Comments on: 12. “The Role of Subscription-Based Patrol and Restitution in the Future of Liberty” http://libertarianpapers.org/2009/12-the-role-of-subscription-based-patrol-and-restitution-in-the-future-of-liberty/ An Online Journal for Libertarian Scholarship Mon, 08 Mar 2010 18:00:16 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Gil Guillory and Patrick Tinsley http://libertarianpapers.org/2009/12-the-role-of-subscription-based-patrol-and-restitution-in-the-future-of-liberty/comment-page-1/#comment-6399 Gil Guillory and Patrick Tinsley Wed, 10 Feb 2010 18:46:32 +0000 http://libertarianpapers.org/?p=640#comment-6399 Whether this arrangement is called vertical integration or bundling, it is analogous to classical vertical integration businesses, such as the exploration, production, and refinement of oil. The classic concerns that lead to vertical integration are the availability and planning of throughput, quality control, and bargaining / setting of prices for intermediates. Grocery stores and automobile manufacturers are indeed vertically integrated to some degree with their suppliers -- they are "backward vertically integrated". But they are not vertically integrated entirely. It's a matter of degree of control, and that control need not always be outright ownership, but can manifest itself in joint ventures, long-term agreements, non-compete or sole-sourcing agreements, etc. However, the key business issue that Mr Friedman cites in his book (MoF) is the supposedly high transactions costs associated with disputants picking a body of law. He implies that picking a body of law is the main reason. He also raises the issue of whether the arbitrator is a "claimant's arbiter" or a "defendant's arbiter" -- and advances this as a reason to pick an arbiter beforehand with the suggestion that different arbiters might have different burdens of proof, which is again related to the body of law issue. Against this suggestion, we have two defenses. First, we note that contracts with arbitration clauses in modern business contexts almost never specify the arbiter in advance. They often state the body of law, but this is more often to avoid anti-property state laws such as unconscionability than to establish foundational common law concepts. Indeed, and this is our second point, when adjudicating a victim-offender tort, the burden of proof is long-established as preponderance of the evidence, the rules of evidence are long-established -- in short, the law of torts, especially in the contexts of theft, robbery, assault, and the like, are well-established and there is very little reason to think that arbiters could successfully differentiate themselves on body of law. And we think that no arbiter could stay in business long as either a "complainant's arbiter" or a "defendant's arbiter". Whether this arrangement is called vertical integration or bundling, it is analogous to classical vertical integration businesses, such as the exploration, production, and refinement of oil. The classic concerns that lead to vertical integration are the availability and planning of throughput, quality control, and bargaining / setting of prices for intermediates. Grocery stores and automobile manufacturers are indeed vertically integrated to some degree with their suppliers — they are “backward vertically integrated”. But they are not vertically integrated entirely. It’s a matter of degree of control, and that control need not always be outright ownership, but can manifest itself in joint ventures, long-term agreements, non-compete or sole-sourcing agreements, etc.

However, the key business issue that Mr Friedman cites in his book (MoF) is the supposedly high transactions costs associated with disputants picking a body of law. He implies that picking a body of law is the main reason. He also raises the issue of whether the arbitrator is a “claimant’s arbiter” or a “defendant’s arbiter” — and advances this as a reason to pick an arbiter beforehand with the suggestion that different arbiters might have different burdens of proof, which is again related to the body of law issue.

Against this suggestion, we have two defenses. First, we note that contracts with arbitration clauses in modern business contexts almost never specify the arbiter in advance. They often state the body of law, but this is more often to avoid anti-property state laws such as unconscionability than to establish foundational common law concepts. Indeed, and this is our second point, when adjudicating a victim-offender tort, the burden of proof is long-established as preponderance of the evidence, the rules of evidence are long-established — in short, the law of torts, especially in the contexts of theft, robbery, assault, and the like, are well-established and there is very little reason to think that arbiters could successfully differentiate themselves on body of law.

And we think that no arbiter could stay in business long as either a “complainant’s arbiter” or a “defendant’s arbiter”.

]]> By: David Friedman http://libertarianpapers.org/2009/12-the-role-of-subscription-based-patrol-and-restitution-in-the-future-of-liberty/comment-page-1/#comment-6398 David Friedman Wed, 10 Feb 2010 04:28:08 +0000 http://libertarianpapers.org/?p=640#comment-6398 Thanks for your response. When I buy a car from Honda it has tires on it; Honda motors, not the customer, selects the provider of the tires. So by your definition, the automobile industry and the tire industry are vertically integrated. Along with the glass industry (windshields), the electric bulb industry (headlights), ... . When I go to the supermarket, they have apples, which they have bought from a wholeseller, and similarly for other products. They may have similar products from several sellers or they may not. So by your definition the whole chain--the supermarket, the orchard, the wholeseller, the producer of grocery carts used in the supermarket, the newspaper in which the supermarket advertises--are vertically integrated. That is not what vertical integration means. I do indeed propose that each pair of agencies agree in advance on the arbitration agency to settle disputes between their customers. That avoids the obvious problem of arranging arbitration after the dispute arises--at which point the interests of the parties are in conflict, making it difficult for them to agree on an arbitrator. If I am accused of a crime, I want a court with a very high standard of proof; if I am the victim, I don't. Before the dispute, when I might end up as either plaintiff or defendant, that problem is largely eliminated. Thanks for your response.

When I buy a car from Honda it has tires on it; Honda motors, not the customer, selects the provider of the tires. So by your definition, the automobile industry and the tire industry are vertically integrated. Along with the glass industry (windshields), the electric bulb industry (headlights), … .

When I go to the supermarket, they have apples, which they have bought from a wholeseller, and similarly for other products. They may have similar products from several sellers or they may not. So by your definition the whole chain–the supermarket, the orchard, the wholeseller, the producer of grocery carts used in the supermarket, the newspaper in which the supermarket advertises–are vertically integrated.

That is not what vertical integration means.

I do indeed propose that each pair of agencies agree in advance on the arbitration agency to settle disputes between their customers. That avoids the obvious problem of arranging arbitration after the dispute arises–at which point the interests of the parties are in conflict, making it difficult for them to agree on an arbitrator. If I am accused of a crime, I want a court with a very high standard of proof; if I am the victim, I don’t. Before the dispute, when I might end up as either plaintiff or defendant, that problem is largely eliminated.

]]> By: Gil Guillory and Patrick Tinsley http://libertarianpapers.org/2009/12-the-role-of-subscription-based-patrol-and-restitution-in-the-future-of-liberty/comment-page-1/#comment-6397 Gil Guillory and Patrick Tinsley Tue, 09 Feb 2010 20:06:11 +0000 http://libertarianpapers.org/?p=640#comment-6397 According to Friedman, we are "wildly wrong" to ascribe to him the view that police protection and arbitration services should be provided by the same firm. Friedman is correct that his work in this area, to which he links, contemplates the provision of protection and arbitration by separate business entities. We regret any confusion our error may have caused and we encourage our readers to consult <i>The Machinery of Freedom</i>, which is a valuable and pioneering study of free market law enforcement. But while Mr. Friedman's work may not perfectly illustrate the "vertical integration" fallacy, it does raise substantially similar concerns. Friedman's vision of a free market in law enforcement is one in which defense agencies and arbitration firms are bound together by a web of contracts that enable defense agencies to pre-select the arbitrator who will resolve a particular dispute. ("In practice, once anarcho-capitalist institutions were well established, protection agencies would... arrange contracts in advance, before specific conflicts occurred, specifying the arbitrator who would settle them.") From the point of view of the customer, the production of defense and adjudication is produced by one company, their defense agency, which subcontracts the arbitration to a specialty company. ("Under the arrangements I have described, the court is chosen in advance by the protection agencies.") Looked at from this perspective -- the perspective of the customer -- the scenario that Friedman contemplates is one in which a defense agency controls the entire chain of production from deterrence through detection, investigation, and culminating in adjudication. We think such an arrangement can be considered one species of vertical integration. According to Friedman, we are “wildly wrong” to ascribe to him the view that police protection and arbitration services should be provided by the same firm. Friedman is correct that his work in this area, to which he links, contemplates the provision of protection and arbitration by separate business entities. We regret any confusion our error may have caused and we encourage our readers to consult The Machinery of Freedom, which is a valuable and pioneering study of free market law enforcement. But while Mr. Friedman’s work may not perfectly illustrate the “vertical integration” fallacy, it does raise substantially similar concerns. Friedman’s vision of a free market in law enforcement is one in which defense agencies and arbitration firms are bound together by a web of contracts that enable defense agencies to pre-select the arbitrator who will resolve a particular dispute. (“In practice, once anarcho-capitalist institutions were well established, protection agencies would… arrange contracts in advance, before specific conflicts occurred, specifying the arbitrator who would settle them.”) From the point of view of the customer, the production of defense and adjudication is produced by one company, their defense agency, which subcontracts the arbitration to a specialty company. (“Under the arrangements I have described, the court is chosen in advance by the protection agencies.”) Looked at from this perspective — the perspective of the customer — the scenario that Friedman contemplates is one in which a defense agency controls the entire chain of production from deterrence through detection, investigation, and culminating in adjudication. We think such an arrangement can be considered one species of vertical integration.

]]> By: David Friedman http://libertarianpapers.org/2009/12-the-role-of-subscription-based-patrol-and-restitution-in-the-future-of-liberty/comment-page-1/#comment-6377 David Friedman Thu, 28 Jan 2010 03:58:46 +0000 http://libertarianpapers.org/?p=640#comment-6377 The authors write: "The vertical integration assumption is to suppose that in laissez faire the production of adjudication and the production of patrol/security should be or would be unified in a single business. ... It appears that the first author to display one of these errors (17) was David Friedman:" This is not merely wrong, it is wildly wrong. If you had read a little farther in the same chapter you quote from, you would find: "The man from Tannahelp suggests that the better solution is arbitration. They will take the dispute over my television set to a reputable local arbitration firm. If the arbitrator decides that Joe is innocent, Tannahelp agrees to pay Joe and Dawn Defense an indemnity to make up for their time and trouble. If he is found guilty, Dawn Defense will accept the verdict; since the television set is not Joe's, they have no obligation to protect him when the men from Tannahelp come to seize it. What I have described is a very makeshift arrangement. In practice, once anarcho-capitalist institutions were well established, protection agencies would anticipate such difficulties and arrange contracts in advance, before specific conflicts occurred, specifying the arbitrator who would settle them." Far from proposing that arbitration and rights enforcement be combined in a single firm, I am proposing a market structure in which (enforcement) firms buy the service of settling disputes from (arbitration) firms. A single enforcement firm might employ the services of a dozen different arbitration firms, a single arbitration firm might sell its services to a dozen different enforcement firms. How you could get from that to the idea that I think enforcement and arbitration should be produced by the same firm I have no idea. The relevant chapter is available online for anyone who wants to see what I was proposing in it: http://www.daviddfriedman.com/Libertarian/Machinery_of_Freedom/MofF_Chapter_29.html The authors write:

“The vertical integration assumption is to suppose that in laissez faire the production of adjudication and the production of patrol/security should be or would be unified in a single business.

…

It appears that the first author to display one of these errors (17) was David Friedman:”

This is not merely wrong, it is wildly wrong. If you had read a little farther in the same chapter you quote from, you would find:

“The man from Tannahelp suggests that the better solution is arbitration. They will take the dispute over my television set to a reputable local arbitration firm. If the arbitrator decides that Joe is innocent, Tannahelp agrees to pay Joe and Dawn Defense an indemnity to make up for their time and trouble. If he is found guilty, Dawn Defense will accept the verdict; since the television set is not Joe’s, they have no obligation to protect him when the men from Tannahelp come to seize it.

What I have described is a very makeshift arrangement. In practice, once anarcho-capitalist institutions were well established, protection agencies would anticipate such difficulties and arrange contracts in advance, before specific conflicts occurred, specifying the arbitrator who would settle them.”

Far from proposing that arbitration and rights enforcement be combined in a single firm, I am proposing a market structure in which (enforcement) firms buy the service of settling disputes from (arbitration) firms. A single enforcement firm might employ the services of a dozen different arbitration firms, a single arbitration firm might sell its services to a dozen different enforcement firms.

How you could get from that to the idea that I think enforcement and arbitration should be produced by the same firm I have no idea.

The relevant chapter is available online for anyone who wants to see what I was proposing in it:

http://www.daviddfriedman.com/Libertarian/Machinery_of_Freedom/MofF_Chapter_29.html

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