Yes, but why?

An interesting observation from Tyler Cowen over at Marginal Revolution:

Nearly a quarter of South Korean men over 75 are still in the labor force, as are 14 percent of Japanese men. In the United States, a 10th of such men are working or seeking work, compared with half of 1 percent in France.

Put another way, a Korean man over 75 is more likely to be working than a Frenchman in his early 60s.

Is this good or bad? And what does government social benefit systems have to do with it? More discussion here.

Does size matter?

An age old question.

And one that keeps coming up in policy circles when talking about job creation. And when are policymakers not talking about job creation?

There is a view, often strongly argued, that small and new firms create a disproportionate share of new jobs. Which means that governments should be helping new firms if they want new jobs. But is it right? John Haltiwanger, Ron Jarmin, and Javier Miranda take a look at the US data and find that it is age, not size, that matters. (That will come as a relief to many I'm sure!)

There’s been a long, sometimes heated, debate on the role of firm size in employment growth. Despite skepticism in the academic community, the notion that growth is negatively related to firm size remains appealing to policymakers and small business advocates. The widespread and repeated claim from this community is that most new jobs are created by small businesses. Using data from the Census Bureau Business Dynamics Statistics and Longitudinal Business Database, we explore the many issues regarding the role of firm size and growth that have been at the core of this ongoing debate (such as the role of regression to the mean). We find that the relationship between firm size and employment growth is sensitive to these issues. However, our main finding is that once we control for firm age there is no systematic relationship between firm size and growth. Our findings highlight the important role of business startups and young businesses in U.S. job creation. Business startups contribute substantially to both gross and net job creation. In addition, we find an “up or out” dynamic of young firms. These findings imply that it is critical to control for and understand the role of firm age in explaining U.S. job creation.

Studying the biases of bureaucrats

Matt Ridley seems to think this is a good idea. In a piece in the Wall Street Journal Ridley argues that behavioural economics needs to be applied to bureaucrats as well as markets.

But while there is a lot of interest in the psychology and neuroscience of markets, there is much less in the psychology and neuroscience of government. Slavisa Tasic, of the University of Kiev, wrote a paper recently for the Istituto Bruno Leoni in Italy about this omission. He argues that market participants are not the only ones who make mistakes, yet he notes drily that "in the mainstream economic literature there is a near complete absence of concern that regulatory design might suffer from lack of competence." Public servants are human, too.

Human may be going a bit far!!!!

The paper by Tasic identifies five mistakes that government regulators often make:

1. action bias,
2. motivated reasoning,
3. the focusing illusion,
4. the affect heuristic and 
5. illusions of competence.

Ridley notes,

In the last case, psychologists have shown that we systematically overestimate how much we understand about the causes and mechanisms of things we half understand. The Swedish health economist Hans Rosling once gave students a list of five pairs of countries and asked which nation in each pair had the higher infant-mortality rate. The students got 1.8 right out of 5. Mr. Rosling noted that if he gave the test to chimpanzees they would get 2.5 right. So his students' problem was not ignorance, but that they knew with confidence things that were false.

The issue of action bias is better known in England as the "dangerous dogs act," after a previous government, confronted with a couple of cases in which dogs injured or killed people, felt the need to bring in a major piece of clumsy and bureaucratic legislation that worked poorly. Undoubtedly the rash of legislation following the current financial crisis will include some equivalents of dangerous dogs acts. It takes unusual courage for a regulator to stand up and say "something must not be done," lest "something" makes the problem worse.

Motivated reasoning means that we tend to believe what it is convenient for us to believe. If you run an organization called, say, the Asteroid Retargeting Group for Humanity (ARGH) and you are worried about potential cuts to your budget, we should not be surprised to find you overreacting to every space rock that passes by. Regulators rarely argue for deregulation.

The focusing illusion partly stems from the fact that people tend to see the benefits of a policy but not the hidden costs. As French theorist Frédéric Bastiat argued, it's a fallacy to think that breaking a window creates work, because while the glazier's gain of work is visible, the tailor's loss of work caused by the window-owner's loss of money—and consequent decision to delay purchase of a coat—is not. Recent history is full of government interventions with this characteristic.

"Affect heuristic'" is a fancy name for a pretty obvious concept, namely that we discount the drawbacks of things we are emotionally in favor of. For example, the Deepwater Horizon oil spill certainly killed about 1,300 birds, maybe a few more. Wind turbines in America kill between 75,000 and 275,000 birds every year, generally of rarer species, such as eagles. Yet wind companies receive neither the enforcement, nor the opprobrium, that oil companies do.

Regulation and government economic interventions looks a lot less good when you look at it the way Ridley does. Of course this may be why governments don't do this. Good policy should always keep in mind that regulators might not be as competent as they think they are.

Hickson on RNZ

Previously I noted that Stephen Hickson has written a good piece in the Christchurch Press on foreign ownership. Thanks to Offsetting Behaviour we lean that Stephen Hickson has now appeared on Radio New Zealand's "The Panel". The segment starts at 3:30; Stephen Hickson comes in around the 7:30 mark.

Well said Steve!

Using online experiments in business

Economist Susan Athey talks to NPR:

Did you know that every time you do a search on Google or Bing, you are improving the quality of the search engine? The more people click on a search advertisement from a clothing company or on a link on an online news story, the more prominently it is displayed for the next consumer. And the firms constantly experiment to get things right. They watch what consumers do and adapt their products in response to the results of their experiments.

But designing the right experiment is difficult. To see just one example, consider spam. An e-mail provider wants to eliminate spam from your inbox. It is nuisance for all of us. That company might test out a new way to filter spam. The filter may do a great job in short-term experiments, where the spammers don't have a chance to respond. But once the new filter is introduced in practice, spammers may find a way around the filter. So, that means that some legitimate e-mail is filtered out and the end result may be that you haven't solved the spam problem at all. You could very well end up worse than where you started, even though the experimental numbers looked great.

So, if you want to figure out whether a new product will work out the way you hope, you need to be able to anticipate how people will react to your innovation. That is, you don't just have to be a good statistician. It's not just about the numbers that come out of simple experiments; it is about predicting how people will react to the changes you make. You need to understand behavior and how to build models that reflect the choices we all make.

Unfortunately, our universities and business schools haven't figured out how to train students to do this kind of modeling and prediction. That is, we aren't preparing students to manage the new data-driven businesses. And let's face it: This is where our economy is headed, as consumers are spending more and more of their time online. Creating new jobs in this economy is a must, but making sure that the workforce is ready for the jobs where our growth is happening is more important. The good news is that the young people who do develop the talent and skills to capitalize on this opportunity will be in high demand, which puts them in a great position in today's tough economy.

Survivor bias

Lasse Lien at Organizations and Markets gives a nice example of Survivor Bias: WW2 ed.

One fascinating anecdote is how these pioneers used data on damage from German air defense fire. The RAF collected large amounts of data on exactly where returning aircraft had received damage. The intuitive recommendation would be to reinforce the aircrafts were the data indicated they took the most damage. However, realizing that they only had data from surviving aircraft, the OR-group under leadership of Patrick Blackett recommended that they reinforce the aircraft in the sections where no damage was recorded in the data.

Nice. What you would really like to know is what damage did the planes that didn't return suffer.

Incentives matter: insurance file

"There was another man who took out insurance with 28 or 38 companies," said Murray Armstrong, an insurance official for Liberty National. "He was a farmer and ordinarily drove around the farm in his stick shift pickup. This day - the day of the accident - he drove his wife's automatic transmission car and he lost his left foot. If he'd been driving his pickup, he'd have had to use that foot for the clutch. He also had a tourniquet in his pocket. We asked why he had it and he said, 'Snakes. In case of snake bite.' He'd taken out so much insurance he was paying premiums that cost more than his income. He wasn't poor, either. Middle class. He collected more than $1-million from all the companies. It was hard to make a jury believe a man would shoot off his foot."

The full article is available here.

(HT: Marginal Revolution)

Why don't the players own football clubs?

The question of why the players in professional sports don't own the teams they play for is one I have been thinking about recently. On the surface it would like they should. After all the human capital of the players - talent at playing a particular sport - is the only real asset that teams have and we normally see worker ownership in human capital based firms. Think of partnerships in the case of lawyers, accountants, GPs etc. So why not football players?

My argument would be that heterogeneity among playing talent is at least part of the answer. Differing talents leads to differing earning potential which results in a disincentive to form a cooperative structure since those players with the greatest earning potential will wish to be able to transfer between teams easily to maximise competition for their services. Martin Ricketts explains the problem as

Further, to minimise antagonism a rough equality in the division of the residual will be necessary and this may conflict with outside opportunities. Those with high transfer earnings reflecting high productivity elsewhere will desert the co-operative. It is for these reasons that control of the firm by its labour force is usually found in circumstances which permit a high degree of common interest.

A cooperative form of organisation would hinder rapid transfers between clubs. Issues that could slow transfers could arise if, for example, the terms of the exit have to be negotiated with the remaining player/owners of the cooperative team. The remaining player/owners could, as an example, be unable or unwilling to buy out the exiting player or any of them could veto an incoming replacement player/owner. Transfers would be easier if the player was just an employee of the team rather than an employee/owner.

In addition there are principal-agent problems such as those which could arise between the manager or coach of the team and the player/owners in their roles as players and as owners. Who is the principal and who is the agent?

I don't know of any player owned teams - if anyone does have an example please give it in the comments - and heterogeneity of human capital is part of the reason why.

New videos featuring Lawrence H. White talking about the work of F A Hayek

EconStories.tv has three new videos available in which Lawrence H. White talks about the work of F A Hayek.

Part one, Fear the Boom, focuses on the unsustainability of a boom driven by artificially low interest rates and credit expansion by the central bank (the Fed) beyond the supply of genuine savings.



In part two, The Bust, Lawrence White offers his view on a Hayekian response to the bust phase of the Boom and Bust cycle and responds to the charge that F. A. Hayek was a “liquidationist.”



In part three, The Cluster of Errors, White addresses the expectations and the cluster of entrepreneurial errors that reveal themselves during a bust.



Lawrence H. White is a professor of economics at George Mason University.

EconTalk this week

Thomas Hazlett of George Mason University talks with EconTalk host Russ Roberts about the growing rivalry between Apple and Google. It is commonly argued that Apple with its closed platform and tight control from the top via Steve Jobs is making the same mistake it made in its earlier competition with Microsoft. Google on the other hand is lauded for its open platform and leveraging of a large number of suppliers for its Android phone, for example. Hazlett, drawing on his recent article in the Financial Times, argues that these arguments fail to recognize the different competitive advantages of Apple and Google and the implications of those advantages for the companies' respective strategies. The conversation concludes with a discussion of the move to application-based web browsing such as Facebook, Twitter, and the implications for Google.

The Smoot-Hawley Act and trade retaliation

As noted in the previous posting the Smoot-Hawley Act in the US invited trade retaliation from the US's trading partners. Jim Powell has been discussing these retaliations in the Washington Times. He writes,

On June 17, 1930, Hoover signed what became known as the Smoot-Hawley Act. It was named after Utah Sen. Reed Smoot and Oregon Rep. Willis C. Hawley, both Republicans. The law raised import duties an average of 59 percent on more than 25,000 agricultural commodities and manufactured goods. Smoot-Hawley was a factor in the subsequent plunge of the stock market and the doubling of unemployment within a year. More than 60 countries retaliated with restrictions against whichever products would inflict the worst losses on Americans.

Smoot-Hawley outraged people, starting with our neighbors. "The tariff on halibut was doubled, thus offending the eastern provinces of Canada," explained Joseph M. Jones Jr., in his classic study "Tariff Retaliation." "The tariff duties on potatoes, on milk, cream, buttermilk, skimmed milk and butter were all radically increased, thus antagonizing the populations of Quebec and Ontario; the prairie and western provinces were provoked by increased duties on cattle, fresh meats, wheat and other grains; British Columbia and Alberta were infuriated by increases in the duties on apples, logs and lumber." Canadians slapped steep tariffs on U.S. agricultural implements, electrical apparatus, household equipment, cast-iron pipe, vegetables, gasoline, shoes, paper, fertilizers and jewelry - perhaps a billion dollars' worth of business down the tubes.

In Great Britain, long the greatest champion for free trade and prosperity, Smoot-Hawley helped provoke a protectionist reaction that led to the Import Duties Act (1932), the country's first general tariff law in more than a century. Part II of the Import Duties Act provided 100 percent tariffs on goods from countries such as the United States that penalized British goods.

Because Smoot-Hawley included cork, which accounted for more than half of Spain's exports to the United States, Spain increased tariffs on American cars by 150 percent, enough to shut American cars out of the Spanish market.

Smoot-Hawley hit Italy's principal exports to the United States, including raw cotton, wheat, copper and leather, and Italy retaliated by more than doubling its tariffs on American cars. Sales of American cars in Italy subsequently dropped 90 percent. Italy also increased tariffs on American radios more than 500 percent.

France responded to Smoot-Hawley with import quotas that, together with its tariffs, business taxes and other obstacles, shut American goods out of the French market.

Smoot-Hawley affected just about every Swiss export to the United States, watches in particular. A tenth of the Swiss population was involved in the watch business, and 95 percent of Swiss watches were exported. There was popular support for a Swiss boycott aimed at all American goods.

But did any of this actually help the farmers that the act was supposed to help? Powell continues,

American farmers, who had lobbied hard for Smoot-Hawley, were among the biggest losers from all this. They saw their exports plunge from $1.8 billion in 1929 before Smoot Hawley to $590 million just four years later.

As Don Boudreaux put it "That worked well."

Trade retaliatory is no "yolk"

Donald J. Boudreaux has been writing, as only he can, to the Washington Times:

Jim Powell offers a long list of some of the many trade-destroying retaliatory tariffs that foreign governments imposed on their citizens in response to Uncle Sam’s 1930 Smoot-Hawley tariff (“The tempting path of protectionism,” Oct. 24). I offer here yet another candidate for that list: Canada’s tariff on American eggs.

Harvard government professor Jeffry Frieden explains that “Smoot-Hawley raised the tariff on egg imports into the U.S. from eight cents to ten cents per dozen. This higher tariff caused egg imports from Canada to fall by 40 percent. In response, Canadian authorities increased the tariff on U.S. eggs exported to Canada; this tariff went from three cents per dozen to ten cents per dozen. The result was that American egg exports to Canada fell by 98 percent – from 11 million annually just before Smoot-Hawley to a mere 200,000.”

That worked well.

So if the straight economic arguments against protectionism aren't convincing enough when you add in the political economy arguments, like retaliation, it is difficult to see why people still support protectionism. Does anyone really think the Smoot-Hawley tariff helped US egg producers?

Tariff s costs jobs

Some people even in the US seem to understand this point:

"Think about the IPod, for instance. It is designed in America and its 451 parts are made in dozens of different countries. But just because it is finally assembled in China, it officially counts as a Chinese import and therefore a contributor to America’s trade deficit — never mind that the Chinese add only $4 to the IPod’s $150 final value. Imposing duties on IPods to slash the deficit, then, won’t just cost Chinese jobs in Beijing assembly plants, but American jobs in Cupertino (Apple’s headquarters) computer labs."

And hurts the worst-off of people,

But if raising the barricades against Chinese products will hurt highly-paid techies in America, it will hurt working class folks even more.

Consider the research by University of Chicago economist Christian Broda. Contrary to conventional wisdom, he found that inequality in this country has gone down – not up — thanks to trade with China. Between 1994 and 2005, he found, any rise in income inequality was offset by a decline in prices of goods consumed by poorer households. Indeed, inflation for the richest 10% of U.S. households, which tend to spend more on services, was 6% higher than the poorest 10%, who spend more of their income on household goods supplied by China. “In sectors where there is no Chinese presence,” Broda has pointed out, “inflation has been more than 20%.” In short, China has likely done more to help America’s poor than the stimulus, TARP or any other program invented by Uncle Sam.

That is Shikha Dalmia in Forbes.

But what is the opportunity cost?

The New Zealand Herald tells us that:

New Zealand's largest education union says te reo Maori should be compulsory in all schools to ensure it's kept alive.

But if it is to be compulsory what is to be dropped to make way for it? Should students not be taught maths, English, history or .....? There is no such thing as a free compulsory subject.

Minimum wages and youth unemployment

An interesting post over at Economic Logic blog on the effects of minimum wages on youth unemployment. The Economic Logician writes,

Aspen Gorry uses a suddenly popular labor search model that differentiates between those seeking a first job (the young) and those that have experience (the old). Varying the level of the minimum wages from American to French levels, he finds that about 50% of the gap between youth unemployment rates can be explained. What this is implies is that the minimum wage prevents some of the young workers to find their first job. And this lack of experience implies that they enjoy only later the job stability of an incumbent. Thus the impact of the minimum wage adds up quickly for the aggregate unemployment rate.

The abstract of the Gorry paper reads:

Significant employment differences between the US and Europe are concentrated among young workers. This paper constructs a labor search model that accounts for age patterns of employment. Work experience reduces the probability that workers lose their jobs. By introducing minimum wages, the model explains empirical findings on the effects of minimum wage laws. In addition, the model shows that minimum wages can account for about half of the differences in youth employment between Europe and the United States.

The model suggests that the introduction of minimum wages means that the representative inexperienced workers, the young, have a more difficult time finding their first job and are less likely to become experienced. Such negative effects decline with age as workers become experienced and the minimum wage no longer binds. So the minimum wage effects of job prospects of the young inexperienced worker.

Copyright and endogenous market structure

There is a new working paper out on Copyright & endogenous market structure: A glimpse from the journal-publishing market. It is by Giovanni B. Ramello. The abstract reads,

This article explores the journal publishing industry in order to shed light on the overall economic consequences of copyright in markets. Since the rationale for copyright is among others to promise some market power to the holder of the successful copyrighted item, it also provides incentives to preserve and extend market power. A regular trait of copyright industries is high concentration and the creation of large catalogues of copyrights in the hands of incumbents. This outcome can be observed as the aggregation of rights and is one of the pivotal strategies for obtaining or extending market power, consistently with findings in other cases. Journal publishing is no different in this respect from other copyright industries, and in the last decade has experienced a similar trajectory, leading to a highly concentrated industry in which a handful of large firms increasingly control a substantial part of the market. It also provides a clear example of the effect of copyright dynamics on market structure, suggesting that a different attitude should be taken in lawmaking and law enforcement.

So one unintended consequence of copyright, for academic publishing at least, is simply that given some market power, via copyright, the "monopolist" will seek to expand this power by making acquisitions and thereby obtain even more dominance in the market. Many would argue that this has happened in economics. As the Economic Logician says,

The obvious example is Elsevier, which has reached now a market share that should trigger anti-trust investigations along with profit margin in the order of 30%. The situation is quite bad in Economics, as scholarly societies have done little to prevent Elsevier taking hold of the major field journals, thereby making it essential to any tenure file. And given this, research libraries have no choice but subscribe to those journals, falling in the trap of the monopolist.

The economics of talent

Tim Worstall tells us what What Rooney tells us about football. He writes,

It’s a simple effect of the structure of the business. When you’ve a business which depends upon human talent, slight gradations in said talent, then all the money in the business will end up in the hands of said talent. This is as true of banking as it is football, movies or, dare I say it, the writing of books.

Those who have that extra 10%, 1% even, will see their prices bid up as the moneymen compete with each other to employ that extra 10%, 1% of talent.

It’s analagous as to why the workers’ wages in general rise over time. As productivity rises then the capitalists are competing among themselves for the ability to employ that now newly more valuable labour. Thus wages in general get bid up.

Interestingly this may also help explain why the players don't own the football clubs. To take advantage of the money on offer the players have to be able to move from club to club and player ownership of clubs would make this more difficult.

Deferred fees for universities

This is an idea put forward by Neil Shephard, Professor of Economics, University of Oxford in response to the call for evidence “Proposals for a new higher education system” by the Browne Review on “Higher Education Funding and Student Finance” in the UK.

The main points of Shephard's system are:

1. Make student financial support available to cover all tuition and a modest cost of living.
2. Allow graduates to repay according to earnings with protection for poorer graduates.
3. Call HEFCE teaching grants “scholarships” and make students aware of their value.
4. Cap the level of funded fees plus HEFCE grant at the current level.
5. Allow universities to charge deferred fees.

a. When they are paid the money goes to the student’s university not to the state. These fees have no fiscal implications.
b. Bring some of the cash flow from deferred fees forward by working with a bank.

6. In the long-run move to making the cost of living support simpler by

a. Providing more realistic cost of living support for all students.
b. Removing means-tested university bursaries for cost of living expenses.
c. Removing means-tested grants to students provided by the state.

Shephard goes on to say,

Whenever I refer to “financial support” I will mean the following. Students can opt to take out a
financial support package to fully or partially fund their fees and/or cost of modest living. Whatever the size of the financial support package, students will be offered payment terms as graduates which are 9% of earnings above £15k until they have paid back the full amount (net present value) of support. The parts of support package which are not repaid due to low earnings are forgiven after 25 years. The interest rate should be the state’s cost of borrowing (currently 2.2% real). The system is run through the Student Loan Company (SLC).

The Economic Logician comments,

I think this is a very good programme. It essentially boils down to students borrowing against future income, and seeing how the return to education is vastly superior to the financial cost, they should want to take this opportunity as long as there is a market. Universities are the ones providing this market and they are incentivized to provide a good educational product.

One of the major problems for students with financing higher education is the inability to borrow against future income given the investment being made is in human capital which can not be used as collateral for a loan in the way physical capital can be. Shephard's idea does deal with this issue. The system also does have a real rate of interest (2.2%) applied to it. This at least should make students think about the worth of taking out financial support.

Confusion on ownership

Recently over at the Stumbling and Mumbling blog Chris Dillow discussed the problems involving the ownership of the Liverpool football club, which does look somewhat strange. But he seems to be confused over what ownership is all about. He writes,

The Hicks-Gillett saga shows that, despite the impression given by Jimmy Tarbuck and Stan Boardman, great comedy can come out of Merseyside. It also throws into question the standard view about the ownership of assets generally (I’d call it the neoliberal view if I were a pretentious git.)

How I have to say I have never come across a "neoliberal" view of ownership so I'm not too sure what exactly Dillow is on about. Does he mean a transaction cost view, property rights view, reference point view or ....? But I go on hoping I can make sense of his argument.

Dillow continues,

This says that it is efficient for the ownership of an asset to go to the highest bidder. This is because the very act of bidding most for an asset suggests that a man knows best how to maximize its value. A free market in assets, then, ensures that assets go to those best able to manage them.

Hicks and Gillett’s mismanagement of Liverpool, however, shows that this story isn’t right all the time; highest bidders - as they were once - can make a horrible mess.

Yes, they can make a horrible mess but the point of a free market in ownership is that if they do then they will lose control of the firm, or football club, which is what has happened. Giving ownership to the highest bidder doesn't guarantee that the best use of the asset will occur but it does increase the probability of it. No method of ownership determination can guarantee optimal asset use.

Dillow than asks:

Which raises the question: what is wrong with this standard story?

and say four things are:

Over-confidence. It’s well-known that bidders can overpay for assets - the winner‘s curse is a cliche. This is especially likely when those bidders are entrepreneurs who have been successful in other businesses. Such men are selected twice over for their overconfidence. Once, because the very act of becoming an entrepreneur in the first place betokens an overconfidence. And twice, because previous success further raises that confidence and breeds the belief that the ability to own baseball clubs or mobile phone shops gives one the ability to own a football club.

Ownership, then, doesn’t flow to the most competent potential owner, but to the most deluded.

See my point above. If they are "deluded" this will soon be found out and given a free market in ownership, the ownership of the asset will change. Which is what you would want.

Ownership does not confer genuine power. In the case of football clubs, real power - the ability to extract cash - lies with players, not owners; Alan Sugar called this the prune juice effect. Similarly, in banks shareholders lacked power to control excessive risk-taking.

That ownership and "power" may not be the same is well known, see for example, Jean Tirole and Philippe Aghion, "Formal and Real Authority in Organizations", Journal of Political Economy, vol. 105, n. 1, February 1997, p. 1-29. Why Dillow thinks "the ability to extract cash" is ownership or power I can't see. "The ability to extract cash" will have more to do with markets conditions than ownership. If you are a monopoly, for example, then you have more "ability to extract cash" than a competitive firm, but this has nothing to do with ownership. Ownership is about control rights (and maybe income rights) independent of "the ability to extract cash". If you went from being a monopoly to being a competitive firm "the ability to extract cash" would change but does this mean that ownership or power has changed? I can't see how.

As to the "banks shareholders lacked power to control excessive risk-taking" point, ownership isn't about being able to control the actions of the management and workers perfectly. Its about being able to do so better than an alternative set of owners. This doesn't mean that the owners have perfect control of the firm, they don't, no set of owners would have; it means they have better control than the alternative owners.

The collective action problem. The people with the best knowledge or incentive to manage an asset might be a dispersed group; fans in the case of football clubs or employees in the case of other companies. Organizing such a group, however, can be prohibitively tricky.

This is true, but if those with the "best knowledge or incentive to manage an asset" are a "dispersed group" then you have to ask if they really are those who should be the owners. Hansmann makes the point that homogeneity of interest is important for the group that are the owners of a firm. Would the fans really have such a homogeneity of interest? They may not care too much about profits - the normal thing that investors have in common- they are fans after all, but they may care about other things, who's the manager, who are the players, which players should play, who the sponsors of the team should be etc, and assuming they all can't agree, this results in heterogeneity of interests, which is bad for ownership.

Capital constraints. The standard view assumes that the people best able to maximize an asset’s value will be able to raise the cash to buy it. But this needn’t be true. Even the wealthy Red Knights were unable to put together a bid for their club, so it was always going to be impossible for Liverpool fans to do so, with one job between them. And of course, the point here extends way beyond football clubs.

Why is it impossible for Liverpool fans to bid for the club? Why can't they just sell shares in the club and raise money the same way any investor-owned firm does? If there are enough fans, and I'm guessing there are, then why can't they use the standard methods of raising funds from small investors that all share-holder owned firms do?

Part of Dillow's conclusion is that:

These four difficulties undermine the standard argument for a free market in ownership [...]

I would say not. In fact what the whole Liverpool things shows is that free markets in ownership work. If you are the owner of an asset and use it badly someone else will be able to take ownership away from you and this is what we have seen. Ownership is determined by profit and loss, if you make a (big enough) loss you will lose ownership. This is how you give the best incentives to owners and how you move assets into the hands of those who really do value them most and who will use them most efficiently. The system can take time and isn't always perfect in the way it works, but we have yet to come up with a better method.

What is the optimal number of courts

A paper by Stefan Voigt looks at this question.The abstract of his paper, On the Optimal Number of Courts, reads:

This is the first paper to investigate whether the number of high courts in a country has systematic effects both on the quality of its legal system and on its level of economic development more generally. It is theorized that due to the division of labor and a higher degree of specialization, high courts might be advantageous in terms of court productivity. Yet, they might also be disadvantageous in terms of a less coherent legal system. It is empirically tested whether the positive or the negative effects prevail. Results show that a larger number of high courts never has any positive effect; indeed, with regard to some dependent variables, a greater number of high courts is correlated with worse outcomes.

Voigt opens the paper by explaining that,

The various effects of different legal origins have been the subject of intense debate in the field of economics for about a decade. The number of courts or, more precisely, the number of complete court hierarchies (sequence of courts, stages of appeal, “vollständige Instanzenzüge” in German) is one difference often attributed to different legal origins. For example, in their book, The Civil Law Tradition, Merryman and Pérez-Perdomo (2007), have a chapter entitled “The Division of Jurisdiction” in which they explain that the typical common law system has a unified court system that might be represented by a pyramid, whereas matters would be quite different in the civil law world (ibid., 86): “There it is usual to find two or more separate court hierarchies, each with its own jurisdiction, its own hierarchy of tribunals, its own judiciary, and its own procedure, all existing within the same nation.”

The basic question Voigt is interested in is : What is the optimal number of court hierarchies? Issues that can be thought about include: Does the number have consequences for the (perceived) quality of the judicial system and its effectiveness? What are the implications for broader issues, such as the protection of political rights and civil liberties? Voigt goes on the say,

This paper tests whether the division of judicial decision-making has systematic (economic) consequences. In economic terminology, choosing the optimal number of courts can be thought of as the result of a tradeoff. On the one hand, a higher number of specialized courts allows judges to become experts in specific legal areas, thus allowing them to arrive at decisions faster (i.e., be more productive) and to produce better decisions. This is conjectured to reduce court delay and reduce the number of decisions that are appealed; in short, a higher number of courts is correlated with a higher quality of the judicial system.

Yet, the division of courts into many different legal areas could also have disadvantages. Judges at “single issue” courts could be somewhat removed from the more general developments in judicial decision-making. In the long term, this could lead not only to inconsistencies in judicial decision-making across various legal areas, but also to “narrow” decision-making in which specialized judges keep only “their” legal area in mind, neglecting the effects of their decisions on the more general legal development and also, and of particular interest here, on economic development.

His conclusions:

The results show that a high number of court hierarchies never has any positive effect on total factor productivity, civil liberties, or confidence in the legal system. Indeed, some results point in the opposite direction: both the number of court hierarchies and the number of specialized courts explicitly mentioned in the constitution are negatively correlated with political rights as well as with civil liberties. Among particular court hierarchies, high administrative courts are at least marginally detrimental to both total factor productivity and confidence in the legal system. Among the specialized courts mentioned in the constitution, religious, labor, impeachment, and military courts have negative effects on some of the dependent variables tested here.

Anyone thinking about making changes to their court system would be advised to consider such results.