Given That X Exists, Where Should You Put It?

I try to resist reaching for the cynical explanation for something when there’s a more reasonable one handy. It’s terribly tempting to see cynical motives everywhere, even though basic economics and a little common sense reasoning offer a far more plausible explanation.

Those “impulse purchases” at the check-out counter are a prime example. Supposedly these are placed so as to tempt shoppers with poor impulse control waiting to ring up their shopping cart. I think it’s far more reasonable to ask, “Suppose the store wants to offer the service of selling loose candy bars. Where should you place them?” Do they belong in the candy aisle with the packaged/bulk candy? So you’d throw it in your shopping cart and hope that you’ll keep track of it when all your groceries are bagged up? Probably not. If you’re buying a single candy bar, most likely it’s for immediate consumption. You don’t want to have it bagged up and have to search all your groceries for it. It probably makes sense to place those items at the check-out counter, so you have it in hand after you buy it. Also, look at the other “impulse buys”. Nail clippers and files. Lighters. Batteries. Mints and gum. Are these impulse items? As in people just can’t help themselves and chomp down an entire tin of mints? Or are they conveniently placed for 1) items you’d like to carry on your person and 2) items you need but always forget about? It seems “convenience” is the better explanation for where these items are located.

Here’s a very different example. Suppose there is someone who moderates disputes in drug markets. They tell rival drug dealers where their territory lies, settle “differences of opinion” between rival gangs, and reallocate territory when one dealer can’t maintain a drug supply in their currently assigned neighborhood. Fighting is costly, so dealers would likely want such a service, even knowing it will sometimes rule contrary to their interests. (The occasional adverse ruling is probably cheaper than constant gang warfare.) But who is going to provide it? Being such a moderator would make you an accomplice to a “crime” that has severe mandatory minimum sentences. If you go so far as to charge a fee for your service, it will be even easier to convict you.

Enter David Skarbek’s excellent book on prison gangs, The Social Order of the Underworld. Prison gangs (necessarily comprised of people already in prison) often mediate these disputes and in fact charge a “tax” on the proceeds of drug sales. Gangs that attempt to sell without paying their “taxes” are “green-lighted”, meaning they are open game for other drug dealers. Skarbek tells the story of one gang that refused to pay its taxes to the prison gangs, proudly calling itself The Greenlight Gang. Violent conflicts with other gangs eventually made their business unprofitable (despite their savings on “taxes”), and the gang disbanded.

To an outsider, or even to a drug dealer, this arrangement looks totally crooked, perhaps even nonsensical. Prison gangs are shaking down drug dealers to pay them “taxes”? Why would drug dealers, who are not yet imprisoned, bother to comply? The people making demands of them are safely tucked away in prison. One answer is that drug dealers who are currently outside of prison recon on the high probability that they will one day be inside prison, where they will be vulnerable to prison gangs. Prison gangs have very good intelligence on new prisoners. They know about associates and prior crimes, so they'll probably know you were a "tax dodger". Your life in prison will be miserable, and probably short. 

Another perfectly serviceable explanation presents itself when you ask: If there is going to be an underworld government that regulates and taxes the drug trade, where would you put it? And: Wouldn’t drug dealers want such a government, so as to minimize conflict? (Or should I say “optimize conflict”?)

What else? Are there other behaviors or institutions that look absurd or cynical or crooked at first, but look more reasonable when you ask, "Assuming there was such a thing, where would it be located?"

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Here is an Econtalk with David Skarbek on his book. Recommended listening.