that copyright has an important role to play in protecting writers and creators from unpaid use and moral abuse of their work. Secondary use ranges from photocopying and repeat broadcast transmission in the UK and overseas to reproduction in journals and repeat use via the internet and digital reproduction."
"Photocopying of books and serials currently accounts for approximately 70% of income. The ALCS together with the Publishers Licensing Society (PLS) has appointed the Copyright Licensing Agency (CLA) to act as its agent to license the photocopying right on its behalf and on behalf of its members on a non-exclusive basis. A small number of CLA licences now include the authority for limited scanning. Public Lending Right ALCS administers German, Austrian, Dutch and French Public Lending Right (PLR) for UK authors, and is in the process of entering into agreements with other European countries where PLR is being incorporated in to national legislation. UK PLR is administered by Public Lending Right based in Stockton-upon-Tees and funded by the Department of Culture, Media and Sport (DCMS). "
The collections are quite small; e.g. my recent statement, which seems to originate in the ALCS looks like this:
PHOTOCOPYING - OVERSEAS Miscellaneous CLA Monies - Inside EU 1.02
NON TITLE SPECIFIC Miscellaneous CLA Monies - UK 40.03
PHOTOCOPYING - OVERSEAS Miscellaneous CLA Monies - Outside EU 15.52
SUBVENTION ON ACCOUNT Miscellaneous CLA Photocopying Fees 7.97
PLS Balancing Payment General CLA Photocopying Fees 2007 - 2008 34.56
Update: for those of you who don't normally click to see comments, the comment below by Jon Baron, the eminent Penn psychologist, is well worth reading...
Sunday, September 13, 2009
Norman Borlaug, father of "Green Revolution"
Here is the NY Times obituary for Norman Borlaug, who changed how grains are produced: Norman Borlaug, 95, Dies; Led Green Revolution
"By the late 1940s, researchers knew they could induce huge yield gains in wheat by feeding the plants chemical fertilizer that supplied them with extra nitrogen, a shortage of which was the biggest constraint on plant growth. But the strategy had a severe limitation: beyond a certain level of fertilizer, the seed heads containing wheat grains would grow so large and heavy, the plant would fall over, ruining the crop.
In 1953, Dr. Borlaug began working with a wheat strain containing an unusual gene. It had the effect of shrinking the wheat plant, creating a stubby, compact variety. Yet crucially, the seed heads did not shrink, meaning a small plant could still produce a large amount of wheat.
Dr. Borlaug and his team transferred the gene into tropical wheats. When high fertilizer levels were applied to these new “semidwarf” plants, the results were nothing short of astonishing.
The plants would produce enormous heads of grain, yet their stiff, short bodies could support the weight without falling over. On the same amount of land, wheat output could be tripled or quadrupled. Later, the idea was applied to rice, the staple crop for nearly half the world’s population, with yields jumping several-fold compared with some traditional varieties.
This strange principle of increasing yields by shrinking plants was the central insight of the Green Revolution, and its impact was enormous."
"By the late 1940s, researchers knew they could induce huge yield gains in wheat by feeding the plants chemical fertilizer that supplied them with extra nitrogen, a shortage of which was the biggest constraint on plant growth. But the strategy had a severe limitation: beyond a certain level of fertilizer, the seed heads containing wheat grains would grow so large and heavy, the plant would fall over, ruining the crop.
In 1953, Dr. Borlaug began working with a wheat strain containing an unusual gene. It had the effect of shrinking the wheat plant, creating a stubby, compact variety. Yet crucially, the seed heads did not shrink, meaning a small plant could still produce a large amount of wheat.
Dr. Borlaug and his team transferred the gene into tropical wheats. When high fertilizer levels were applied to these new “semidwarf” plants, the results were nothing short of astonishing.
The plants would produce enormous heads of grain, yet their stiff, short bodies could support the weight without falling over. On the same amount of land, wheat output could be tripled or quadrupled. Later, the idea was applied to rice, the staple crop for nearly half the world’s population, with yields jumping several-fold compared with some traditional varieties.
This strange principle of increasing yields by shrinking plants was the central insight of the Green Revolution, and its impact was enormous."
People are experience goods (online dating version)
What do you get when you cross an online dating site with speed dating? Virtual Date... Here's an interesting paper on adding some texture to the online dating marketplace.
Frost, Jeana H., Zoe Chance, Michael I. Norton, and Dan Ariely. People Are Experience Goods: Improving Online Dating with Virtual Dates. Journal of Interactive Marketing 22, no. 1 (winter 2008): 51-62.
Abstract: "We suggest that online dating frequently fails to meet user expectations because people, unlike many commodities available for purchase online, are experience goods: Daters wish to screen potential romantic partners by experiential attributes (such as sense of humor or rapport), but online dating Web sites force them to screen by searchable attributes (such as income or religion). We demonstrate that people spend too much time searching for options online for too little payoff in offline dates (Study 1), in part because users desire information about experiential attributes, but online dating Web sites contain primarily searchable attributes (Study 2). Finally, we introduce and beta test the Virtual Date, offering potential dating partners the opportunity to acquire experiential information by exploring a virtual environment in interactions analogous to real first dates (such as going to a museum), an online intervention that led to greater liking after offline meetings (Study 3)."
Frost, Jeana H., Zoe Chance, Michael I. Norton, and Dan Ariely. People Are Experience Goods: Improving Online Dating with Virtual Dates. Journal of Interactive Marketing 22, no. 1 (winter 2008): 51-62.
Abstract: "We suggest that online dating frequently fails to meet user expectations because people, unlike many commodities available for purchase online, are experience goods: Daters wish to screen potential romantic partners by experiential attributes (such as sense of humor or rapport), but online dating Web sites force them to screen by searchable attributes (such as income or religion). We demonstrate that people spend too much time searching for options online for too little payoff in offline dates (Study 1), in part because users desire information about experiential attributes, but online dating Web sites contain primarily searchable attributes (Study 2). Finally, we introduce and beta test the Virtual Date, offering potential dating partners the opportunity to acquire experiential information by exploring a virtual environment in interactions analogous to real first dates (such as going to a museum), an online intervention that led to greater liking after offline meetings (Study 3)."
Marriage and dating in NYC: matching complements
Some dating services seek to match likes to likes, e.g. South Asians, or Ivy League graduates. But there's also a market for the traditional complements: beautiful women and rich men. Here's a story about a party for just such talents, by Katherine Bindley in the NY Times: Banker Seeks Beauty.
"The invitation to the latest Fashion Meets Finance party — an affair that shamelessly includes only women who work in fashion and men from Wall Street — declared that the dark days are over — not just for the economy, but in the dating market. “We are here to announce the balance is restoring itself to the ecosystem of the New York dating community,” the party organizers said on their cheeky Web site."
...
"“From my experience, I’ve dated lawyers and doctors and they’re nice; I just prefer finance,” Ms. Yanush said, before applying a fresh gloss of candy-apple-red lipstick in the ladies room. “My girlfriends who are in long-term relationships with finance guys are very happy.” "
...
"The idea behind Fashion Meets Finance began in 2007 with Beth Newill, a merchandiser for Ann Taylor at the time, who found the garment district was a poor neighborhood in which to meet men. After speaking with a male friend who worked in finance and had expressed the same frustration about the absence of eligible women in the financial district, Ms. Newill organized regular happy hours for the two groups."
...
"The text with the latest invitation, the first party since January, was typical: “We fear that news of shrinking bonuses, banks closing and the Dow plummeting confused the gorgeous women of the city who understood that their shelf life is quick and fleeting like a senator’s South American love affair. The uncertainty caused panic which caused irrational decisions — there’s going to be a two-year blip in the system where a hot fashion girl might commit to a pharmaceutical salesman.”
The women were encouraged to hold on because the recession is over, and it would only be a matter of time before a boyfriend in finance enabled them to quit their jobs to be “tennis moms.”
Jeremy Abelson, 29, the founder of an online luxury newsletter called Pocket Change, who creates most of the Web site’s copy, said, “It’s offensive but it’s very realistic.” "
The article closes by quoting someone who didn't meet the woman of his dreams: "“Let’s just say I’m not going to find my future ex-wife here,” he said."
"The invitation to the latest Fashion Meets Finance party — an affair that shamelessly includes only women who work in fashion and men from Wall Street — declared that the dark days are over — not just for the economy, but in the dating market. “We are here to announce the balance is restoring itself to the ecosystem of the New York dating community,” the party organizers said on their cheeky Web site."
...
"“From my experience, I’ve dated lawyers and doctors and they’re nice; I just prefer finance,” Ms. Yanush said, before applying a fresh gloss of candy-apple-red lipstick in the ladies room. “My girlfriends who are in long-term relationships with finance guys are very happy.” "
...
"The idea behind Fashion Meets Finance began in 2007 with Beth Newill, a merchandiser for Ann Taylor at the time, who found the garment district was a poor neighborhood in which to meet men. After speaking with a male friend who worked in finance and had expressed the same frustration about the absence of eligible women in the financial district, Ms. Newill organized regular happy hours for the two groups."
...
"The text with the latest invitation, the first party since January, was typical: “We fear that news of shrinking bonuses, banks closing and the Dow plummeting confused the gorgeous women of the city who understood that their shelf life is quick and fleeting like a senator’s South American love affair. The uncertainty caused panic which caused irrational decisions — there’s going to be a two-year blip in the system where a hot fashion girl might commit to a pharmaceutical salesman.”
The women were encouraged to hold on because the recession is over, and it would only be a matter of time before a boyfriend in finance enabled them to quit their jobs to be “tennis moms.”
Jeremy Abelson, 29, the founder of an online luxury newsletter called Pocket Change, who creates most of the Web site’s copy, said, “It’s offensive but it’s very realistic.” "
The article closes by quoting someone who didn't meet the woman of his dreams: "“Let’s just say I’m not going to find my future ex-wife here,” he said."
Saturday, September 12, 2009
Debtor's prison in Dubai
The NY Times reports on criminal justice in Dubai: For a Bounced Check in Dubai, the Penalty Can Be Years Behind Bars
Here's what I wrote about debtor's prison, in Repugnance as a Constraint on Markets:
"The changing repugnance of debt and of involuntary servitude have even interacted in changes to bankruptcy law. In colonial America and the early years of the Republic, insolvent debtors could be imprisoned, or sentenced to indentured servitude (Coleman, 1974 [1999]). But as involuntary servitude became more repugnant and debts less repugnant, bankruptcy laws were rewritten to be less punitive to debtors."(p. 40)
Here's what I wrote about debtor's prison, in Repugnance as a Constraint on Markets:
"The changing repugnance of debt and of involuntary servitude have even interacted in changes to bankruptcy law. In colonial America and the early years of the Republic, insolvent debtors could be imprisoned, or sentenced to indentured servitude (Coleman, 1974 [1999]). But as involuntary servitude became more repugnant and debts less repugnant, bankruptcy laws were rewritten to be less punitive to debtors."(p. 40)
Service versus self service
In some markets you serve yourself, in others you are served. Which is the luxury? It depends.
The recent decisions by some universities to manage their shortage of central-campus parking has raised some eyebrows:
Recession? Valet Parking Arrives.
And, indeed, that story makes it sound as if some of the parking decisions are meant to increase customer service where there's a shortage of conveniently located parking.
That being said, it's often more convenient to be able to park yourself rather than have to rely on someone else. But parking lots (and, in Manhattan, multi-story garages served by car elevators) in which the attendants park all the cars allow more cars to be accomodated in a given amount of space. It may be a luxury to leave your car for someone else to park, but it's seldom a luxury to wait while your car is brought out of parking.
Years ago, a colleague from Brazil remarked that one thing she liked about living in the United States was that she didn't have to deal with servants. I foolishly asked why in that case she couldn't just dispense with servants when she was in Brazil. The answer of course was that many things that are designed for self service here are more labor intensive there. I recall that one example was that chicken is sold shrink-wrapped and ready to cook in American supermarkets, but was apparently sold with pinfeathers still attached in Brazil (in those days).
The recent decisions by some universities to manage their shortage of central-campus parking has raised some eyebrows:
Recession? Valet Parking Arrives.
And, indeed, that story makes it sound as if some of the parking decisions are meant to increase customer service where there's a shortage of conveniently located parking.
That being said, it's often more convenient to be able to park yourself rather than have to rely on someone else. But parking lots (and, in Manhattan, multi-story garages served by car elevators) in which the attendants park all the cars allow more cars to be accomodated in a given amount of space. It may be a luxury to leave your car for someone else to park, but it's seldom a luxury to wait while your car is brought out of parking.
Years ago, a colleague from Brazil remarked that one thing she liked about living in the United States was that she didn't have to deal with servants. I foolishly asked why in that case she couldn't just dispense with servants when she was in Brazil. The answer of course was that many things that are designed for self service here are more labor intensive there. I recall that one example was that chicken is sold shrink-wrapped and ready to cook in American supermarkets, but was apparently sold with pinfeathers still attached in Brazil (in those days).
Friday, September 11, 2009
Medical match policies (NRMP)
The NRMP has some new rules for 2009, which suggests that there have been some new problems (I haven't been involved for a while).
- "Applicants who obtain positions through the Matching Program are prohibited from discussing, interviewing for, or accepting a concurrent year position with another program before a waiver has been granted by the NRMP.
- The deadline for an applicant to request a waiver based on change of specialty is the January 15 prior to the start of training in the matched program.
- Programs shall use the Applicant Match History in the Match Site to determine the match status of any applicant considered for appointment to the program.
- Applicants must provide complete, timely, and accurate information to programs.
- Programs are prohibited from requiring applicants to reveal ranking preferences or the names or identities of programs to which they have or may apply.
Thursday, September 10, 2009
Two-career job searches
When a couple needs two career-track jobs, they face a hard problem of coordination with each other and with their prospective employers. If they are in different industries, they need to find a four-way match, between the two of them and two different employers. If they are academics, they can at least try to find two jobs at the same university, but if they are in different disciplines the negotiations will involve different departments (and maybe different schools, i.e. different deans), and so the search and negotiation process can be complex, and can still involve potentially very different timing of searches and hiring.
The Chronicle of Higher Ed has a first person account of one such struggle, that ended successfully with two tenure-track assistant professorships at the same university: Lessons of a Dual Hire.
The (pseudonymous) author writes:"After three years of job searching for me in the geological sciences, and four years for my husband in engineering, we successfully maneuvered this year to find two tenure-track positions at the same university. Here's how it happened."
The article goes on to explain some of the difficulties that were overcome in the most recent, successful job search.
Here are two earlier related posts, both of which touch on my work on making the clearinghouse for new doctors, the National Resident Matching Program, more friendly to couples.
Job market for couples (which concerns law schools hiring of couples); and
Match Day for new doctors, which is specifically about couples who are both seeking jobs as new doctors.
Even the medical clearinghouse doesn't do much to help doctors whose spouses have non-medical careers (or even doctors whose spouses have medical careers with different years of graduation from medical school). Some years ago, I was asked to respond to an essay from a doctor's spouse which suggested that maybe the market would work better without a match, i.e. without any centralized clearinghouse. That essay, and my reply, were published in an online student edition of JAMA that no longer exists, on web pages that are no longer maintained. However I am linking to them below, on the remarkable internet archive also known as the Wayback Machine.
Mismatch, by Betsy Brody, University of Notre Dame
Response to Betsy Brody's "Mismatch" by Alvin E. Roth (both originally in MSJAMA, April 7, 1999.
Rereading my response, I would have written it a bit differently today, but the basic point still seems right. But two-career searches are tough, no doubt about it.
The Chronicle of Higher Ed has a first person account of one such struggle, that ended successfully with two tenure-track assistant professorships at the same university: Lessons of a Dual Hire.
The (pseudonymous) author writes:"After three years of job searching for me in the geological sciences, and four years for my husband in engineering, we successfully maneuvered this year to find two tenure-track positions at the same university. Here's how it happened."
The article goes on to explain some of the difficulties that were overcome in the most recent, successful job search.
Here are two earlier related posts, both of which touch on my work on making the clearinghouse for new doctors, the National Resident Matching Program, more friendly to couples.
Job market for couples (which concerns law schools hiring of couples); and
Match Day for new doctors, which is specifically about couples who are both seeking jobs as new doctors.
Even the medical clearinghouse doesn't do much to help doctors whose spouses have non-medical careers (or even doctors whose spouses have medical careers with different years of graduation from medical school). Some years ago, I was asked to respond to an essay from a doctor's spouse which suggested that maybe the market would work better without a match, i.e. without any centralized clearinghouse. That essay, and my reply, were published in an online student edition of JAMA that no longer exists, on web pages that are no longer maintained. However I am linking to them below, on the remarkable internet archive also known as the Wayback Machine.
Mismatch, by Betsy Brody, University of Notre Dame
Response to Betsy Brody's "Mismatch" by Alvin E. Roth (both originally in MSJAMA, April 7, 1999.
Rereading my response, I would have written it a bit differently today, but the basic point still seems right. But two-career searches are tough, no doubt about it.
Deceased organ donation: advice from Steve Jobs
Here's a 2-minute CNN video, at the beginning of which Apple CEO Steve Jobs, who recently received a deceased donor liver, advises us all to register to become donors.
If you have a Massachusetts driver's license you can register online to be an organ donor, right now, right here.
If you have a Massachusetts driver's license you can register online to be an organ donor, right now, right here.
Wednesday, September 9, 2009
Law clerks for Massachusetts courts, continued
In MA, the Proposal to let law-firm hires help state courts is dropped.
"The state judiciary has abandoned a controversial proposal to fill coveted law clerk jobs at no cost to the government with newly hired private lawyers whose firms have pushed back their start dates because of the recession."
...
"Mulligan had proposed the arrangement in the spring because of two related employment trends. Tight finances had forced the state to rescind job offers it had made in December to at least 24 recent law school graduates who wanted to work as law clerks. And the bad economy had prompted some law firms to defer bringing on first-year associates at full salaries.
Many firms around the country are paying such “deferred associates’’ stipends of about $60,000, less than half their regular starting salaries of about $150,000, to hold onto them until the economy improves.
Some firms have recommended that the fledgling lawyers volunteer at nonprofit groups or engage in public service. And several local firms asked Mulligan whether their associates in waiting could perform their public service as law clerks.
Some legal specialists had said an arrangement that involves a law firm paying a judicial employee raised thorny ethical questions; firms that donate lawyers to the courts might appear to be currying favor or expect preferential treatment.
...
"But Mulligan won the approval of the Committee on Judicial Ethics of the Supreme Judicial Court after he proposed a special “double blind’’ arrangement.
The Flaschner Judicial Institute, which provides continuing education to state judges, would have dealt with the law firms that supplied the clerks. Judges and court officials would have had no contact with the donating firms, and the firms would have been instructed not to identify the clerks on their websites. The clerks would have been barred from disclosing which firms were paying their stipends."
Here is my earlier post on the proposal: Law clerks for Massachusetts courts
"The state judiciary has abandoned a controversial proposal to fill coveted law clerk jobs at no cost to the government with newly hired private lawyers whose firms have pushed back their start dates because of the recession."
...
"Mulligan had proposed the arrangement in the spring because of two related employment trends. Tight finances had forced the state to rescind job offers it had made in December to at least 24 recent law school graduates who wanted to work as law clerks. And the bad economy had prompted some law firms to defer bringing on first-year associates at full salaries.
Many firms around the country are paying such “deferred associates’’ stipends of about $60,000, less than half their regular starting salaries of about $150,000, to hold onto them until the economy improves.
Some firms have recommended that the fledgling lawyers volunteer at nonprofit groups or engage in public service. And several local firms asked Mulligan whether their associates in waiting could perform their public service as law clerks.
Some legal specialists had said an arrangement that involves a law firm paying a judicial employee raised thorny ethical questions; firms that donate lawyers to the courts might appear to be currying favor or expect preferential treatment.
...
"But Mulligan won the approval of the Committee on Judicial Ethics of the Supreme Judicial Court after he proposed a special “double blind’’ arrangement.
The Flaschner Judicial Institute, which provides continuing education to state judges, would have dealt with the law firms that supplied the clerks. Judges and court officials would have had no contact with the donating firms, and the firms would have been instructed not to identify the clerks on their websites. The clerks would have been barred from disclosing which firms were paying their stipends."
Here is my earlier post on the proposal: Law clerks for Massachusetts courts
Market for new lawyers
Graduating in a recession is no fun, and aspects of the way lawyers are hired and promoted may make that particularly so not only for this year's law grads, but for next year's, since many law firms essentially hire after the second year of law school: Downturn Dims Prospects Even at Top Law Schools .
"Discussions at industry roundtables and casual talk among officials at leading schools and firms suggest a consensus that interview dates should be pushed back to the spring of the second year, if not the third year. The recent problems have arisen, reform-minded critics say, because the legal industry essentially hires two full years ahead of when employees begin to work. And because young lawyers have to be advanced by lockstep every year, it is difficult to make recruiting changes that are responsive to shocks in business.
“There’s a long list of issues that need re-examining,” said Ralph Baxter, the chairman of Orrick. “The current economic circumstances have helped people see the economic inefficiencies we’ve been living with.”
Even lockstep, as sacred a pillar of Big Law as the billable hour, has been undermined by the hiring headaches of the last year, some argue. Orrick and another major firm, Howrey, have introduced innovative programs for associates based on apprenticeships or tiered systems that depart from the traditional “up or out” partner-track models. Some industry observers say their moves represent first steps that may ultimately give firms greater flexibility in hiring."
"Discussions at industry roundtables and casual talk among officials at leading schools and firms suggest a consensus that interview dates should be pushed back to the spring of the second year, if not the third year. The recent problems have arisen, reform-minded critics say, because the legal industry essentially hires two full years ahead of when employees begin to work. And because young lawyers have to be advanced by lockstep every year, it is difficult to make recruiting changes that are responsive to shocks in business.
“There’s a long list of issues that need re-examining,” said Ralph Baxter, the chairman of Orrick. “The current economic circumstances have helped people see the economic inefficiencies we’ve been living with.”
Even lockstep, as sacred a pillar of Big Law as the billable hour, has been undermined by the hiring headaches of the last year, some argue. Orrick and another major firm, Howrey, have introduced innovative programs for associates based on apprenticeships or tiered systems that depart from the traditional “up or out” partner-track models. Some industry observers say their moves represent first steps that may ultimately give firms greater flexibility in hiring."
Tuesday, September 8, 2009
Matching for school choice
School choice has received some extended coverage lately, with articles intended to appeal to a broad audience interested in education issues and mathematics, respectively. Both focus on work that Atila Abdulkadiroglu, Parag Pathak, Tayfun Sonmez and I have had the opportunity to help put into practice (and both are related to ongoing work in CA being spearheaded by Muriel Niederle and Clayton Featherstone).
Over at Education Sector, the September 2009 issue of their feature Ideas at Work covers the new school choice mechanisms for Boston Public Schools and New York City high schools:
MATCHMAKING: ENABLING MANDATORY PUBLIC SCHOOL CHOICE IN NEW YORK AND BOSTON, By Thomas Toch and Chad Aldeman. (It also comes with a 10 minute podcast you can listen to: "A Closer Look at Mandatory School Choice", in which Aldeman interviews me and Atila...)
Joseph Malkevitch has written one of the American Mathematical Society's Monthly Essays, called School Choice.
It's an introduction to Gale and Shapley's basic deferred acceptance algorithm, with a discussion of some applications, with attention paid to the fact that the student proposing algorithm makes it safe for families to reveal their preferences.
Over at Education Sector, the September 2009 issue of their feature Ideas at Work covers the new school choice mechanisms for Boston Public Schools and New York City high schools:
MATCHMAKING: ENABLING MANDATORY PUBLIC SCHOOL CHOICE IN NEW YORK AND BOSTON, By Thomas Toch and Chad Aldeman. (It also comes with a 10 minute podcast you can listen to: "A Closer Look at Mandatory School Choice", in which Aldeman interviews me and Atila...)
Joseph Malkevitch has written one of the American Mathematical Society's Monthly Essays, called School Choice.
It's an introduction to Gale and Shapley's basic deferred acceptance algorithm, with a discussion of some applications, with attention paid to the fact that the student proposing algorithm makes it safe for families to reveal their preferences.
Federal Judges Law Clerk Hiring
Today, the day after Labor Day, as law students begin their third and final year of law school, is the time when Federal judges are supposed to begin hiring their law clerks for next year. (A clerkship, particularly with an appellate court judge, is a very career enhancing first job for a new law grad.)
While the very beginning of the third year of law school might seem early to be sorting out the plum jobs, in fact it is quite late by the historical standards of this market. Over the last few decades, hiring has periodically unraveled back well into the second year of law school. And so, not for the first time, judges are trying to restrain themselves. Here's the current plan and it's key dates: Federal Judges Law Clerk Hiring Plan with Critical Dates .
Tuesday, Sept. 8 is the "first date when applications may be received." Judges are then supposed to wait until Friday Sept. 11 before contacting candidates to schedule interviews, and to wait until the following Thursday, Sept. 17, before actually conducting any interviews or making any offers. Offers, often exploding offers that must be answered immediately, can be made at the interview, and so much of the market is over by the end of the first day. (Yesterday's post included my favorite exploding offers story.)
One more thing. Judges cheat. (My coauthors tell me I'm not supposed to say that, rather, some judges do not comply with the guidelines.) So a nonnegligible part of the market is over before it's supposed to be over. Some part of the market may even be over before it's supposed to have begun. In our 2007 Chicago Law Review article The New Market for Federal Judicial Law Clerks, a third of the judges acknowledged that they cheated. But for the time being they were largely cheating by only a few days, so that the Labor Day focal point has remained.
The law blogs are full of contemporary reports about this year's market. See e.g. Getting Your Clerkship Before Labor Day? It's Not Just for Graduates Anymore and Clerkship Application Season: Open Thread
There are also some blogs that will post news in real time, including when particular judges have begun to hire, and when they finish. They open a window on the amount of "non-compliance." See Law Clerk Addict, and Clerkship Notification Blog .
The situation well before the current attempt to organize the clerkship market is described here: Federal Court Clerkships in Roth, A.E. and X. Xing, "Jumping the Gun: Imperfections and Institutions Related to the Timing of Market Transactions," American Economic Review, 84, September, 1994, 992-1044
The more proximate history of the market before the current attempt is here:
Avery, Christopher, Christine Jolls, Richard A. Posner, and Alvin E. Roth, "The Market for Federal Judicial Law Clerks" University of Chicago Law Review, 68, 3, Summer, 2001, 793-902.(online at SSRN)
The just-prior attempt to organize the market is described here, and investigated experimentally:
Haruvy, Ernan, Alvin E. Roth, and M. Utku Unver, “The Dynamics of Law Clerk Matching: An Experimental and Computational Investigation of Proposals for Reform of the Market,” Journal of Economic Dynamics and Control, 30, 3 , March 2006, Pages 457-486. (With appendices and experimental instructions here.)
And the early experience with the current market organization is described here (with lots of illustrative quotes from clerkship applicants).
Avery, Christopher, Jolls, Christine, Posner, Richard A. and Roth, Alvin E., "The New Market for Federal Judicial Law Clerks" . University of Chicago Law Review, 74, Spring 2007, 447-486.
While the very beginning of the third year of law school might seem early to be sorting out the plum jobs, in fact it is quite late by the historical standards of this market. Over the last few decades, hiring has periodically unraveled back well into the second year of law school. And so, not for the first time, judges are trying to restrain themselves. Here's the current plan and it's key dates: Federal Judges Law Clerk Hiring Plan with Critical Dates .
Tuesday, Sept. 8 is the "first date when applications may be received." Judges are then supposed to wait until Friday Sept. 11 before contacting candidates to schedule interviews, and to wait until the following Thursday, Sept. 17, before actually conducting any interviews or making any offers. Offers, often exploding offers that must be answered immediately, can be made at the interview, and so much of the market is over by the end of the first day. (Yesterday's post included my favorite exploding offers story.)
One more thing. Judges cheat. (My coauthors tell me I'm not supposed to say that, rather, some judges do not comply with the guidelines.) So a nonnegligible part of the market is over before it's supposed to be over. Some part of the market may even be over before it's supposed to have begun. In our 2007 Chicago Law Review article The New Market for Federal Judicial Law Clerks, a third of the judges acknowledged that they cheated. But for the time being they were largely cheating by only a few days, so that the Labor Day focal point has remained.
The law blogs are full of contemporary reports about this year's market. See e.g. Getting Your Clerkship Before Labor Day? It's Not Just for Graduates Anymore and Clerkship Application Season: Open Thread
There are also some blogs that will post news in real time, including when particular judges have begun to hire, and when they finish. They open a window on the amount of "non-compliance." See Law Clerk Addict, and Clerkship Notification Blog .
The situation well before the current attempt to organize the clerkship market is described here: Federal Court Clerkships in Roth, A.E. and X. Xing, "Jumping the Gun: Imperfections and Institutions Related to the Timing of Market Transactions," American Economic Review, 84, September, 1994, 992-1044
The more proximate history of the market before the current attempt is here:
Avery, Christopher, Christine Jolls, Richard A. Posner, and Alvin E. Roth, "The Market for Federal Judicial Law Clerks" University of Chicago Law Review, 68, 3, Summer, 2001, 793-902.(online at SSRN)
The just-prior attempt to organize the market is described here, and investigated experimentally:
Haruvy, Ernan, Alvin E. Roth, and M. Utku Unver, “The Dynamics of Law Clerk Matching: An Experimental and Computational Investigation of Proposals for Reform of the Market,” Journal of Economic Dynamics and Control, 30, 3 , March 2006, Pages 457-486. (With appendices and experimental instructions here.)
And the early experience with the current market organization is described here (with lots of illustrative quotes from clerkship applicants).
Avery, Christopher, Jolls, Christine, Posner, Richard A. and Roth, Alvin E., "The New Market for Federal Judicial Law Clerks" . University of Chicago Law Review, 74, Spring 2007, 447-486.
Monday, September 7, 2009
Exploding offers
My favorite exploding offer story is probably this one:
"I received the offer via voicemail while I was in flight to my second interview. The judge actually left three messages. First, to make the offer. Second, to tell me that I should respond soon. Third, to rescind the offer.
It was a 35 minute flight." −2005 applicant for federal judicial clerkships (p448 of "The New Market for Federal Judicial Law Clerks" )
Exploding offers can have a malign effect on market performance. Here's a just-published experimental investigation that focuses on how exploding offers contribute to the unraveling of a market:
Niederle, Muriel, and Alvin E. Roth, “Market Culture: How Rules Governing Exploding Offers Affect Market Performance," American Economic Journal: Microeconomics, 1, 2, August 2009, 199-219.
(In case you were always wondering how lawyers and gastroenterologists are similar, and different, these two papers will give you some clues, at least for when they are looking for jobs...)
Here's the Abstract of the AEJ Micro paper: Many markets encounter difficulty maintaining a thick marketplace because they experience transactions made at dispersed times. To address such problems, many markets try to establish norms concerning when offers can be made, accepted and rejected. Examining such markets suggests it is difficult to establish a thick market at an efficient time if firms can make exploding offers, and workers cannot renege on early commitments. Laboratory experiments allow us to isolate the effects of exploding offers and binding acceptances. In a simple experiment, we find inefficient early contracting when firms can make exploding offers and applicants’ acceptances are binding.
"Death pools", coming to life again
The NY Times reports on efforts to buy and securitize life insurance policies, that would be sold to investors by people with terminal illnesses: Wall Street Pursues Profit in Bundles of Life Insurance . The idea is simple enough:
"Defenders of life settlements argue that creating a market to allow the ill or elderly to sell their policies for cash is a public service. Insurance companies, they note, offer only a “cash surrender value,” typically at a small fraction of the death benefit, when a policyholder wants to cash out, even after paying large premiums for many years.
Enter life settlement companies. Depending on various factors, they will pay 20 to 200 percent more than the surrender value an insurer would pay. "
...
"Mr. Terrell was the co-head of Bear Stearns’s longevity and mortality desk — which traded unrated portfolios of life settlements — and later worked at Goldman Sachs’s Institutional Life Companies, a venture that was introducing a trading platform for life settlements. He thinks securitized life policies have big potential, explaining that investors who want to spread their risks are constantly looking for new investments that do not move in tandem with their other investments.
“It’s an interesting asset class because it’s less correlated to the rest of the market than other asset classes,” Mr. Terrell said. "
But life insurance is the kind of product that has always had at least a tinge of repugnance, which is why many states have "insurable interest" laws saying that someone can only purchase insurance on your life if they have a reason to want you to be alive. "As discussed by Justice Oliver Wendell Holmes Jr. in a 1911 Supreme Court case: “A contract of insurance upon a life in which the insured has no interest is a pure wager that gives the insured a sinister counter interest in having the life come to an end” "
That's from my paper Repugnance as a Constraint on Markets , where I went on to say"The insurance industry lobbies against Stranger (or Investor) Owned Life Insurance (SOLI) and “viatical settlements,” which are third party markets and funds that purchase life insurance policies from elderly or terminally ill patients who wish to realize the cash value of their policies while still alive. The arguments against such funds often focus on the repugnance of having life insurance held by an entity that profits from deaths (in contrast to insurance companies, which make money when their customers continue living). Of course, sellers of annuities also profit from untimely deaths."(p41)
Some of the quotations from the NY Times story make me wonder whether the securitizers have fully mastered the potential repugnance issue of this kind of investment, and whether that might ultimately affect its success. See if any of these lines strike you as courting a reaction of repugnance.
"Goldman Sachs has developed a tradable index of life settlements, enabling investors to bet on whether people will live longer than expected or die sooner than planned....Spokesmen for Credit Suisse and Goldman Sachs declined to comment. "
...
"In addition to fraud, there is another potential risk for investors: that some people could live far longer than expected.
It is not just a hypothetical risk. That is what happened in the 1980s, when new treatments prolonged the life of AIDS patients. Investors who bought their policies on the expectation that the most victims would die within two years ended up losing money.
It happened again last fall when companies that calculate life expectancy determined that people were living longer. "
...
"The solution? A bond made up of life settlements would ideally have policies from people with a range of diseases — leukemia, lung cancer, heart disease, breast cancer, diabetes, Alzheimer’s. That is because if too many people with leukemia are in the securitization portfolio, and a cure is developed, the value of the bond would plummet. "
...
"But even with a math whiz calculating every possibility, some risks may not be apparent until after the fact. How can a computer accurately predict what would happen if health reform passed, for example, and better care for a large number of Americans meant that people generally started living longer? Or if a magic-bullet cure for all types of cancer was developed? If the computer models were wrong, investors could lose a lot of money."
"Defenders of life settlements argue that creating a market to allow the ill or elderly to sell their policies for cash is a public service. Insurance companies, they note, offer only a “cash surrender value,” typically at a small fraction of the death benefit, when a policyholder wants to cash out, even after paying large premiums for many years.
Enter life settlement companies. Depending on various factors, they will pay 20 to 200 percent more than the surrender value an insurer would pay. "
...
"Mr. Terrell was the co-head of Bear Stearns’s longevity and mortality desk — which traded unrated portfolios of life settlements — and later worked at Goldman Sachs’s Institutional Life Companies, a venture that was introducing a trading platform for life settlements. He thinks securitized life policies have big potential, explaining that investors who want to spread their risks are constantly looking for new investments that do not move in tandem with their other investments.
“It’s an interesting asset class because it’s less correlated to the rest of the market than other asset classes,” Mr. Terrell said. "
But life insurance is the kind of product that has always had at least a tinge of repugnance, which is why many states have "insurable interest" laws saying that someone can only purchase insurance on your life if they have a reason to want you to be alive. "As discussed by Justice Oliver Wendell Holmes Jr. in a 1911 Supreme Court case: “A contract of insurance upon a life in which the insured has no interest is a pure wager that gives the insured a sinister counter interest in having the life come to an end” "
That's from my paper Repugnance as a Constraint on Markets , where I went on to say"The insurance industry lobbies against Stranger (or Investor) Owned Life Insurance (SOLI) and “viatical settlements,” which are third party markets and funds that purchase life insurance policies from elderly or terminally ill patients who wish to realize the cash value of their policies while still alive. The arguments against such funds often focus on the repugnance of having life insurance held by an entity that profits from deaths (in contrast to insurance companies, which make money when their customers continue living). Of course, sellers of annuities also profit from untimely deaths."(p41)
Some of the quotations from the NY Times story make me wonder whether the securitizers have fully mastered the potential repugnance issue of this kind of investment, and whether that might ultimately affect its success. See if any of these lines strike you as courting a reaction of repugnance.
"Goldman Sachs has developed a tradable index of life settlements, enabling investors to bet on whether people will live longer than expected or die sooner than planned....Spokesmen for Credit Suisse and Goldman Sachs declined to comment. "
...
"In addition to fraud, there is another potential risk for investors: that some people could live far longer than expected.
It is not just a hypothetical risk. That is what happened in the 1980s, when new treatments prolonged the life of AIDS patients. Investors who bought their policies on the expectation that the most victims would die within two years ended up losing money.
It happened again last fall when companies that calculate life expectancy determined that people were living longer. "
...
"The solution? A bond made up of life settlements would ideally have policies from people with a range of diseases — leukemia, lung cancer, heart disease, breast cancer, diabetes, Alzheimer’s. That is because if too many people with leukemia are in the securitization portfolio, and a cure is developed, the value of the bond would plummet. "
...
"But even with a math whiz calculating every possibility, some risks may not be apparent until after the fact. How can a computer accurately predict what would happen if health reform passed, for example, and better care for a large number of Americans meant that people generally started living longer? Or if a magic-bullet cure for all types of cancer was developed? If the computer models were wrong, investors could lose a lot of money."
Subscribe to:
Posts (Atom)
Posts
