No Place Like Home Home Bias Theory to Foreign Portfolio Investment in Emerging Markets Qiyuan Zheng Wesleyan University April 2021 Introduction: Modern technology has allowed investors, especially in developed markets, to gain access to a wealth of information about events that affect equity prices almost instantaneously, ultimately making it more difficult for investors in developed economies to ‘beat the market’. Such markets, where prices fully reflect all available information, are considered to be efficient; according to the efficient market hypothesis, opportunities for arbitrage in efficient markets are scarce, if not impossible. In this context, the typical investor could only generate higher returns by taking on greater risks. If this was the case, inefficient markets would be fundamentally more profitable for the informed investor as arbitrage opportunities are abundant and riskless profit can be made once the investor correctly identifies mispriced assets. This line of reasoning suggests that inefficiency in emerging markets might attract foreign portfolio investment (FPI) inflows, since investors in the developed world would seek to exploit the arbitrage opportunities in those inefficient markets. Market inefficiency in emerging economies is often at least partially due to poor property rights and weak institutional arrangements, such as unstable and corrupt political systems, not fully as a result of economic fundamentals, such as lack of financial development and domestic investor behavior. If inefficiency in an emerging market were to be largely a result of poor property rights and weak institutions, the ability of foreign investors to properly exploit arbitrage opportunities would be low and the institutional risk borne by investing in the market would be high, as unstable political environments foster volatile asset prices. Under such conditions, one might very well expect inefficient markets to drive away FPI. However, if the institutional quality of an investing environment is held constant and market inefficiencies are a result of economic fundamentals, then one should expect such a market to attract FPI. This paper finds evidence that, after accounting for a given level of institutional risk, potential simultaneity, and time of information absorption, there is no significant relationship between market inefficiency and FPI. To explain the inconsistency between theory and empirical evidence, I suggest an extension to the equity home bias theory. Since capital is abundant in wealthy nations where markets are efficient, investors that account for a majority of FPI inflows into emerging economies would be more familiar with and thus more optimistic about efficient markets since they more closely resemble their domestic investing environment. If a large enough number of foreign investors show a clear preference for efficient markets, the magnitude of their actions may very well offset that of unbiased investors looking to exploit arbitrage opportunities in inefficient markets. The paper proposes that, while market inefficiency should theoretically attract FPI, holding institutional risk constant, empirical evidence fails to show this relationship because foreign investors from the developed world exhibit a preference for more efficient markets that they are familiar with. A Survey of Theory and Existing Literature In documenting market efficiency among developing countries, Morck et al. found that the relationship between GDP per capita and price synchronicity can largely be explained by weak institutional arrangements and poor property rights. Their research not only provides a theoretical framework for this paper but also suggests an important measure of market inefficiency. Institutional shortcomings, especially poor property rights, discourages informed trading in the market as volatile political environments make it difficult for investors to price assets and retain their earnings (Morck 15, 16). The lack of informed investors would increase the magnitude of noise trading’s effect on the market. Since noise traders are uninformed and exhibit poor market timing (the buy high-sell low effect), their actions would not only lead to excess volatility in the market, but also push prices of different stocks to move synchronously away from their fundamental values (De Long 705, 715). Morck et al.’s paper presents empirical evidence supporting the above theory, as the observed relationship between GDP per capita and price synchronicity is rendered insignificant once property rights have been accounted for (Morck 22). This conclusion directly implies that, if protection of property rights is the only factor affecting the level of information reflected in prices, one can use price synchronicity as an appropriate proxy for market efficiency (i.e. better property rights lead to more informed traders, less price synchronicity, and a more efficient market). However, there are certainly other factors affecting the level of information reflected in stock prices. I argue that, in the absence of property rights violations, price synchronicity would remain an appropriate proxy as less synchronous prices would indicate that the market captures higher levels of firm-specific information and has a higher concentration of informed traders. Additionally, the lower prevalence and less developed nature of financial institutions in emerging markets would decrease the number of informed traders and thus increase price synchronicity while lowering market efficiency. In the subsequent analysis, I will refer to the following factors as economic fundamentals affecting market efficiency: domestic investor behavior, prevalence of financial institutions, quality of financial institutions, and technological development. This claim is particularly important, as the paper seeks to differentiate between market inefficiency caused by economic fundamentals and that caused by poor political institutions. Markets are efficient if “security prices at any time ‘fully reflect’ all available information” (Fama 383). Since efficient markets already reflect “all obviously publicly available information”, it would be very difficult for investors to obtain higher returns without undertaking greater risk (Fama 414). Rational investors who seek to increase returns while lowering risk would then be drawn to less efficient markets where arbitrage opportunities are more easily available. Thus, upon first glance, it seems that inefficient emerging markets would be more attractive to foreign investors, especially those from developed countries with efficient markets. Since most foreign portfolio investment comes from wealthier nations where capital is abundant, one could expect that less efficient markets, those with higher price synchronicity, would generate higher levels of FPI. However, this conjecture fails to consider the factors that lead to market inefficiency in developing countries and the preferences of foreign investors. The following paragraphs present two potential explanations for why emerging markets that are less efficient might fail to attract FPI. The first explanation comes directly from the work of Morck et al. on price synchronicity in emerging markets. While poor property rights decrease market efficiency, they also increase both the opportunity cost—the time spent gathering information to identify asset mispricing—and risk of arbitrage trading. Political events are also typically much harder to predict in these countries and, given the poor property rights, “risk arbitrageurs who do make correct predictions may not be allowed to keep their earnings, […] especially if the risk arbitrageurs are political outsiders” (Morck 15). Thus, if the observed market inefficiency is largely the result of poor property rights and weak institutional arrangements, the expected relationship between price synchronicity and FPI becomes more complicated. While inefficient markets still present certain arbitrage opportunities for investors, the risk of investing in an environment with poor property rights may very well drive foreign investors away. Another potential explanation comes from an extension of the equity home bias theory. The traditional equity home bias theory states that investors are more inclined to hold domestic stocks despite the potential benefits of international diversification. This phenomenon was first analyzed in 1991, when French and Poterba found that domestic investors expect returns around 300 basis points higher than foreign investors when looking at the identical market (French 4). The optimism in domestic markets would then lead investors to prefer a domestic stock over an international one, even if the economic values of the two stocks do not differ from each other. The equity home bias theory implies that investors prefer assets they feel more familiar with and such preferences can often offset the actual economic differences between any two assets. This paper argues that investors from developed countries with efficient markets would naturally prefer stocks in more efficient markets of the developing world as they more closely resemble their domestic investing environment. Since most FPI comes from wealthier nations in the developed world, even if one observes an inefficient market in a country with strong property rights and therefore higher chances of arbitrage without bearing institutional risk, such a market might not attract FPI as most foreign investors would prefer to hold assets in efficient markets with which they are more familiar. Existing literature shows that a simple analysis of FPI and price synchronicity is not enough to uncover the fundamental relationship between market efficiency and FPI inflows. To properly understand whether investors are truly drawn to inefficient markets due to opportunities of arbitrage, one must first take into account the institutional risk inherent in emerging markets. Only after accounting for the protection of property rights can one expect there to be a positive correlation between price synchronicity, essentially a measure of market efficiency, and FPI inflows. Empirical results that do not align with such expectations would be consistent with the story of equity home bias theory, where foreign investors prefer efficient markets as a result of familiarity and resemblance to their domestic markets. Constructing the Data Set The paper analyzes nine emerging markets: Brazil, Chile, China, Greece, India, Malaysia, Mexico, Thailand, and Turkey. The choice of these countries is based on their per capita GDP, the size of their domestic equity market, and data availability. The time period observed ranges roughly between 2000 and 2016. I shall note here that the somewhat arbitrary decision to characterize these countries as emerging markets through per capita GDP and choosing countries with sufficient stock listings may introduce sampling bias. A future extension of this paper may be to include a larger number of developing countries and test the robustness of this study by shifting the per capita GDP cutoff used to define emerging markets. Due to limited resources, this paper uses an approximation for its main variable of interest, price synchronicity. To obtain a price synchronicity index for each country and year, I collected weekly stock returns (between 2000 and 2016) for the companies listed on a popular index of the given country. Table 1 details the exact indexes used to construct the price synchronicity data. Given a country, the price synchronicity of year T is then constructed as follows: SyncT=w∈Tmax⁡(Upw, Downw)Upw+Downw1NT The above equation states that for every week w in year T, I calculated the number of stocks that rose in share price (if closing price was higher than opening price), the number of stocks that dropped in share price (if closing price was lower than opening price), and divided the maximum of the two numbers by the total number of stocks that experienced a change in share price. An arithmetic mean is then computed for the given NT weeks in year T. Note that this calculation is based on Morck et al.’s methods of finding price synchronicity, with the denominator constructed to include only stocks with changed share prices to avoid non-trading bias (Morck 5). Given the method of calculation, a price synchronicity of 0.5 would indicate that prices do not move together at all while high price synchronicity (such as 0.9) would indicate an inefficient market. Data for other variables were obtained through the World Bank, Transparency International, and World Integrated Trade Solutions (WITS). The following section will discuss the methodologies and rationale for including each regressor. Analytical Methodology Given the panel structure of the data, the paper will use a fixed effects model on the country level with robust standard errors to analyze the relationship between market efficiency and foreign portfolio investment. The fixed effects model would allow for the paper to account for unobserved but time-constant differences between countries, therefore yielding a less biased estimate. The fixed effects model was chosen over a random effects model on empirical grounds. The Sargan-difference test of overidentifying restrictions yielded a Sargan-Hansen statistic of 566.9 when applied to a random effects regression with robust standard errors, which indicates a significant level of overidentification in the model. Initially, I estimated a simple fixed effects model with price synchronicity as the only explanatory variable: FPIit=α+βSyncit+i+eit (1) However, the coefficient for the model is difficult to interpret and meaningless to this paper’s purpose. While the paper is primarily interested in exploring the effect of market inefficiency (caused by non-institutional factors) on FPI inflows to emerging markets, the coefficient presented in Equation 1 is theoretically biased downwards as the result of institutional risks present in emerging markets with high price synchronicity. More specifically, one can see that is subject to omitted variable bias because the level of corruption drives up price synchronicity (positive correlation) and discourages foreign investors (negative correlation with FPI). Additionally, could be affected by other confounding variables as a result of selection bias. To properly identify how FPI is affected by market inefficiency caused by economic fundamentals, one must account for the level of political risk the investor must bear to participate in the market and other confounding variables with the following fixed effects model: FPIit=α+1Syncit+2Corruptionit+3Xit+i+eit (2) Note that Corruptionit reflects the Corruption Perception Index of country i in year t, obtained from Transparency International. The author calculated Corruptionit=(100- Corruption Perception Index) so that 0 represents no corruption and 100 is the value for the most corrupt extreme. Ideally, the paper would’ve liked to use the “good government” index from Morck et al.’s work that included factors specific to property rights protection but financial constraints limited the data collection process (Morck 15). Xit is a vector of time-varying country-level characteristics that consists of the following variables: GDP per capita, inflation volatility, market capitalization of domestic companies (in current US dollars), and capital openness. Inflation volatility is calculated by taking the 5-year moving coefficient of variance of each country’s consumer price index (obtained from the World Bank). Capital openness is measured by the standardized version of the Chinn-Ito Index (Chinn). GDP per capita and inflation volatility could both be omitted variables as they both are significant indicators of an economy’s stability and development, in turn affecting confidence levels in foreign investors. Market capitalization indicates both the breadth and depth of the domestic financial markets, as a higher levels of market capitalization would provide more opportunities for foreign investors and increase FPI inflows. Although intuition suggests that capital openness would be a significant factor in affecting foreign investment, empirical evidence from existing literature suggests that capital controls on FDI and FPI have no significant impact on FPI inflows (Li 228, 230). The variable was still included in Equation 2 largely because theory implies that capital controls would increase the opportunity cost for foreign investors to invest in the domestic market and therefore decrease FPI. To test for robustness of the results, I removed the variable from the model and found no significant changes to the parameters of interest. Pre-existing theory and literature suggested that each of the variables included in the vector Xit would be correlated with FPI inflows. Thus, the model should include these variables as controls in the regression to minimize standard errors and account for any sampling bias. To account for potential information absorption time, I re-estimated Equation 1 and 2 with lagged price synchronicity, inflation volatility, and GDP per capita. If these factors were to exhibit greater cross-year variations than within-year shifts, then the incorporation of the lagged independent variables would allow for the possibility of foreign investors “reacting” to changes in their values in the next time period. I chose to not pursue a fully lagged model because market capitalization and capital controls are present constraints on the foreign investor’s choice set. Further, the corruption index remained period t as well since it measures the level of corruption perceived by the public at time t, which is a direct factor in determining the level of FPI in the same time period. Additionally, a fixed effects lagged-distributed model was also estimated as follows: FPIit=α+1Syncit+2Syncit-1+3Corruptit+5Xit+6Yit-1+νi+eit (3) Note that Syncit-1 and Yit-1 are lagged price synchronicity and lagged vector of control variables, hence they are values of country i in year t-1. The paper conducted further robustness tests by removing 2008 from the estimated models. Figure 1 shows that FPI inflows in observed countries dropped dramatically as a result of the Global Financial Crisis (GFC). Figure 2 shows the average price synchronicity among the observed countries across time and indicates that average price synchronicity varies between 75% and 70% for most of the years with no significant change during the GFC. One can see that the patterns exhibited by the data during the GFC is an aberration caused by an external shock, which could affect both the precision and accuracy of previous estimations. The paper accounts for this by re-estimating all the previous models with a smaller sample size that does not include 2008. Although doing so limits the power of the test, the removal of the outlier (2008) should offer a more accurate estimate of the effect market efficiency has on FPI. Empirical Results Before estimating the models specified in the Methodology section, one must return to examine an earlier claim: “price synchronicity would remain an appropriate proxy under [scenarios in which other factors (besides poor property rights) affect the level of information reflected in stock prices] as well, since less synchronous prices would indicate that the market captures higher levels of firm-specific information”. Table 2 Column 1 shows an estimated fixed effects model that captures the relationship between price synchronicity and institutional risk (represented by the Corruption Perception Index). As expected, the coefficient for the Corruption Index is positive, since higher levels of corruption means more institutional risk and thus higher price synchronicity. The estimated coefficient is statistically significant. Most notably, the R-squared for the estimation is only around 8%, indicating that there are certainly other factors, such as market inefficiency due to economic fundamentals and the quality of financial institutions, that affect price synchronicity. Additionally, Table 2 Column 2 shows a negative correlation between corruption and FPI inflows, as expected. Although the relationship is not statistically significant, theory suggests that it would bias the estimates of Equation 2 downwards. Tables 3, 4, and 5 show the estimated regressions specified in the Methodology section. Table 3 displays the estimates obtained by using the “present” model without any lagged variables while Table 4 shows the results after lagging the appropriate independent variables. Table 5 shows the estimates obtained from the lag distributed model (Equation 3). In Table 3, the first two columns represent Equation 1 and 2 without the lagged independent variables. The first column shows a negative and marginally significant (at the 10% threshold, p=0.054) coefficient for price synchronicity, with the point estimate show approximately $0.605 billion decrease with every 1 percentage point increase of price synchronicity. This is not surprising, as price synchronicity caused by institutional risk would most likely drive foreign investors away. The second column on Table 3 also show a negative and marginally significant coefficient for price synchronicity. Although this coefficient is greater in magnitude ($0.967 billion decrease for every 1 percentage point increase in price synchronicity), it has a larger confidence interval than that of the first model and is less statistically significant (p=0.066). Columns 3 and 4, estimates after removing 2008, exhibits a similar pattern as the coefficient for price synchronicity is negative and statistically significant (at the 5% threshold) when it’s the only regressor in the model but no longer significant once the model accounts for institutional risks and other sources of selection bias (Column 4, Table 3). Table 4 incorporates lagged price synchronicity, inflation volatility, and GDP per capita. Columns 1 and 2 show the results of Equation 1 and 2 when with the lagged independent variables replacing their non-lagged counterparts. Columns 3 and 4 show those same models estimated after removing 2008 from the sample. The results across all columns are consistent in that the coefficient for lagged price synchronicity are all positive but statistically insignificant even after accounting for the downward bias caused by institutional risks. Interpreting the results of Table 3, the paper finds that market inefficiency (proxied by price synchronicity) drives foreign investors away mostly as a result of the poor property rights that created the inefficient market in the first place. This effect is exhibited by the negative and (marginally) significant coefficient for price synchronicity in Column 1 and 3. Once the model accounts for institutional risk and potential selection bias, market inefficiency remains negatively correlated with FPI inflows but at a less significant level in Column 2 and completely insignificant when 2008 is removed from the sample, as shown in Column 4. If the level of institutional risk does not change and the market becomes more inefficient (price synchronicity rises), theory suggests that more investors would be drawn to the market as they seek to exploit arbitrage opportunities. This theory implies that a model which accounts for institutional risk should generate a positive and significant coefficient for price synchronicity. However, empirical evidence does not support this conjecture and instead illustrates that market inefficiency stemming from causes unrelated to institutional risks either does not significantly affect or decreases the level of FPI inflows, depending on whether year 2008 was included in the sample. Results obtained by the lagged models fit the theory slightly better, as the coefficient for lagged price synchronicity is positive, as shown in Table 4. Both Column 2 and 4 of Table 4 exhibit point estimates that indicate a $0.42 billion rise in FPI inflows per percentage point increase in lagged price synchronicity (decrease in market efficiency). However, this estimate is not statistically significant, which could be a result of the small sample size and thus less power / minimal detectable effect. Further, Column 2 and 4 of Table 4 showed a higher point estimate than Column 1 and 3 of the same table, respectively, fitting the theory that not including corruption as a covariate would downwardly bias our estimate. Considering the empirical results on both tables (with and without the lagged component), one can see that, once institutional risks are accounted for, changes in market efficiency does not significantly affect FPI inflows. A potential explanation for this phenomenon is an extension of the equity home bias theory, in which foreign investors from the developed world feel more familiar and are thus more optimistic about efficient markets. Hence, market inefficiency (under the same level of institutional risk) can both attract investors through opportunities of arbitrage and drive away investors through its unfamiliar nature. If those effects offset each other, one would observe no significant relationship between market inefficiency and FPI inflows after accounting for institutional risk. That said, it is more probable that Table 4 is the better model, as it lagged certain independent variables that investors would be “reacting” to in period t based on their information in period t-1. To further test this, a lag distributed model was estimated in Table 5 to show that price synchronicity in period t-1 is indeed positively correlated with FPI inflows in period t, even after account for price synchronicity in period t. However, as before, the estimate is not statistically significant, most likely due to a combination of small sample size and the potentially offsetting effect from the equity home bias theory. Robustness Tests Another potential explanation for the insignificant coefficient for price synchronicity is a reverse causality chain between FPI inflows and market efficiency. The paper argues that increased FPI inflows can lead to higher market efficiency in emerging economies. As established, a majority of FPI in emerging markets come from developed countries where capital is abundant. These developed countries also have better financial institutions, which help “foreign” investors make more informed decisions than their domestic counterparts in the developing country. If one assumes that most foreign investors in emerging markets are more informed than their domestic counterparts, then an increase in FPI inflow would mean more informed investors in the market and therefore an increase in market efficiency. Incorporating this conjecture, one can obtain three distinct factors that affect market efficiency in emerging economies: level of institutional risk, amount of foreign investment (FPI inflows), and other economic fundamentals. Since the paper is only interested in the relationship between market inefficiency caused by economic fundamentals and FPI inflows, it must account for the first two factors. Equation 2 properly accounts for the level of institutional risk but fails to address the joint relationship between market efficiency and FPI inflows. I used a three-stage least squares method to estimate the following simultaneous equations system: FPI=γ+1Sync+2X+3GDP+e2 (4) Sync=α+1FPI+2Corruption+3(HH Index)+4GDP+e1 (5) The variable HH Index, the Hirschman Herfindahl Index for exported products (obtained from WITS), was added to account for the level of economic specialization, since more specialized economies tend to experience greater price synchronicity (Morck 9). Additionally, the fixed-effects approach was replaced with a least-squares dummy variable approach by adding a dummy variable for every panel value except one. The results of this model are shown in Table 6, with the coefficients for the panel dummy variables suppressed from the output. The first two columns show the estimates for both endogenous variables (Equation 4 and 5) when using the entire sample size and the second set of columns shows the results after removing 2008 from the sample. Even after addressing the simultaneity problem in the non-lagged model, the paper fails to find a significant relationship between market efficiency and FPI. Although the coefficients for price synchronicity are positive, as shown by Column 1 and 3 in Table 6, they are statistically insignificant. Additionally, these estimates fail to provide empirical evidence in favor of the claim that FPI leads to more efficient markets in developing countries; both Column 2 and 4 show insignificant positive coefficients for FPI when it’s used as an independent variable in estimating price synchronicity. As stated previously, theory and empirical evidence (from Table 4) suggest that a model with lagged price synchronicity and corruption index would better capture the causal relationship between market efficiency and FPI. If the lagged model is a better fit and the conjecture of reverse causality remains valid, then changes in FPI inflows in time period t-1 would affect market efficiency of time period t-1, which in turn would influence the FPI inflows of time period t. To put it simply, FPI and market efficiency are two endogenous variables that are both sequentially and jointly determined. A precise and accurate estimate of the effect market inefficiency (when caused by economic fundamentals) has on FPI inflows would then require a model that allows for both sequential and simultaneous relationship between market efficiency and FPI. I estimated such relationship with the following equation: FPIit=α+1Syncit-1+2Corruptit+3Xit+4Yit-1+5FPIit-1+νi+eit (6) where FPIit-1 is the lagged FPI variable. This equation would allow us to “parse out” the reverse causality effects on market efficiency caused by changes in FPI inflows. Thus, 1 would be the unbiased estimate if such reverse causality indeed exists. Results in Table 7 show a point estimate of between $0.14 to $0.28 billions of FPI increase per percentage point increase in the lagged price synchronicity (depending on whether or not 2008 is included in the sample). However, this estimate is also not statistically significant, most likely due to the same reasons addressed earlier in the previous section. Conclusion and Avenues for Future Research: Due to the lack of available data and time constraints, there are a number of robustness tests and models I wished to estimate but was unable to do so. As mentioned earlier, the paper used an approximation for price synchronicity. Although the approximated values fall somewhat around those provided by Morck et al.’s research (provided on Table 2 of Morck’s article, for year 1995), using the actual price synchronicity of all stocks, as opposed to that of index stocks, in each given country and year would reduce sampling bias in the estimated models. I also wished to estimate the same fixed effects models but replace the Corruption Perception Index with the “good government” index constructed by Morck et al. that more closely represents the institutional risks foreign investors face in emerging markets. Ultimately, using a fixed effects model and a three-stage least squares estimation of a simultaneous equations system, this paper finds evidence consistent with an extension of the equity home bias theory. Economic theory suggests that, under the same level of institutional risks, inefficient markets should attract foreign investors and therefore increase the level of FPI inflows into an emerging market. Empirical evidence shows that there is no statistically significant relationship between market efficiency and FPI inflows once the protection of property rights has been accounted for. At “best”, empirical evidence suggests a $0.42 billion rise in FPI per percentage point increase in lagged price synchronicity, but the point estimate is statistically insignificant. This paper proposes that one can reconcile the inconsistency between theory and empirical evidence by looking at an extension of the home bias theory, where some foreign investors prefer efficient markets because they more closely represent their domestic investing environment. References Chinn, Menzie D. and Hiro Ito (2006). "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," Journal of Development Economics, vol. 81, no. 1, pp. 163-192. De Long, J. Bradford, et al. “Noise Trader Risk in Financial Markets.” Journal of Political Economy, vol. 98, no. 4, 1990, pp. 703–738. Fama, Eugene F. “Efficient Capital Markets: A Review of Theory and Empirical Work.” The Journal of Finance, vol. 25, no. 2, 1970, pp. 383–417. French, Kenneth R., and James M. Poterba. “Investor Diversification and International Equity Markets.” The American Economic Review, vol. 81, no. 2, 1991, pp. 222–226. Li, Jie, and Rajan, Ramkishen S., “Do capital controls make gross equity flows to emerging markets less volatile?” Journal of International Money and Finance, vol. 59, pp 220-244 Morck, Randall K. and Yu, Wayne and Yeung, Bernard Yin, "The Information Content of Stock Markets: Why Do Emerging Markets Have Synchronous Stock Price Movements?" Journal of Financial Economics (JFE), vol. 58, no. 1-2, 2000 Wooldridge, Jeffrey M., 1960-. Introductory Econometrics : a Modern Approach. Mason, Ohio :South-Western Cengage Learning, 2012. Print.

Body Ethics: Moving Beyond Valid Consent Christine Chen Author Steve Nam Coco Zhu Rebecca Yang Editors There is little controversy that individuals generally have an interest against intrusion of or interference with their personal domain, which encompasses one’s person—body and mind—and property. For example, we typically think that we are entitled to moral complaint when another person pinches us, kisses us, or looks through our phone without our permission. That is to say, we have a moral right against these kinds of unauthorized interactions. Here, a right is understood as “entitlement (not) to perform certain actions, or (not) to be in certain states; or entitlements that others (not) perform certain actions or (not) be in certain states” (Weinar). This is not to say, of course, that all interpersonal interactions are impermissible. One key way in which we facilitate morally permissible interactions on a daily basis is by providing, through verbal or sometimes non-verbal communication, valid consent. Present moral theories of consent identify it as an interpersonal justification for an act upon an agent, the consent-giver, from which they would otherwise have moral protection in the form of a duty of the others not to infringe upon their personal domain. Consent releases the consent-receiver from such duty against intrusion or interference and provides an interpersonal justification for the act within the content of the consent. However, our moral intuition suggests that there is something beyond ordinary, valid consent necessary for an act to be morally permissible when the body is involved, like an invasive procedure or sexual intercourse. Indeed, patients sometimes believe that they are wronged by a medical procedure despite having given legally valid consent, which contributes to the deteriorating patient-physician relationship and growing mistrust (Nie et al.). In these cases, are the patients entitled to such complaint? In this paper, I aim to challenge Tom Dougherty’s theory of consent, presented in his book The Scope of Consent, by attempting to identify a second condition for moral permissibility in cases involving the body through a series of hypothetical cases. I posit that, besides a consent-based right against bodily intrusion or interference, agents have an additional preference-based right that entitles them to moral complaint, which is not typically present in ordinary cases of consent that do not involve the body. Defining Consent: Expression of Will View Before diving into cases, I will first define consent as it is understood in this paper. Under Dougherty’s Expression of Will View, consent is a deliberate expression of one’s will (Dougherty 2021, 111). Like forfeitures and waivers, consent provides a way for us to give up moral complaints against others for causally contributing to interference with our personal domain, namely, our bodies and property (Dougherty 2021, 102). As such, consent constitutes a justification for how others can interact with or act within the consent-giver’s personal domain. For the purpose of this paper, I accept Dougherty’s Expression of Will View as the working conception of consent that governs interpersonal interactions. As an evidential account of consent, this view emphasizes the role of available reliable evidence and enhanced reliable evidence, both of which define the validity and scope of consent according to the Due Diligence Principle, which states: Due Diligence Principle. At time t, an action A falls within the scope of the consent that X gives to Y if and only if at t, X gives consent or, prior to t, X has given consent and has not subsequently revoked this consent; at t, the available reliable evidence sufficiently supports the interpretation that X intends their consent-giving behaviour to apply to Y performing A; and at t, the enhanced reliable evidence also sufficiently supports this interpretation. (Dougherty 2021, 149) According to Dougherty, “the ‘enhanced reliable evidence’ is defined as the available reliable evidence, supplemented by any reliable evidence that the consent-receiver has a duty to acquire” (Dougherty 2021, 146); the distinction between enhanced reliable evidence (ERE) and available reliable evidence (ARE) will be explored further in this paper. Thus, for consent to be considered valid, the consent-receiver also has to fulfill their duty to acquire additional reliable evidence that is not presently readily available to confirm and clarify the veracity and scope of the consent-giver’s expression of will. Dougherty indicates in the footnote that the definition of enhanced reliable evidence “focuses on actual phenomena” and “not a counterfactual definition of evidence that someone would have” (Dougherty 2021, 146). The duty here is owed to the consent-giver regardless of what the available reliable evidence suggests or what the consent-receiver believes the additional information would indicate. In other words, the consent-receiver should obtain additional evidence even if there is reasonable belief that any additional information that could be obtained would have confirmed that the behavior falls within the scope of consent. In all of the cases I present below, we can presume that the Due Diligence Principle is fulfilled when consent is verified with a verbal or written follow-up. To bring out our moral intuition of the justifying force of consent, let’s consider the following case of ordinary consent. “Control” Case—Consent to Use of Property Landlord signs a legal contract to lease an apartment but prefers not to do so for personal, non-morally significant reasons—e.g. Landlord has a friend visiting that month and would rather use the apartment for that purpose—and presumably expresses such lack of enthusiasm, either with a verbal aside or in the tone of voice. It seems morally permissible for Tenant to move in, since the given consent is valid and deliberately expressed in the form of a legally-binding contract. In other words, Landlord’s lack of underlying preference is not sufficient to render Tenant’s act of renting the apartment morally impermissible. What about when it involves the body? According to Dougherty and US criminal law, there is no complaint if the consent is valid and freely given by an agent who is of sound mind without coercion. For example, suppose a person gives clear and passionate consent to sexual intercourse with their partner of their own volition while sober and uninfluenced. Criminal law and Dougherty’s view both recognize that she is not wronged by the partner unless the consent is undermined. The partner does not wrong her even if she does not like the intercourse during or after it happens so long as she does not indicate in any way that she withdraws consent. Neither is she considered wronged if she is under the false belief that her consent is invalid. Likewise, obtaining voluntary informed consent from a competent patient is a legal and ethical obligation of the medical practitioner as it permits the administration of the intervention in question. We generally consider valid consent to be sufficient when another agent asks to, say, borrow a pen or enter our office. We cannot successfully sue another person for trespassing after knocking and being given permission to come inside our apartment. However, we do not seem to think that it is morally permissible for the consent-receiver to act on the consent or justify their act with the given consent in some cases. To illustrate this, I present a few hypothetical examples below. Let’s consider a first case of a minimally invasive and reversible bodily intrusion. Warm-up case: People Pleaser Gets a Face Tattoo People Pleaser (PP) consents to getting a face tattoo for what we shall term here, extrinsic reasons—reasons that do not come from one’s own internal desires but rather serves to achieve an external goal like garnering praise or receiving an award such as to make Tattoo Artist (TA) think well of them. PP does this freely and not against their will, with no external social pressure like social stigma while of sound mind, and through a deliberate expression of consent, e.g. a verbal yes. In other words, the consent is unambiguously valid according to Dougherty’s Expression of Will View. However, PP has a preference not to receive a face tattoo, of which TA is somehow aware. Is it morally permissible for TA to give PP a face tattoo after consent was given? Let’s stipulate that there is minimal difference in interest for the Tattoo Artist in either outcome scenarios, other than received payment for their services. There is minimal risk of harm for PP—a tattoo is generally minimally invasive and reversible now—even though the tattoo in question is a face tattoo. Here, our moral intuition seems to suggest that it is not morally permissible for TA to proceed because, simply put, PP does not want to have the tattoos and he knows it. It seems, on first pass, that PP’s lack of underlying preference is the necessary but not sufficient condition additional to consent. Dougherty’s Objection—Consent-Centric view of Interpersonal Justification Argument TA has the obligation of Due Diligence to secure both available reliable evidence, e.g. evidence supporting that PP is very clearly sober and of sound mind – i.e. not visibly inebriated or have lost their faculties – when consenting to getting tattooed, and enhanced reliable evidence, i.e. evidence TA has a duty to actively acquire, e.g. a verbal confirmation from PP to clarify that they indeed knowingly and deliberately consent to a tattoo. If TA has sufficiently performed Due Diligence appropriately given the stake of the act—getting a face tattoo—and the cost of acquiring such evidence, the valid consent should justify this act; PP is no longer entitled to a complaint here. This would be analogous to a case in which the consent-giver, PP, falsely believes that their consent is invalid. Dougherty can agree that it is wrong in this case for TA to give PP a face tattoo. However, he would object that, rather than there being something else that makes tattooing PP morally impermissible, it is because the consent is actually not valid. How can that be? Dougherty asserts that consent is invalid when it is given under unjust social pressure like a misogynistic culture that demands unconditional sex from wives (Dougherty 2022). He could appeal that, in this case, PP experiences social pressure, which is “the exertion of influence on a person or group by another person or group” (American Psychology Association). People generally have a right to be free from this kind of pressure or external influence when making decisions, according to Kant’s Principle of Autonomy (Kant G4: 440). Consent is thus invalid in the Dougherty sense when social pressure is present because, like coercion, it denies the agent one or more options that they are entitled to have. Therefore, PP’s consent to receiving a face tattoo is invalid and TA has wronged PP by tattooing them. However, not all cases of consent for extrinsic reasons involve this unfair denial of options. Here, we would be mistaken to frame PP’s extrinsic reason—people pleasing—as coercion because coercion, by definition, is imposed upon the consenting agent by another agent, which is not present. PP’s “pressure” to consent is self-imposed, which means that this consent is still valid, ceteris paribus. Case 2—Intimate Relations with the Asexual Partner Two individuals, Ace and Bee, initiate a sexual encounter. Ace expresses consent to engage in sexual intercourse with Bee deliberately and freely while sober and of sound mind. However, Ace is asexual and would prefer not to have sex with Bee (or anyone, for that matter). Say, Ace would not mind if the fire alarm goes off as Ace and Bee are about to begin intercourse and interrupts it. Ace simply consents because she prefers not to make Bee think negatively of her. Like in previous cases, Ace’s consent is valid, though there is no underlying preference for the token act. Bee performs Due Diligence to interpret consent based on available reliable evidence and enhanced reliable evidence, which Bee acquires by asking Ace whether she is feeling pressured to consent to sex, to which Ace answers decisively, “No.” Assume that Bee is aware both generally and in this instance that Ace is asexual and prefers not to have sex. Bee proceeds to have sex with Ace because the consent is present and valid. Can we blame Bee for having sex with Ace? Can Ace make a complaint to Bee for acting against her preference? There seems to be something morally unsavory about Bee engaging in sexual intercourse with Ace despite knowing that Ace prefers not to do so even though there is valid, deliberate consent from Ace. Again, valid consent here, though necessary, does not seem sufficient to justify an act of bodily intrusion. So far, our cases have featured minimal interest and risk of harm on both sides. If underlying preference is indeed a necessary but not sufficient condition for the moral permissibility of acts of bodily intrusion, how would increasing the interest for one or both parties interact with the preference condition? Here, I understand interest as the stakes or concern one has in acting or withholding from acting in a given situation or to achieve a given outcome. For example, a student has an interest in maintaining a good grade point average because it is beneficial for future career or academic opportunities. Case 3—Obedient Patient’s Minimally Invasive Elective Surgery Obedient Patient (OP) is advised to undergo laser vision correction—a minimally invasive elective procedure otherwise known as LASIK—by their ophthalmologist. The operation has relatively low risk and marginal benefit for the patient. Let’s assume that the ophthalmologist, while board-certified and knowledgeable, does not exert an overwhelming epistemic authority over OP during the treatment process, i.e., OP does not feel epistemically pressured to follow the doctor’s orders. OP, obedient by nature, signs an informed consent form after the ophthalmologist provides a detailed explanation of what the procedure would entail, along with the potential benefits, risks, and side effects. However, OP disprefers to undergo this surgical intervention, all things considered; OP only consents because they do not want to disappoint the ophthalmologist. For OP, the best-case scenario would be if, after consenting, the ophthalmologist informs OP that LASIK would no longer be recommended or is generally canceled. Having obtained verbal confirmation in addition to written consent, the ophthalmologist performs LASIK surgery. Is this surgery morally permissible? Can OP make a complaint against their ophthalmologist? If valid—and verified—consent were necessary and sufficient for moral permissibility, then the ophthalmologist would have been perfectly justified to perform LASIK, which is not the case. Once again, the violation of the consent-giver’s underlying preference presents a weighty challenge to the moral significance of consent in a case involving bodily intrusion. If the elective surgery case yields ambiguous conclusions, consider the following similar but necessary procedure instead. Case 4—Required Surgery Suppose, now, our Obedient Patient instead consents to cataract surgery, which is required for their health, as they risk losing their vision if they forego the surgery. The procedure is the current standard of care for cataracts, a non-life-threatening but nonetheless serious condition, and OP has been adequately informed of the benefits, potential risks, and side effects such that the Due Diligence principle is fulfilled by the ophthalmologist, the consent-receiver. There is certainly now more interest for OP to comply with medical advice; like any reasonable individual, OP has an interest in preserving—or, in this case, restoring—their vision. However, OP would prefer not to undergo the surgery, all things considered, just like in the elective surgery case. Nonetheless, OP consents to avoid disappointing the ophthalmologist. Given valid and verified consent, and considering the necessity of the procedure to OP’s health and wellbeing, the ophthalmologist proceeds to perform cataract surgery on OP. Is this cataract surgery morally permissible? Can OP now make a complaint against their ophthalmologist? I concede that, to a bystander, OP has every reason to want the surgery, given the overwhelming interest and relatively low risk. Consequentialist theorists would argue that the moral calculus alone is enough to justify the surgery, and consent-centric theorists like Dougherty would cite the valid consent—verified by available reliable evidence and enhanced reliable evidence—to be sufficient for moral permissibility. However, I argue that there is something morally unsavory about disrespecting OP’s underlying preference not to be operated on despite these reasons, as intuitively, we want our preferences to be respected. Simply put, it would be wrong to proceed with the surgery when OP, who is getting the surgery, disprefers the surgery, and OP’s preference should be respected. Here, valid consent is still insufficient to justify this act of bodily intrusion. If this still does not demonstrate that consent alone is insufficient, consider the post-operation scenario. Case 4.5—Post-Operation Suppose OP finds the surgery unpleasant and is angry afterwards. They say to the surgeon, “You knew I didn’t want that. How could you do that to me? You could easily have said, ‘I know you are only consenting to please me; so, although that consent you gave is valid, I won’t go forward.’ Why didn’t you do that?” The surgeon—who has read up on Dougherty and the legal literature—could respond, “valid consent is all I needed to operate on you. Since I fulfilled my duty to acquire consent as well as additional evidence that your consent was valid while acting in your best interest, I did nothing wrong. I did not wrong you.” If the Due Diligence Principle only cares about available reliable evidence and enhanced reliable evidence for consent, and both indicate that the consent is valid and the procedure is within its scope, then, in the Dougherty sense, there is no moral wrong here. However, does it not feel wrong for the ophthalmologist to insist that no wrong was committed? While the ophthalmologist dutifully obtained and verified OP’s consent, something is missing here: namely, they did not act according to OP’s underlying preferences, which I identify as the other necessary condition for moral permissibility in this case. Note that preference seems to play a weightier role in our intuitive moral judgment of the ophthalmologist’s actions than case 3, where the operation is elective. It would seem that the higher stakes that the patient has in the bodily intrusion they consent to is reflected in a weightier consideration of the preferences of the consent-giver. To further illustrate this second condition of agent preference in cases of bodily intrusion, I invite the reader to consider the case of Unenthused Organ Donor (UOD). Case 5—Unenthused Organ Donor UOD is a match for a kidney transplant for a patient with end stage renal disease (ESRD). Upon being contacted for the match, UOD is sufficiently informed of the relevant details of the organ donation procedure and understands that there would be little to no risk or harm to their long-term quality of life. UOD understands that there is a great interest for the ESRD patient to receive the transplant and signs the consent form to undergo the procedure. When prompted, they confirm that they indeed consent freely and without external pressure. However, as the name implies, UOD prefers not to have a kidney removed. UOD consents only because it would look bad to refuse to donate. This is not a case of defective consent in Dougherty’s sense because the reason UOD consents—not wanting to look bad—is not an unjust pressure, as it is self-imposed. The consent is still considered valid. Would it be morally permissible for the doctor on the case to remove UOD’s kidney? I don’t think so. UOD’s preferences are clearly violated, so although they gave valid consent, the doctor is not justified to remove UOD’s kidney. Once again, preference clearly matters for the consent-giver, just as I have illustrated in the series of cases involving the body above. For the People Pleaser, preference mattered when a face tattoo was administered. It mattered for Ace, who consented to sexual relations with their partner. It no doubt mattered for Obedient Patient, who really did not want to undergo surgery despite its necessity. This moral significance of preference persists across the spectrum of interest weightings, from a reversible face tattoo to an organ donation operation, meaning that it is not the weight of the interest that matters in addition to the consent but the preference regarding one’s body itself. Objection—Weightier Interests? So far, I have shown that in cases involving property, like the Landlord case, valid consent suffices for moral permissibility. However, in cases involving the body, it does not. The cases I present posit that underlying preference is the necessary—though not sufficient—condition that makes the difference. One alternative explanation for this difference in the permissibility of consensual interference is that there simply is a weightier interest for the agent when an interaction involves their body. Dougherty would argue that bodily intrusion is more costly for an agent because the body is necessary for survival. It would be intuitive, then, that we should be more prudent when acting on consent that involves the body given the higher stakes for the consenting person. By that logic, individuals may have a similar interest when it comes to their property: there would be a weighty interest in having a large proportion or absolute sum of one’s property interfered with only when they prefer it. If this were true, we would expect to observe an apparent reverse correlation between the cost to the consent-giver and the justifying power of the consent. In minimally intrusive and reversible cases of bodily interference like the face tattoo case, there is minimal interest or harm for People Pleaser to get a face tattoo—it is not too painful, financially costly, does not affect present or future physical or emotional health, assuming we now live in a world where a face tattoo is not deemed socially unacceptable. We would expect that the consent to be asymptotically sufficient for the act’s moral permissibility, which contradicts our initial conclusion. In other words, since interest is low for PP in the tattoo case, we would expect consent-power to be high. Meanwhile, cases of higher-stake bodily intrusion like sexual intercourse or surgery do not minimize the role of valid consent. For example, in the second case of intimate relations, we can generally agree that the stakes are higher than in the face tattoo case, but ultimately, there is still, presumably, little or no risk of physical harm to the consent-giver, Ace. For Bee, there is more interest than in the last case for TA, assuming that allosexual—non-asexual—individuals have some interest in having sexual intercourse with others. The difference in the level of interest for the consent-giver is not reflected in a difference in consent-power in the moral permissibility of the act. Indeed, as the consent-giver’s interest increases, we continually see a restraint on consent’s moral weight in justifying the bodily intrusion. In the LASIK case, OP has a considerable interest in improving their vision, which contributes to their health and well-being. This interest further increases in the cataract surgery case, as delayed intervention could lead to permanent vision damage or even blindness, which OP, like any rational, seeing individual, would want to avoid. On the other hand, while we can acknowledge that the increased interest for the consenting Obedient Patient restricts the justifying force of consent, it does not drown out its role underlying the moral permissibility of the surgery either. OP would not have won a lawsuit, for instance, if they were to sue the surgeon for operating on them with valid consent. OP could only make the case to undermine the validity of the consent on the grounds that their obedience poses a type of pressure akin to coercion, which I have previously shown in the tattoo case to be unsubstantiated. According to Dougherty’s Expression of Will View, OP would have been under the false belief that they gave invalid consent, which does not itself invalidate the consent. If weightier interest were a sufficiently robust explanation for the restriction on consent’s justifying force, we should expect a similar conclusion from the above bodily intrusion cases in a property case. To investigate this hypothesis, I propose a test case involving property in which an agent has weighty interest and compare our moral intuition to the violation of preference with our intuitions regarding previous cases involving the body. Weighty Property Test Case—Stubborn but Conflict-Avoidant Private Company Owner Suppose an agent J owns a one-person private company. As the only employee and owner, J has sole ownership of this firm, so the company is akin to another form of property. J has a weighty interest in this firm because it is J’s only source of income—it generates present cash flow—and has the potential to continue generating monetary value. Now suppose a local chain offers to acquire J’s firm with attractive conditions: J would not only keep the job but also gain the opportunity to reach more clients, make more money, and potentially take over other departments of this future parent company. J signs the contract and verbally confirms this agreement with the legal representative of the chain company. In other words, in the eyes of the law and according to Dougherty, the acquisition of J’s company is justified. Yet, J is very stubborn and disprefers selling the company. J only consents to avoid conflict with the chain legal representative. The chain company executes the signed and verified contract and acquires J’s firm. It would be utterly absurd for J to make a public complaint against the local chain or the legal presentative and say, “you knew I didn’t want to sign the contract! You have wronged me by executing it and acquiring my company!” If the weight of interest for the consent-giver is the only thing that matters, we would not expect to find J’s complaint absurd. After all, J’s company financially supports J and therefore matters a lot to J! Recall that in the cataract surgery case, it was reasonable for the patient to insist that a wrong had been committed when the surgeon proceeded with the operation with valid consent but no underlying preference. This difference suggests that heightened interest does not sufficiently explain why consent alone is not enough when an agent’s body is interfered with while simultaneously being sufficient in property cases like the case of J’s company. This test case suggests that, when it comes to the body, something else has to be present, namely, preference. Objection—Preference as Consent Revocation? Another possible objection would be to assert that consent is preference-based. The lack of underlying preference would be equivalent to the absence of consent or its revocation, which would render the act no longer justified according to the first condition in Dougherty’s Due Diligence Principle (Dougherty 2021, 149). If the consent is revoked, then performing the token act that the consent is meant to permit would be, again, an intrusion of one’s personal domain. Since preference is a subjective, comparative evaluation (Hansson and Grüne-Yanoff), a conception of consent grounded in or functionally equivalent to preference would be categorized as a mental account, which recognizes that consent consists of a certain mental attitude (Dougherty 2021, 23). In other words, an agent’s mental content determines the scope of the consent. An agent can thus alter the scope of their consent or revoke it simply by changing their mind (Dougherty 2021, 33). Since preference is a kind of mental attitude, changing one’s preference thereby effectively either alters the scope of one’s consent or withdraws it entirely. Therefore, the proponent of the preference account would appeal to the lack of underlying preference as either the absence of consent in the first place or a revocation of consent. There are a few flaws with this objection. Firstly, Dougherty himself rejects the Mental View: in The Scope of Consent, he presents four arguments in favor of the Behavioral View over the Mental View, partly by relating consent to promise, which we generally agree requires public behavior (Dougherty 2021, 56). The Behavioral View thus holds that like promises, consent requires behavior to express the intention to release another individual from the duty not to act in such a way that intrudes in someone’s personal domain (Dougherty 2021, 61). Dougherty points out the asymmetry between promises and the mental account of consent. The latter can create, reimpose, and eliminate duties with mere intention. The former, by contrast, requires an act that publicly acknowledges the change in duties and how the two or more agents involved relate to each other (Dougherty 2021, 56). Though I in no way assert that consent is a kind of promise, we can nonetheless intuit from their shared moral currency and role in guiding interpersonal relationships that mere mental attitudes like intentions or preferences are insufficient in creating valid consent between individuals. Indeed, Dougherty’s own conception of consent—the Expression of Will view—rejects the moral or epistemic equivalence between preference and the expression of will; to equivocate these two entirely different concepts would render this objection unsound. Rather, there is something fundamentally different between consent, which, according to Dougherty, is a deliberate expression of will, and preference. The former, while a more undemanding version, remains a Behavior View of consent. The expression of will is a deliberate behavior that authorizes the intrusion of one’s personal domain. It may reflect an underlying preference or it may not. For consent to be valid under this view, preference is not mandatory but behavior is required. Even if we grant the Mental View, the preference account is still problematic. Dougherty argues that only certain kinds of mental attitudes can ground consent (Dougherty 2021, 27). We can find the motivation behind this view in the Autonomy Argument, which “appeals to the idea that consent is an exercise of an individual’s autonomy” (Dougherty 2021, 25). This is initially attractive given that much of consent literature, at least within the clinical world, arose in the aftermath of inhumane human trials in which subject autonomy was grotesquely violated. Since autonomy is partly reflected in an ability to consciously control our moral boundaries (Dougherty 2021, 25), a mental view of consent, conceptualized to maximize the protection of autonomy, should also be “under our intentional control” (Dougherty 2021, 27). However, preferences, like desires, are not necessarily under our intentional control. An agent can be born with a preference against injection needles without ever being subject to one, which supports the intuition that preferences are not always intentional. Therefore, preferences do not inherently generate a mental account of consent, so we should reject the worry that the lack of underlying preferences would somehow have the same moral significance as the absence or revocation of consent. Upshots Granted, in many cases in real life, the consent-receiver will not be in a position to know whether the preference is present. Indeed, sometimes the consent-giver would not even be aware or certain of their own lack of underlying preference until after the act has begun, as many preferences are nuanced, weak, or unconscious. In such cases, the ignorance of such underlying preference—or the lack thereof—would constitute a blameless ignorance of a morally-relevant fact, which would render the violation of the consent-giver’s personal domain blameless. As Gideon Rosen argues in “Culpability and Ignorance”, an agent is not culpable for an act done from moral ignorance if and only if such ignorance itself is not culpable (Rosen 61). I endorse this view and apply it to what would otherwise be culpable acts of bodily intrusions and concede that they, too, are inculpable if and only if the upstream ignorance of the consent-giver’s preference is not culpable. Moreover, there are cases where the consent-receiver fails to realize that the consent-giver has been wronged. For instance, calling back to our earlier case of LASIK surgery, our patient OP consents to be operated on by the ophthalmologist P. In this case, P has fulfilled Due Diligence, having obtained enhanced reliable evidence, and has OP’s patient profile, which indicates that he disprefers surgery, especially ones that do not involve general anesthesia. Yet, through no fault of P’s own, P fails to connect the dots and realize that OP’s aversions to surgery without general anesthesia would make it wrong for P to proceed with the consent. Again, Rosen would take this case as a kind of inculpable ignorance, which renders P’s intrusion blameless. Even theorists who deny that moral ignorance is exculpatory, like Elizabeth Harman, acknowledge that the failure to realize that the wrong-making features of an action make it morally wrong could sometimes exculpate the offending agent (Harman 2017, 117). Dougherty, too, would excuse this kind of intrusion. Since the Expression of Will View is an undemanding version of the Behavioral View, it does not require successful interpretation or communication for the consent to be considered valid (Dougherty 2021, 32); in fact, Dougherty rejects the Uptake Condition, which states that: An action A falls within the scope of the consent that X gives to Y only if Y successfully interprets X’s behaviour as motivated by an intention to release Y from their duty not to perform A. (Dougherty 2021, 78) Therefore, the consent is considered valid even if the consent-receiver is not aware as long as the conditions for validity are met (Dougherty 2021, 79). Nonetheless, even in these bodily intrusion cases where the preference is unknown or misinterpreted, there is still an issue of objective rightness to which the individual being wronged is entitled. We can concede that the consent-receiver acts blamelessly, but nevertheless unjustifiably. After all, we acknowledge that the consent-giver is still wronged insofar as their preferences are disrespected. Yet, since it is done from inculpable ignorance, as I have established, it is blameless. Such acts, according to Rosen, would call for “agent regret” but not moral blame (Rosen 69). Another account of such unwitting violations of the consenting agent’s preference comes from Elizabeth Harman, who proposes a moral category called morally permissible moral mistake (Harman 2016, 366). According to Harman’s conception, there are acts that one should do, all things considered, for moral reasons, but is not morally obligated to do, such that in failing to do them, one makes a moral mistake that is nonetheless permissible (Harman 2016, 373-374). The failure to perform such an act is a moral mistake because there are moral reasons for the agent to not fail to do it. Meanwhile, failing to perform the act is permissible because one is not obligated to perform it; not performing it is not morally impermissible. If we accept that morally permissible moral mistakes as Harman conceives exist, does proceeding with valid consent for bodily intrusion without the consent-giver’s preference fall under this category? Since I accept that valid consent releases the consent-receiver from the duty not to interfere with the consent-giver’s body, acting on valid consent would be morally permissible like in cases involving property, regardless of whether preference is present. Yet, the absence of preference makes it a moral mistake when it involves the body because, all things considered, there are moral reasons why the consent-receiver should respect the consent-giver’s bodily preferences. For the ophthalmologist, for example, to perform LASIK surgery on the Obedient Patient, would be a morally permissible moral mistake. On the other hand, we cannot say that it is a moral mistake for the Tenant to disrespect Landlord’s preferences against leasing in light of the contract, which makes Tenant’s use of Landlord's Apartment morally permissible. Acting with valid consent but without preference in property cases is not a moral mistake and is simply morally permissible. In either account, we can acknowledge that the consenting individual is still wronged despite the sanction of their valid consent without blaming the consent-receiving actor. In cases of bodily intrusion, we should not be in the business of blame but rather focus on protecting and respecting the moral boundaries and dignity of individuals, which is reflected by their preferences. The Due Diligence Principle, Revisited So what does this mean for Dougherty’s conception of consent? Should we abandon the Due Diligence Principle altogether? Of course not. These cases above have revealed that there is something beyond consent—namely, an agent’s underlying preferences—that should also guide and justify the actions of other individuals interacting with or acting within their personal domain alongside consent, not in place of it. One way to remedy Dougherty’s Due Diligence Principle is to acknowledge that, in cases involving the body, from a reversible tattoo to an invasive medical procedure, there is a further question about the consent-giver’s preference. Such preference should be clearly understood as an additional enhanced reliable evidence that the consent-receiver has a duty to obtain, though not a component of consent itself, such that knowing violations of underlying preference about the body are avoided and inadvertent intrusions are minimized. Note that, since Dougherty rejects the Mental View, and I have established that preference is a kind of mental attitude separate from consent, we can presume that Dougherty’s present conception of the Due Diligence Principle does not include information about preference as a kind of enhanced reliable evidence as I propose. Dougherty’s Expression of Will View does not care about preference. Therefore, my account here is a revision of Dougherty’s Due Diligence Principle, rather than a more generous interpretation.Whether an agent has sufficiently obtained such evidence is, of course, a matter of what is epistemically possible in a given situation, and should be evaluated on a case by case basis, as the Enhanced Reliable Evidence Principle suggests. A helpful metric remains the Reasonable Agent Standard common in the legal literature on intimate relations and medical practice, or Dougherty’s suggestion that it be appropriate given the stakes of the consented act and the cost of acquiring the relevant evidence (Dougherty 2021, 144). The important thing is that such due diligence to obtain evidence for the consenting individual’s underlying preference is carried out before the bodily intrusion is consummated. Conclusion In this paper, I have argued that valid consent alone is not fully dispositive in cases involving the body. Instead, a second preference-based right is another necessary condition for the moral permissibility of the intrusion. I have demonstrated through a series of cases that preference, rather than merely the cost to the agent, matters in addition to valid consent and should be respected. I then addressed the upshots relating to epistemic challenges, including ignorance and the failure to realize certain facts. I also outlined two moral accounts of consensual bodily intrusion without preference: a morally impermissible but blameless account under Rosen’s framework and a morally permissible moral mistake account under Harman’s conception. Lastly, I proposed an addendum to Dougherty’s Due Diligence Principle of consent to include one’s underlying preference. Future work should expand upon the moral significance of preference and provide a more conclusive account of what motivates its relevance in cases involving the body. Acknowledgements I would like to thank my advisor, Professor Gideon Rosen, for his guidance and feedback throughout the junior independent work process. I also want to thank family and friends, especially John Wallar, for providing comments and unrelenting support. References “Cataract Surgery.” National Eye Institute. Accessed December 2, 2024. http://www.nei.nih.gov/learn-about-eye-health/eye-conditions-and-diseases/cataracts/cataract-surgery#:~:text=What%20happens%20during%20cataract%20surgery,be%20awake%20du ring%20cataract%20surgery. Dougherty, Tom. “Social Constraints on Sexual Consent.” Politics, Philosophy & Economics 21, no. 4 (July 26, 2022): 393–414. https://doi.org/10.1177/1470594x221114620. Dougherty, Tom. The scope of consent. Oxford: Oxford University Press, 2021. Hansson, Sven Ove, and Till Grüne-Yanoff. “Preferences.” Stanford Encyclopedia of Philosophy, October 4, 2006. https://plato.stanford.edu/archivES/FALL2017/Entries/preferences/. Harman, Elizabeth. “Morally Permissible Moral Mistakes.” Ethics 126, no. 2 (January 2016): 366–93. https://doi.org/10.1086/683539. Harman, Elizabeth. “When Is Failure to Realize Something Exculpatory?” Oxford Scholarship Online, July 20, 2017. https://doi.org/10.1093/oso/9780198779667.003.0006. Kant, Immanuel. Groundwork of the Metaphysics of Morals. Cambridge: University Press, 2012 “Kidney Transplant.” Kidney Transplant | Johns Hopkins Medicine, May 24, 2024. http://www.hopkinsmedicine.org/health/treatment-tests-and-therapies/kidney-transplant#:~:text=You%20may%20need%20a%20kidney,other%20substances%20from% 20the%20blood. “LASIK.” Wikipedia, November 21, 2024. https://en.wikipedia.org/wiki/LASIK. Nie, Jing‐Bao, Yu Cheng, Xiang Zou, Ni Gong, Joseph D. Tucker, Bonnie Wong, and Arthur Kleinman. “The Vicious Circle of Patient–Physician Mistrust in China: Health Professionals’ Perspectives, Institutional Conflict of Interest, and Building Trust through Medical Professionalism.” Developing World Bioethics 18, no. 1 (September 18, 2017): 26–36. https://doi.org/10.1111/dewb.12170. Rosen, Gideon. “IV-Culpability and Ignorance.” Proceedings of the Aristotelian Society (Hardback) 103, no. 1 (June 2003): 61–84. https://doi.org/10.1111/j.0066-7372.2003.00064.x. “Social Pressure.” APA Dictionary of Psychology. Accessed December 2, 2024. https://dictionary.apa.org/social-pressure. Wenar, Leif. “Rights.” Stanford Encyclopedia of Philosophy, February 24, 2020. https://plato.stanford.edu/entries/rights/.

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*Feature* JPPE INTERVIEWS, STEVEN PINKER: Free Speech, Protests, the “Alt-Right”, and Jordan Peterson Steven Pinker is an experimental psychologist who conducts research in visual cognition, psycholinguistics, and social relations. He grew up in Montreal and earned his BA from McGill and his PhD from Harvard. Currently Johnstone Professor of Psychology at Harvard, he has also taught at Stanford and MIT. He has won numerous prizes for his research, his teaching, and his nine books, including The Language Instinct, How the Mind Works, The Blank Slate, The Better Angels of Our Nature, and The Sense of Style. Fall 2019 JPPE : There’s considerable debate over the distinction between free speech and hate speech. How do we know when one meets the other? Is there a responsibility of college campuses or their students to help provide definitions or guidelines for these ideas and which views we believe are of academic merit? Pinker : There are limits on free speech that are recognized in all societies—even in the most libertarian societies when it comes to free speech—such as the incitement of imminent lawless activity, libel, extortion, and some cases of obscenity. There can be restrictions on the place, time, and manner in which speech is expressed. This is all contained in free speech jurisprudence. Nevertheless, those limits are pretty expansive in the United States, and I think laudably the “default” is the notion that speech is free except for very circumscribed exceptions. And that pertains to government strictures on free speech, which is not the same as the discretion that any outlet or platform has regarding who they give a voice to. And of course, a university is not going to invite any drunk on a soapbox in a public park or any ranter on Facebook. There are certain standards of scholarly accuracy and attention to academic literature. So I think the issue doesn’t arise in terms of whether a university ought to invite some provocateur who is just not part of the community of scholarly discourse and intellectual argumentation; but rather it arises when there are scholars who clearly do meet that standard but whose opinions just happen to be controversial, yet they can back up what they say with generally accepted academic standards. Of course, protests too are a legitimate form of free speech, so there can’t be any objections to protests. Although, there is jurisprudence; there are guidelines among defenders of free speech that you may protest but that you may not shut someone down. That is, there is no heckler’s veto, even though there can be of course protests that don’t disrupt the ability of heterodox views to be expressed. JPPE : From what you have observed, do you believe that students are keener to protest speakers than when you were an undergraduate? Pinker : I think there is a narrowing. It’s been going on for some time. It was certainly true when I was an undergraduate and that was a long time ago. And so despite some commentary, which blames it on the millennial generation or on generation z, there was plenty of this in my day. There is the Foundation for Individual Rights in Education (FIRE), which monitors disinvitations and speech codes, and it found that things have gotten a little bit better in 2018 compared to previous years. They’ve only been monitoring it for, I think, 10 or 15 years. Things definitely got worse until last year, but there have been ups and downs. FIRE also monitors de-platforming, which is a disruptive attempt to prevent speakers from speaking once they’re there; they monitor speech codes. My sense is it’s gotten worse, although it definitely existed when I was a student. JPPE : Did you participate in these kinds of protests? Pinker : No (laughs). JPPE : It seems somewhat arbitrary to determine who is of “scholarly merit”. Pinker : It’s kind of what academics do all the time. We referee one another’s grant proposals, manuscripts, and tenure cases. There are disputes. There are unclear cases. But there is definitely a difference between a Richard Spencer on the one hand and a Charles Murray or a Heather Mac Donald or Jordan Peterson on the other. JPPE : That last name—Jordan Peterson—is someone speaking to a large and predominantly male audience. How do you explain the Jordan Peterson phenomenon? Pinker : I agree it’s a puzzle who he is speaking to. I think he symbolizes for young men two things: one of them is an intellectual engagement that transgresses some of the very narrow boundaries in elite universities and in media like the New York Times. While he’s not alt-right or all of the things that people lazily accuse him of, he is not New York Times or Brown University. He is clearly an erudite and intelligent person. He was a professor first at Harvard, then at the University of Toronto. He is an extremely knowledgeable political psychologist and expert on psychological personality testing. He stretches the boundaries of what you can say, however, not into the territory of white supremacists or neo-nazis and other kooks and crackpots and nutcases. The other thing is that the demographic of young men he speaks to often feel so marginalized by, on the one hand, leftist feminist discourse in universities and, on the other hand, the kind of nihilistic immature culture in advertising, extreme sports, and popular culture, which seems to glorify immaturity, hedonism, and decadence. And I think they realize that someone just saying pretty banal things like “be mature, be responsible for what you say, and clean up after yourself”; that strikes them—caught between these two worlds—as something noble and revelatory. And it can’t be a bad thing that you have a charismatic guy telling young men to be responsible, not to hurt people, and to make their bed. It’s astonishing that it has to be said. But apparently it does. JPPE : You said that there were highly literate and highly intelligent people that gravitate to the alt-right. What do you make of the blow-back you received from that statement? Pinker : The New York Times reported it under an op-ed titled "How Social Media Makes Us Stupid". That was Jesse Singal who wrote that op-ed. For one thing, many people misinterpreted that because their impression of the alt-right is tiki-torch-holding-neo-nazis, whereas the people that call themselves alt-right are not that. I think their views are often quite noxious, and I’ve argued against them. But I know, since some of them are former students that write back to me—I mean Harvard graduates—, that it is a mistake to write them off as tiki-torch-holding-skinheads and neo-nazis. Some of them are smart; they are intelligent, and they feel that there are so many topics that are forbidden in standard university settings. And they feel that mainstream scholars can’t handle the truth and that they feel privy to a kind of forbidden truth, which I argued is dangerous because it means that rather extreme views proliferate in this community without themselves being criticized by opposing views or data that bear on those views. And they can actually blossom in a kind of noxious form if they’re not expressed in an arena in which they can be criticized.

Oedipus and Ion as Outsiders: The Implications and Limitations of Genealogical Citizenship Oedipus and Ion: The Implications and Limitations of Genealogical Citizenship An Analysis of Oedipus at Colonus by Sophocles and Ion by Euripides Claire Holland University of Chicago Author Marysol Fernandez Harvey Tathyana Mello Amaral Antonio Almazan Editors Spring 2019 Download full text PDF (12 pages) Introduction In ancient Athenian society, the collective myth of autochthony[1] provided the basis for social order, determining who got the benefits of citizenship and who was excluded from the polis [2]. According to their autochthonous myth, the citizenry of Athens did not emigrate from elsewhere, but instead arose from the earth upon which ancient Athens stood. Theirs was not a city of immigrants; from their very origins, the people of Athens believed themselves to be the only population that had always belonged to Athenian soil. Thus, each true-born Athenian carried within them the essential spirit of the Athenian people, passed down from generation to generation. To determine and confirm their citizenship on an individual level, each Athenian had to demonstrate their autochthonous familial descent when they came of age in a dokimasia, an examination wherein citizen tribunals collected testimony from friends and family members in support of one’s claims to citizenship[3]. In this way, one’s lineage became the sole factor determining one’s inclusion in the polis . Once blood became the basis for citizenship, citizens who were established as autochthonous could not be excluded from the polis on the basis of class. The poorest citizens had the same right to participate in Athenian government as the elite, although in practice the higher classes enjoyed special privileges, such as training in rhetoric, which poorer citizens did not. For ancient Greek city-states, this level of inclusivity was groundbreaking; most city-states did not consider their lower- or even middle-class members to be citizens, even in democratic systems of governance. However, this is not to say that Athens was entirely without social divisions, for more than just fully-privileged citizens lived within the city walls. Overall, inhabitants were sorted into three groups: citizens, metics, and slaves. While citizens enjoyed all the rights and benefits of the polis , including the right to vote and to participate in public forums, metics were an in-between, catch-all group, not subjugated like slaves but not as privileged as citizens. They could not participate in government or vote, for example, but were still able to participate economically in Athenian society. Metics were what we today might call a migrant class, as they did not meet the full requirements for blood-based citizenship but were still free. Metics were not confined to only the lower classes; like citizens, metics existed in every economic stratum, from the poorest to the richest. However, regardless of economic class, citizens, being true-born Athenians, were more socially vaunted. While lauded by political theorists for its groundbreaking inclusivity, the Athenian genealogical grounds for inclusion, like any other such system, necessitated that some be excluded so that the polis might be defined and unified rather than indistinct and anarchic. This exclusion, at least theoretically, was to be on the grounds of blood-based requirements for citizenship[4]. However, as Oedipus at Colonus by Sophocles, the second in his trilogy about the eponymous protagonist, and Ion by Euripides make abundantly clear, this distinction did not always play out as it ought. In fact, the existence of exceptions to the rule of blood-based citizenship reveals that its apparent legitimacy was, at its core, fallacious. The tragedy of Oedipus and Ion is in that the knowledge of their parentage, which should have moved them out of their marginal social positions and into the sociopolitical centers of their respective poleis , actually prevented them from claiming their rightful places within society. This is due to the fact that in practice, blood did not stand alone in determining membership to the polis . Athenian society instead relied upon adherence to socially-codified, secondary behavioral implications of blood-based membership, as shown through a further examination of the Athenian city-state and the plays Oedipus at Colonus and Ion. What’s more, the rule of descent necessarily meant that any violations of these secondary behaviors were inheritable and thus contaminated an individual’s entire genetic line from their transgression onward. In examining the social structures as they are presented in these two works, in light of the historical context of ancient Athens, it is clear that the lineage-based autochthony myth was only the beginning of the implied social order. Literary Background Before diving into the social structure of Athens, a short summary of each play is in order, which will highlight the most relevant plot points. Thanks to Freud, most are familiar with Oedipus, or at least with his infamous acts: killing his father, marrying his mother, and fathering her children. Once he discovers all that he has unknowingly done, Oedipus blinds himself and is outcast from Thebes, his home and onetime kingdom. All of this takes place in Oedipus Rex , the first in Sophocles’ trilogy of plays about Oedipus and his family. Following these events is Oedipus at Colonus , which shows Oedipus in exile from Thebes as he approaches the Athenian acropolis. During the course of the play, Oedipus encounters a pair of Athenian citizens, who fetch Theseus, the Athenian king, to determine if Oedipus will be allowed to stay in Athens. After a lengthy debate, Theseus decides to accept him, thanks in part to the pleading of Oedipus’s daughters, who have been helping him in his blindness. At the conclusion of the play, Oedipus is led away into the forest of Athens where he dies without leaving a trace, with Theseus as his sole witness swearing not to say a word about what happened to him. The themes of Oedipus at Colonus reach their pinnacle in Antigone , the final play in Sophocles’ trilogy, wherein Oedipus’s children are all killed, save Ismene, whether it be by their own hands or those of their political rivals. Ion by Euripides centers around another family drama, although perhaps not as well known as that of Oedipus. In the play, Ion is an orphan like Oedipus, raised in the Temple of Apollo at Delphi. The play starts when Creusa, forebear and Queen of Athens, and her husband Xuthus, a war hero and metic, visit the Temple to ask for a prophecy concerning Xuthus’s prospects of having any children. There, the couple meets Ion, and the prophecy leads Xuthus to assume that the now-grown orphan is his true-born son. By the end of the play, however, Creusa and Ion discover his true parentage: that it is she who is really his mother, and that his father is actually the god Apollo, who raped her before she married Xuthus. Following council from the goddess Athena, they choose to keep this knowledge secret from Xuthus for reasons that will later be discussed, and Ion goes on to eventually found the Ionian race. The Athenian City-State With the above summaries in mind, we will begin our analysis of the Athenian city-state. Athenian democracy, while more inclusive of lower classes than any prior sociopolitical structure, necessarily imposed limits on those allowed into the privileged citizenry. Voting could only be meaningful if it were limited; absolute freedom to participate in the polis would be, as Jacques Derrida says of unconditional hospitality, “a law without imperative, without order and without duty. A law without law, for short.”[5] For order and social duty to exist, there must be a specific group to whom these imperatives apply, or else all is unordered chaos. The necessary trade-off in this collective unification is the creation of an out-group against which the citizenry can be defined and assert its exceptionalism. In this way, the social order itself creates the outlaw, the metic, the orphan, and the bastard: broad, inferior social categories designed to include those who do not adhere to the implied social code. Those considered “outside of the law” are not actually so, for they fall into categories created by the social order. The only individuals truly outside of the law are those who cannot be defined by it, which we shall see is the case for Ion and Oedipus. The social rule creates the social rulebreakers, and at the same time the rule-breakers throw the rule itself into relief. Each is the inverse of the other’s positive assertion, becoming a co-constitutive axis. They provide legitimacy by means of a relation of difference through which to define themselves, while in reality neither category exists outside of the artificial, dyadic social construction. In order for a society to function, however, it must be able to overlook the arbitrariness of social delineation and instead see it as legitimate, even inherent to its subjects. To that end, Athens turned to a system of social order that on its face seemed absolute, inherent, and infallible: blood-based citizenship dependent upon genealogical descent from an autochthonous original populace. In the way of legitimacy, autochthony appeared acceptable to its citizens because it could not be disproven, even though it was just as much of a social construct as any other conception of citizenship and justification of exceptionalism. Because the mythical original autochthonous population from which Athenians claimed citizenship was ancestral, its supposed existence could not be called into question based on facts, since there were none to confirm or deny its existence. Like the founding myth of any society, the lie at the core of Athenian structure not only persisted but, interestingly, added legitimacy to the regime. Autochthony also provides a reason to see status as inherent to the citizen, since it “grounds difference in claims of nature—specifically, in earth and blood—[which gives] these categories the appearance of an ontological status.”[6] That is, Athenian exceptionalism appeared justified since it was traceable back to inherent natural differences between people. The lie of one’s social status being inherent, especially in a system based on blood, means that both adhering to its standards and violating them are not seen as merely shifting status, but are actions sublimated into the person themself. Oedipus, answering the question the Chorus poses as to his identity, does not say, “I am in exile”—that is, inhabiting an external, imposed state—but “I am an exile” (italics added).[7] His status has become his being, since blood determines both. Just as Thomas Kuhn conceives of paradigm shifts in science as not only incorporating past scientific information, but also as proclaiming past paradigms unscientific, so too do new information and actions that cause a change in status retroactively re-write one’s entire self. Everything that previously signaled one’s status becomes a lie, and, in a world where statuses can change, passing becomes both possible and inevitable.[8] This is the unavoidable fallout of the idea of social status as inherent and blood based. While autochthony’s claims of being inherent certainly rested on shaky ground, these were not the only fallacious premises upon which Athenian self-conception depended. Because autochthony was meant to order, it centrally imposed its structure down to even the level of individual family, and in doing so, manifested itself as a myth of unity. Above all, genealogical claims were meant to be objective and clear, “largely to guard against the kind of mingling and confusion of identities that blurs discrete lines of demarcation in the social order.”[9] The ideological primacy of a clearly-ordered and unified family structure was designed to make orderly life possible, with a cohesive overall clan structure which mirrored the internal structure of the family. In this way, the polis functioned ideologically as a single entity, its uniform organization all the way down to the individual level supplementing its unifying claim to one collective heritage. This ideology is far from abstract, and is in fact visible in much of the literature Athenian citizens produced. In Pericles’ Funeral Oration, for example, “the ‘populus,’ in the general sense of the term, is not politically divided,” and, indeed, “is never divided in the works of the tragic poets.”[10] This broad claim of unity is seen in Oedipus at Colonus as well, when Theseus, reacting to Creon’s abduction of Oedipus’s daughters, proclaims, “Your [Creon’s] behavior is an affront to me, / A shame to your own people and your nation,” and that “the whole city [Athens] / Must not seem overpowered by one man.”[11] In a unified citizenry, any citizen exemplifies that citizenry, and thus the actions of one man can impact the reputation of the entire polis . In this way, the citizen is metonymic of the polis , and conflating one with the other is both an easy and powerful move in a mythically-unified city like Athens, especially by its figurehead Theseus. What this means, however, is that the broad-reaching social order determines not only social status, but behavior. One must act in accordance to its social prescriptions, or else one endangers the social ideal of collective unity. Thus, those who violate the social norms, especially those important enough to be codified into law, must either be expelled from the polis by being placed into one of the excluded classes—in extreme cases, such as with Oedipus, this meant being expelled from the city itself and branded an exile—or eliminated entirely. In a society founded on absolute, broad-reaching, inherent order, any person whose very presence defies that system of order threatens the entire conception of the polis, a conception that must be kept in place so that democracy and the state as a whole can function. In order to see why Oedipus and Ion are not able to take their rightful places, then, it is necessary to examine exactly which secondary social prescriptions they violate that threaten the order and unity of the polis .[12] The Social Implications Of Blood While the primary concern of a genealogical social organization is creating a clear order, it must also be a self-sustainable system. What this means is that in order to reproduce viable citizens, and thereby the entire social order, secondary behavioral prescriptions become necessary. A system meant merely to determine whether or not one was citizen (i.e., pure lineage) became instead a guiding social principle, dictating not only social standing but also desired social behavior. To borrow a term coined by James C. Scott, the requirement of pure lineage in a genealogical society set into motion “a process by which ‘a measure colonizes behavior’”—that is, what is meant to be descriptive becomes prescriptive.[13] In the quest to create social order and obtain clarity through kinship organization, a blood-based society generated secondary regulations that helped further its own existence. No longer did it merely order society, but the desire to adhere to the blood standard now shaped the ways Athenians lived their lives. For example, the stringency of claims to autochthony biased societal perceptions of preferable marriages. Athenian-Athenian matches, or, more generally, marriages between members of the polis with clearly-defined statuses were considered more appropriate in ancient Athenian society. These biases played into the need for social order: if one was certain who one’s parents were, one’s own status was clearly defined. Conversely, if one was uncertain about their parentage, their social status was diminished due to the social order. We see this bias throughout history, with orphans and bastards historically being treated as lower-class citizens, inferior to those of straightforward lineage. With unclear parentage, one is not immediately stateless, per say, but one experiences a sort of social statelessness. As Creusa says of Ion, “It was for your good that Loxias settles into a noble house. If you were called the god’s son, you would not have had a house as your inheritance or a father’s name.”[14] Because Athenian women could not hold property, Ion must pass as the son of a metic in order to inherit a name of any meaning. Indeed, we see at the beginning of the play that Ion has no name at all until Xuthus gives it to him.[15] Naming is a familial claim, but as a bastard of Apollo, Ion has no name to claim whatsoever. While his Athenian mother ought to make him Athenian as well, revealing his true parentage would render Ion not only destitute, but without any form of social identification. To have a subordinate place in the social order is better—at least as Ion is coerced to believe by Xuthus and Athena—than to have no place at all. While his parentage is clear, Ion’s social status is not, revealing one of the major failures of a blood-based system. Inheritance can only deal with facts that it was built to incorporate for it is based on the grounds that it stems from absolute fact. While being the son of a god ought to have positive effects on his social standing, the fact that Apollo has entered the social order from a place completely external to it means that Ion and all of his progeny are also unable to fit into the social system at all. Ion cannot even be defined by one of the catch-all categories such as “orphan” that have been built into society for extreme, non-standard cases. A social order based on genetic lineage “expresses a demand to repeat (over generations) what can only happen once (the original birth).”[16] Genealogical in-grouping made both citizenship and violations of its reproductive practices iterative: if one’s ancestors made a mistake in marriage or reproduction, it would be reproduced throughout the entire genealogical line with no chance of correction, save through covering it up. Once revealed, Apollo’s original sin of impregnating Creusa—or, as it was more likely to be seen in this society, Creusa’s original sin of giving birth to Ion—would haunt Ion’s family line forever. Ion therefore must follow Athena’s advice and pass as a metic until the end of his days, his knowledge of his true parentage keeping him from fully joining the polis lest he become disenfranchised and lose his social classification of orphan, along with the protection that classification affords. While Ion’s crime against the social order is his very birth, Oedipus’s crime is more nuanced, hinging on his transition from ignorance to knowledge of his own parentage. Oedipus at Colonus thus explores what happens when that which goes against the social order is revealed, instead of staying safely hidden. While Ion confounds orderly overall social classification, Oedipus hopelessly confuses the internal family ordering upon which the whole of Athenian society was based. Oedipus not only confuses this order by killing his father, upending the proper power dynamic and sinning against the polis ’s conception of the ideal family, but also by marrying his mother and having children by her. This creates social positions untenable within Athenian society: sister-daughters, son-brothers, father-siblings, grandmother-mothers, etc. In his ignorance, Oedipus commits crimes that, upon coming to light, make both himself and his entire family socially unclassifiable, for the social order has no way of coping with the complications of incest. Just as Ion’s potential outing could contaminate the legitimacy of his entire line, Oedipus’s revelation does contaminate his entire family structure because of the supposedly inherent and unifying qualities of blood. This inherited contamination is evident in the ill fate of Oedipus’s daughters in the following play, Antigone . What brings people together in the social order can just as quickly spread social contamination. Oedipus and his family, especially his offspring, each inhabit multiple social categories, which contradict each other in their implications of exclusion and inclusion. Despite Oedipus and by extent his children being at least doubly Theban, the revelation of Oedipus’s parentage means they cannot be allowed to remain in the polis . Society has no outcast category in which to put the members of this family, so they must be expelled. They have violated the social order and thus cannot stay in the city since their continued presence threatens the myth of broader social unity. While the concept of unity was not as important in Thebes as in Athens, at least from an Athenian perspective, incest was still taboo. To some extent, Oedipus’s family had to be Theban since Thebes served as Athens’ dramatic foil, a place where scenes were allowed that couldn’t play out in Athens, even mythically.[17] Thebes was a place to explore social possibilities. If Oedipus’s stories took place within Athens’ idealized system, even in fiction, they risked exposing too directly its fragility. The slight distance between the two cities, both physically and ideologically, was what made such socially-shattering myths as Oedipus palatable. They were allowed to explore the potential effects that taboo events such as incest could have within Athens without threatening the social order with its intense emotional baggage. Conclusion The Athenian social order tolerates certain types of aberrations as long as they fall within the outcast categories it has created so that its myth of unity can persist despite inevitable anomalies. If an individual falls outside of these catch-all categories then they must be eliminated. Indeed, we see this occur through the plays as Oedipus’s children—who break no laws but whose very existence as daughter-sisters and brother-sons exposes the fragility of blood-based social order—eventually kill themselves and each other. The sin must be cut off at the source or else it will grow exponentially with every following generation. All of Oedipus’s family must end to cleanse the blood and the city. Unlike with Ion, Oedipus’s familial social transgressions are known, precluding him from the approved social order. Therefore, Oedipus faces no other socially-viable option but to be expelled from the polis . He threatens the polis ’s behavioral unity, the myth of unity that the entire polis is founded upon, and therefore, the polis itself. The mythically-unified polis, for whom all included individuals are metonymic representatives, cannot include an individual who has violated its secondary socio-familial prescriptions even if those transgressions are not intentional. Interestingly, Oedipus is asked to conditionally rejoin Thebes after his expulsion because the metonymic power the polis has over its citizens supersedes all other considerations. The claim which Athens newly asserts over Oedipus infringes upon that primary consideration, and so his secondary sins can be overlooked in favor of his primary birthright. Oedipus’s parentage is revealed, while Ion’s is not, and these revelations are what shaped their tragic fates. However, in a genealogical system that gains legitimacy based on the claim that blood is objective, inherent, and unfakeable, how is it possible that either of their lineages, at any point, not be revealed? The answer, in short, is that despite its apparent objectivity, blood does not speak for itself. One cannot look at someone and tell who their parents are, and, like Ion, individuals might be mistaken about their true parentage. This opens up the possibility of acting and passing as a citizen, even unintentionally, when one is not. This possibility threatens the autochthonous myth of blood being self-evident and inherent—thereby threatening the entire Athenian social order. As the bastard child of a god and an Athenian, Ion, while objectively an Athenian, does not fit neatly into the social narrative. Revealing his parentage may lead to questions about his autochthony. To secure his high position of power, a palatable lie must be constructed to ensure the propagation of his own line and the social order as a whole. Blood in this case is a performance, willing or not, for the sake of the social order to which his own exceptional circumstances must be subsumed. Because the autochthonous genealogical citizen myth is founded on the basis that it has no exceptions, having a questionable figurehead at one of the most important family lines might incite social crumbling from the top down. As an inevitable consequence of the need to preserve the mythical unity that this society was founded on, Ion, whose familial transgressions can be subsumed into pre-existing social categories, is able to be a metic as long as he hides his familial transgressions under a socially-acceptable genealogical narrative. Oedipus, on the other hand, who reveals his familial transgressions under extreme emotional duress[18], must necessarily be evicted from his polis for his violation of its secondary prescriptions since the assertion of his status along family lines implicates his other behavior. The tragedy of Oedipus and Ion is that the knowledge they gain of their parentage, which should shift them from their marginal social positions into the sociopolitical centers of their respective poleis , actually means that they cannot claim their rightful places in society. The knowledge of their parentage is inextricable from the knowledge that either they or their parents violated the secondary prescriptive norms of their genealogically-based society. Despite its claims to being inherent, providing clear order, and unifying the polis , (blood) autochthony failed in almost every one of these respects, as does any other basis for social organization and delineation of citizenship. In order to preserve and reproduce this order, the reproduction of individuals needed to adhere to secondary behavioral prescriptions that blood-based membership entails, lest their entire family lines be contaminated. Due to the different natures of Ion’s and Oedipus’s social crimes, as well as the secrecy of sensitive information or lack thereof, Ion is able to pass within the polis while Oedipus must be expelled in order to preserve the social myth. However, neither is able to claim what is rightfully theirs: the title of citizen. Endnotes [1] Autochthony: n., The quality, state, or condition of being autochthonous; an instance of this. Autochthonous: (of an inhabitant of a place) indigenous rather than descended from migrants or colonists. Oxford English Dictionary, “autochthony” and “autochthonous,” OED Online, December 2018. [2] Polis refers to a Greek city-state. Here, more specifically, it refers to the people allowed within government in Athens, the people who constituted the voter base and who were included in all aspects of civic life. [3] Dokimasia : n, The term δοκιμασία and the related verb dokimazein were used in various Greek contexts to denote a procedure of examining or testing, and approving or validating as a result of the test. Oxford Classical Dictionary , 2016, "dokimasia." [4] At the time in which Ion is set, the requirement for citizenship was having one Athenian parent, not two, as it was after Pericles’ citizenship law. For Oedipus, the distinction is irrelevant because both of his parents are Thebans—or, in his father’s case, a naturalized Theban ruler. [5] Jacques Derrida, Of Hospitality: Anne Dufourmantelle Invites Jacques Derrida to Respond , Trans. Rachel Bowlby, (Stanford: Stanford University Press, 2000), 83. [6] Demetra Kasimis, “The Tragedy of Blood-Based Membership: Secrecy and the Politics of Immigration in Euripides’s Ion,” Political Theory 41(2):231-256 (2013), 15. [7] Sophocles, Oedipus at Colonus , trans. Robert Fitzgerald (New York: Harcourt, Brace, 1941), 92, line 9. The exact blood-based social conventions Oedipus violates that lead to his expulsion from Thebes will be explored later. [8] Passing, or being perceived and accepted as something other than what one actually is, is certainly an important part of any strictly-delineated social order. For example, in the post-Jim Crow era, certain people who would legally have been considered African American could “pass” in their daily lives as white. Passing is especially important in relation to Euripides’ Ion, but further discussion is not within the scope of this paper. [9] Kasimis, “The Tragedy of Blood-Based Membership,” 15. [10] Pierre Vidal-Naquet, “Oedipus Between Two Cities: An Essay on Oedipus at Colonus,” in Myth and Tragedy in Ancient Greece, eds. Jean-Pierre Vernant and Pierre Vidal-Naquet, trans. Janet Lloyd (New York: Zone Books, 1988), 331; 334. [11] Sophocles, 132, lines 8-9; 136, lines 14-15. [12] Ion is the son of the sun god Apollo and the Athenian princess Creusa; Oedipus is the son of two Theban monarchs. Thus, both theoretically should be included in their respective poleis on the basis of blood, especially since it is the blood of the elite. [13] James C. Scott, Two Cheers for Anarchism: Six Easy Pieces on Autonomy, Dignity, and Meaningful Work and Play (Princeton: Princeton University Press, 2014), 114. [14] Euripides, Ion , trans. H.K. Lee (Warminster, England: Aris & Phillips, 1997), 503. [15] Euripides, Ion , 403. [16] Kasimis, “The Tragedy of Blood-Based Membership,” 13. [17] Vidal-Naquet, “Oedipus Between Two Cities,” 334: “There is one place where stasis [social division] finds a special home: It is Thebes,…an anti-city.” [18] Euripides, Ion , 104, lines 17-18: “Nothing so sweet / As death, death by stoning, could have been given me.” Oedipus’s distress comes from his internalization of the prescribed external social standards, which hold so much weight as taboo that he, as a metonymic citizen, feels anguish from actively breaking these rules, even if unaware he was doing so. References Derrida, Jacques. Of Hospitality: Anne Dufourmantelle Invites Jacques Derrida to Respond. Trans. Rachel Bowlby. Stanford: Stanford University Press, 2000. Euripides. Ion . Translated by H.K. Lee. Warminster, England: Aris & Phillips, 1997. Kasimis, Demetra. “The Tragedy of Blood-Based Membership: Secrecy and the Politics of Immigration in Euripides’s Ion.” Political Theory 41(2):231-256 (2013). Scott, James C. Two Cheers for Anarchism: Six Easy Pieces on Autonomy, Dignity, and Meaningful Work and Play. Princeton University Press, 2014. Sophocles. Oedipus at Colonus . Translated by Robert Fitzgerald. New York: Harcourt, Brace, 1941. Vidal-Naquet, Pierre. “Oedipus Between Two Cities: An Essay on Oedipus at Colonus.” In Myth and Tragedy in Ancient Greece. Edited by Vernant, Jean-Pierre, and Pierre Vidal-Naquet. Translated by Janet Lloyd. New York: Zone Books, 1988. Vernant, Jean-Pierre, and Pierre Vidal-Naquet. Myth and Tragedy in Ancient Greece. Translated by Janet Lloyd. New York: Zone Books, 1988.

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The Brown University Journal of Philosophy, Politics, and Economics (JPPE) is a peer reviewed academic journal for undergraduate and graduate students that is sponsored by the Political Theory Project and the Philosophy, Politics, and Economics Society Program at Brown University. The Brown Journal of Philosophy, Politics & Economics Volume IV, Issue I scroll to view articles Volume IV Issue I Philosophy Authenticating Authenticity Authenticity as Commitment, Temporally Extended Agency, and Practical Identity Kimberly Ramos Can Pascal Convert the Libertine? An Analysis of the Evaluative Commitment Entailed by Pascal’s Wager Neti Linzer The Growing Incoherence of Our Higher Values Aash Mukerji The Necessity of Perspective A Nietzschean Critique of Historical Materialism and Political Meta-Narratives Oliver Hicks Read More Politics The Unchurching of Black Lives Matter The Evolving Role of Faith in The Fight for Racial Justice Anna Savo-Matthews From Bowers to Obergefell The US Supreme Court’s Erratic, Yet Correct, Jurisprudence on Gay Rights Sydney White Predictive Algorithms in the Criminal Justice System Evaluating the Racial Bias Objection Rebecca Berman Read More Economics God Save the Fish The Abyss of Electoral Politics in Trade Talks––a Brexit Case Study Eleanor Ruscitti The Black Bourgeoisie The Chief Propagators of “Buy Black” and Black Capitalism Noah Tesfaye Breaking Big Ag Examining the Non-Consolidation of China’s Farms Noah Cohen Read More Applications for JPPE Now open! See Available Positions

The Life Cycle of the Responsibility to Protect The Ongoing Emergence of R2P as a Norm in the International Community Maxine Dehavenon Brown University Author Fabienne Tarrant Tathyana Mello Amaral Harry Xie Editors Fall 2019 Download full text PDF (10 pages) Introduction The “life cycle of a norm,” as presented by Martha Finnemore and Kathryn Sikkink, holds that for a norm to become fully accepted and internalized as the rational action in a certain situation, it must travel through three phases of existence: norm emergence, norm cascade, and norm internalization. At this point in time, there is a norm of a responsibility to protect, referred to as R2P, manifesting itself in the international community. However, it is currently stuck in the second phase of its evolution. While the actions taken by the Security Council in Bosnia represent R2P’s emergence as a norm championed by “entrepreneurs,” and the US-led NATO intervention in Libya, as well as the passing of Resolution 1764 in 2005 prove R2P’s successful passage beyond the “tipping point” into the stage of “norm cascade,” the current inaction on the part of the international community in the case of the Syrian genocide reflects the fact that the responsibility to protect has not yet become a fully realized norm to the point where it is universally recognized as the appropriate response to all human rights violations. This is due in part simply to the precedent set by the “failure” in the eyes of the international community of past invocations of R2P – a fact which is not a shortcoming of the strength of the norm, but rather of its application - but also to the structural challenges associated with allowing the application and trial of a norm to be dictated by a body as politicized as the Security Council. As reflected in the case of Syria, the veto power accorded to the P5 on the Security Council provides outliers to the acceptance of R2P, such as Russia, to hijack its trial process and stagnate its chance to become fully internalized. This paper begins with a discussion of the theoretical process by which a norm comes into being as described by Finnemore and Sikkink, followed by an application of such a process to the emerging norm of responsibility to protect through the framework provided by the cases of Bosnia, Libya and Syria. It then tackles the question of why the norm has yet to be fully internalized in the international sphere, presenting an argument for the fact that this is due to the undue power over its application given to the permanent members of the Security Council, and finally in the conclusion, it goes on to make an argument for how to overcome the incommensurate, politicized sway of the Security Council over R2P’s evolution as a norm. Theoretical Framework A norm in international relations is most commonly defined by Martha Finnemore and Kathryn Sikkink in their article “International Norm Dynamics and Political Change” as a “standard of appropriate behavior for actors with a given identity.” Such a definition provides a succinct, yet comprehensive inclusion of the major characteristics of norms, namely, their status as an ideational standard of conduct given a particular circumstance, and the universality of acceptance on the part of a certain group with respect said conduct’s legitimacy and necessity. It is also important to note, that for a standard to be considered a fully formed norm, it can’t only be acted upon physically or rhetorically by states, it must essentially be a “foregone conclusion” in the eyes of those party to it as the appropriate behavior. This distinction, though subtle, is crucial, in that it separates an emerging norm from a fully formed one; while an emerging norm is represented as such by conspicuous, conscious efforts to fulfill a standard set forward by norm entrepreneurs, an absolute norm is such because “[it is] internalized by actors and achieve[s] a “taken for granted” quality that makes conformance with the norm almost automatic.” This distinction is what separates a norm from something like a law, or a resolution; states do not just comply with it because of a positive duty to a legally or politically binding force, they comply with it as part of a negative duty to follow a principle so embedded in code of behavior as correct, that no thought goes into its action whatsoever. Finnemore and Sikkink outline in their article what has come to be known as the “life cycle” of the emergence of such a norm, or the evolution of a standard of behavior must follow in order to become a fully formed norm within the international community. This cycle has three phases. Phase one, titled “norm emergence,” is characterized by the promotion of a certain standard by what Sikkink and Finnemore call “norm entrepreneurs,” or those within the international community who could be considered “thought leaders” with respect to normative formation, through “organizational platforms” such as international institutions, NGO’s or transnational advocacy networks. The goal of such entrepreneurs during this stage is to persuade the most powerful states within the international community to accept and promote the norms they set forth, a process that is characterized by their calling attention to issues “using language that names, interprets, and dramatizes them.” The second stage in this process is characterized as the “norm cascade,” and is catalyzed by a “tipping point” when “norm entrepreneurs have persuaded a critical mass of states to become norm leaders and adopt new norms.” After this point, all other states will follow in the footsteps of those that set precedents within the international community, and a norm’s legitimacy and reputation as a standard of behavior is strengthened through socialization, institutionalization and demonstration. As mentioned above, while this stage may appear to produce fully formed norms, the limiting factor of the complete integration of norms is the fact that many countries accept or act upon it not because they feel they must from an internalized need, but rather as a way to either extend their own legitimacy, or please the great powers. The full internalization of a norm is what distinguishes stage three, or the idea that at this point, a norm has acquired a “taken-for-granted quality, and [is] no longer a matter of broad public debate.” This phase is somewhat paradoxical, in that if a norm has reached this point, it has been so intrinsically embedded in the rational behavior of a state, that in many cases, it is not even considered a point of discussion when states engage in decision-making; it has been so imbued in the framework of the international community, that its employment is no longer even up for debate. Such a theory has elements of both constructivist and realist strains of thought. The idea that international norms dictate the proper (in both moral and legitimate terms) behavior of states is one rooted in constructivist ideology – namely that states act based on the “logic of appropriateness” rather than the “logic of consequences.” Such a difference holds that norms represent an international system of social construction in which states make choices based on how appropriately their actions will fit within the framework of legitimacy of the international system. This paradigm supports the concept of the “life cycle of the norm” through the idea that a norm is created not by one individual state or organization which imposes it on others, but rather by an engaged process through which all states (and independent actors) have at least some level of agency. However, the notion that in phase two of the process, much of the universal acceptance of a norm (the “tipping point”) is based on its acceptance by the most powerful state actors holds some of its roots in realist theory, predominantly in the idea that the most powerful states hold sway over the actions of other states given their belief that it is rational to cooperate with the global powers. In this sense, the constructivist paradigm of norms as presented by Fennimore and Sikkink exists atop a realist foundation, still based on the whims of the hegemon. The Norm of R2P in Action – Its Life Cycle Through Cases The emergence of the norm of the responsibility of the international community to protect the human rights of all citizens holds its origins in the program of transitional justice implemented following the horrors of the Holocaust and the Second World War. This feeling has evolved over time from one based in the allocation of aid and peacekeeping forces to civilians in conflict zones to the legitimation of military intervention as a method of quelling human rights violations, through the manifestation of the Responsibility to Protect (R2P) in 2005. This document - signed into action unanimously by all member states - outlined a radical program of duty on the part of the international community to place human rights at the utmost level of importance and gave them the rhetorical allowance to supersede the Westphalian tradition of state sovereignty in cases of mass atrocities. However, while this represented a theoretical acceptance on the part of the international community – a sort of “tipping point” - with regards to the potential for military intervention in defense of human rights, it can merely be regarded as a singular step in R2P’s process to become a fully formed norm, a process which is recognized to have been in phase one during the Bosnian War, phase two during the Libyan intervention, and is currently showing its inability to pass into phase three as evidenced in its lack of invocation with regards to the current human rights crisis in Syria. Through these three cases, R2P can clearly be seen to be in the midst of Sikkink and Fennimore’s norm life cycle. The case of UN intervention in the war in Yugoslavia represents R2P’s status as a norm in the first stage of internalization. Widely considered to be “too little too late,” the actions of the United Nations through the UNPROFOR did not adequately serve their purpose as a force defending the human rights of all citizens; rather, their lack of decisive action – especially in the case of the Srebrenica massacre – highlights how an international standard of responsibility to protect had not yet fully emerged on the global stage; its proponents were weak, and its application half-hearted and timid. It is true that peacekeeping forces were allocated by the United Nations protect Bosniak civilians, however, their inaction speaks to the fact that the United Nations, and the states controlling it, were not under the impression that the responsibility to protect civilians extended all the way to military intervention to the point that they felt obligated to break the norm of state sovereignty and engage directly with the Bosniak Serbs. As stated by Sikkink and Fennimore, norms “never enter a normative vacuum but instead emerge in a highly contested normative space where they must compete with other norms and perceptions of interest;” in this case, the norm in competition was state sovereignty. There were motions on the part of individuals who could be seen as “norm entrepreneurs,” like Shashi Tharoore, who is the US-based leader for peacekeeping operations in Yugoslavia. These motions called for more expanded intervention, “even if such actions entailed calling in NATO airstrikes.” However, the majority of those with the capabilities to pressure the UNSC to engage more directly in the conflict on behalf of the citizens being slaughtered had not yet been convinced that R2P should override the sovereignty of Bosnia. As stated by David Rieff in his article damning the inaction of the UN, the “firm and long-standing United Nations tradition of peacekeeping rooted in international law, impartiality and procedural objectivity,” turned out to be a tradition of peacekeeping so apolitical, it failed to uphold the key tenets of the UN Charter. Luckily, this disaster proved to hold some positive implications for the promotion of the norm of R2P. As part of the post-conflict reconciliation process, the UN itself released a report questioning if it could not have done more to protect the innocent civilians killed in Bosnia. They state “it is true that UNPROFOR troops in Srebrenica never fired at the attacking Serbs. Had they engaged the attacking Serbs directly it is possible that the events would have unfolded differently.” Here, an example of a shift in the position of a leading influence such as the UN with regards to a specific norm can be seen. The cries of outrage on the part of many in the international community serve to show how norm entrepreneurs were able to effectively re-characterize the UN’s action as an “inappropriate” response to the issue at hand and sow the seeds for a more comprehensive acceptance of the suppression of state sovereignty in the name of peacekeeping operations. This report, written in 1999, can be seen as something of a “first draft” of the “Responsibility to Protect” doctrine, signed unanimously by all UN member states in 2005. As stated by Sikkink and Fennimore, “in most cases, for an emergent norm to reach a threshold and move toward the second stage, it must become institutionalized in specific sets of rules and organizations,” and the R2P doctrine was just that. The fact that this document, in which state sovereignty was challenged for the first time as a conditional privilege, was signed unanimously proves it to be the symbolic, as well as rhetorical “tipping point” for the norm of R2P into its second phase: norm cascade. The first case that truly represented an attempt to implement the norm of responsibility to protect, as laid out in the 2005 doctrine, and was universally supported (at least at first) by much of the legitimized international community, was the case of Libya in 2011. As stated by Roland Paris, this effort to intervene “provided the first major test of R2P’s most coercive policy instrument: large-scale military intervention, against the wishes of the target state, in order to protect civilians from the threat of mass atrocities.” In March of 2011, after months of less invasive measures were attempted, the UN Security Council adopted Resolution 1793, calling for airstrikes to be carried out by NATO under the justification provided by R2P. Finally, the norm of R2P had reached the second phase of its life cycle: it’s application as supported by all members of the international community as a way to test out, legitimize, and institutionalize its status as a norm. However, as the mission quickly expanded into one more clearly resembling “regime-change” than humanitarian intervention, many important countries, namely China and Russia who had both abstained to vote on the Resolution, pulled their support, condemning NATO’s actions as “overreach.” While this mission may have been something of a failure on the part of the international community to successfully invoke R2P, it is not so much a failure of the inherent characteristics of the norm of R2P, but rather of its application. As stated above, a norm in phase two of its life cycle is still recognized for its potential to account legitimacy in the eyes of the global powers; at this time, “state leaders conform to norms in order to avoid the disapproval aroused by norm violation and thus enhance national self-esteem.” As it has not quite been internalized as a standard that must be followed in all circumstances – it is still a tool for states to mold and apply selectively as they see fit. Once its application no longer fits with their own interests (as was the case here), states still feel as though they are able to pull their support for it without receiving backlash from the international community for directly violating the norm themselves. Had R2P been in stage three of its normative life cycle, the states who withdrew support, regardless of whether that withdrawal was reasonable or not, would have been ostracized, maybe even punished, for going against what all states thought to be an inherent, morally incorruptible norm. Secondly, as stated above, in order to become a fully formed norm, R2P must supersede the other theories in its way. The fact that R2P must overcome the strength of the norm of state sovereignty – one that has existed for almost 500 years – posits a great challenge towards its success, and while states may have signed a doctrine labeling its status superior, in the same way that such a doctrine does not immediately represent the creation of a fully formed norm of R2P, it does not immediately confirm the collapse of the norm of sovereignty. According to Sikkink and Fennimore, “to challenge existing logics of appropriateness, activists may need to be explicitly “inappropriate.” While perhaps unethical, and extremely damaging, the drastic measures accorded by NATO in the case of Libya could be seen from one (albeit controversial) perspective, as simply a form of such “inappropriateness,” requisite to prove the extent of sacrifice made on the part of those involved to uphold the norm of R2P. In this way, although the Libya intervention is seen mostly as a failure, this is due for the most part to the fact that those critiquing it are not analyzing R2P as a norm still in its second phase, but rather as a fully formed one. That being said, the responsibility to protect does currently face a great obstacle with regards to its complete evolution into an internalized norm that again comes from the structural weaknesses that surround the norm of R2P, rather than from a failure of the norm itself. The fact that the implementation of R2P can decisively be enacted – or blocked – by the UN Security Council leaves its application up to an inherently politicized body. The veto power accorded to the permanent five (P5) members of the SC, Russia, China, UK, US and France, allows these five states an undue amount of influence over R2P’s future as a normative standard; they can choose when and where it can be executed, and have the power to block its use in cases where it does not fit with their goals. Fennimore and Sikkink define in their article what they call a critical state; “What constitutes a ‘critical state’ will vary from issue to issue, but one criterion is that critical states are those without which the achievement of the substantive norm is compromised.” In this case, the entire structure of R2P is in danger of being corrupted by the fact that all five states accorded the power to limit R2P’s applicability are critical states, and if even just one of them does not approve – for political as well as moral reasons – R2P is limited in its ability to prove itself as a norm worth internalizing to the international community. In order to cross over into the final phase of its life cycle, R2P must be free to be accepted as such by all, a process which rests on proof of its success, and any measure that puts roadblocks on such a process in the name of personal and political interests’ damages R2P’s chances of being fully accepted. Such a problem is currently being exhibited in the United Nation’s inability to invoke R2P in Syria. Although there is very clear evidence that a major violation of human rights is being executed by Bashar Al-Assad on his own citizens, the international community has yet to take any decisive action in the name of intervention, holding severe consequences not just morally in the name of the civilians being murdered, but also in R2P’s evolution towards its final phase. Since 2011, 8 draft resolutions calling for the SC to act in Syria have been vetoed; Russia and China voted no them all. Such a blatant display of politicized promotion of self-interests over the expansion of the norm of R2P underscores the problem with allowing the norm’s development to be controlled by a body that accords some states increasingly greater rights than others. Akbarzadeh and Sabah highlight how John Bellamy considers Russia’s invocation of the veto to stem from “Russia’s significant economic and strategic interests in Syria,” and that it is “these Syria-specific factors that underlie the Security Council’s paralysis over Syria, rather than more generalized concerns about R2P and the experience in Libya.” This argument supports the claim that it the Security Council, and not any structural problem with the norm of R2P itself that is preventing its invocation in Syria; Russia would block any measure putting its own interests in the region at risk, whether that is relating to R2P, or a nuclear proliferation resolution, or a trade agreement. However, while this theory takes the pressure off of R2P in terms of what is to blame, it also highlights the fact that R2P will not be able to enter its final stage until it is no longer reliant on a body such as the SC who is so greatly influenced by individual interests. While a norm is still in the norm cascade phase, critical states still have the ability to influence global perception of said norm, meaning that Russia’s continuous blockage of R2P’s use in Syria is slowly but surely convincing other states not to support it as well. In this sense, the case of Syria highlights the fact that in order for R2P to fully complete its evolution into a norm in international relations, it must separate its implementation from the politicized Security Council. Conclusion: Looking Forward Such a process of separation will be extremely difficult to complete: at this point in time, the Security Council is the only body accorded under international law with the ability to legitimately invoke the use of force, and is thus the only body in the position to spur military intervention in the name of R2P. A better solution would be not to remove R2P from the SC’s mandate altogether, but rather to nullify the P5’s veto power – at least when it comes to the responsibility to protect. While this is a drastic proposal, it is supported by the fact that if R2P were truly to become a completely internalized norm, theoretically, states would be willing to renounce their veto power in order to implement it, due to the fact that it would become such a “no-brainer” to support measures of R2P, that either they would not feel the need to have the veto power in the case of R2P, or political pressure from other countries existing within the normative framework of R2P to relinquish it would be so strong, they would have to. This would allow R2P to be invoked only in cases necessary; states would still be able to vote on it, and if it was decided R2P was unnecessary or inappropriate it would not be used, but if one state only did not support it for political reasons, they would not be able to hijack the entire process. Unfortunately, until the barrier imposed by the veto power on the Security Council is abolished, R2P will not be able to extend to its last phase of becoming a fully formed norm. As seen in the case of Syria, the power of critical states such as Russia through the veto power to hijack the ability of R2P to be implemented – and thus prove to the international community its worth as a norm – is the last major obstacle the responsibility to protect must overcome in order to complete its life cycle. Works Cited Akbarzadeh, Shahram, and Arif Saba. “UN Paralysis Over Syria: The Responsibility to Protect or Regime Change?” International Politics . 2018. Press, Associated. “Deaths of Venezuelan Protesters Appear to Be Targeted Killings, Rights Groups Say.” NBC News. February 20, 2019. www.nbcnews.com/news/latino/human-rights-groups-say-deaths-venezuelan-protesters-appear-be-targeted-n973651?icid=related Finnemore, Martha, and Kathryn Sikkink. “International Norm Dynamics and Political Change.” International Organization vol. 52, no. 4, 1998, pp. 887-917. “Nearly 900 Killed’ in DR Congo Clashes.” BBC World News, sec. Africa. December 7, 2019. www.bbc.com/news/av/embed/p06vwdrc/46896159 Paris, Roland. “The ‘Responsibility to Protect’ and the Structural Problems of Preventive Humanitarian Intervention.” International Peacekeeping , vol. 21, no. 5, 2014, pp. 569-603. Rieff, David. “The Institution That Saw No Evil.” The New Republic . 1996. UN General Assembly. “Report of the Secretary-General Pursuant to General Assembly Resolution 53/35 - The Fall of Srebrenica.” United Nations: United Nations General Assembly, 1999. “UN: Recent Myanmar Army Attack May Have Killed Dozens of Rohingya.” Al Jazeera . April 9, 2019. www.aljazeera.com/news/2019/04/myanmar-army-attack-killed-dozens-rohingya-190409062501653.html

A Fair Free Lunch A Fair Free Lunch? Reconciling Freedom and Reciprocity in the Context of Universal Basic Income Olivia Martin Stanford University Author Noah Klein Christopher Lingelbach Orly Mansbach Editors Spring 2019 Download full text PDF (13 pages) A society that relies on generalized reciprocity is more efficient than a distrustful society, for the same reason that money is more efficient than barter. Honesty and trust lubricate the inevitable frictions of social life. – Robert Putnam, Bowling Alone: The Collapse and Revival of American Community Introduction In the 1970s, the Canadian federal government ran a large randomized experiment in giving citizens a basic income called “Mincome.” When Mincome participants were asked “Why wouldn’t you go on welfare, even if it would improve your income?” 37% responded that they would rather support themselves, giving explanations such as, “Welfare to me was accepting something for nothing,” or, “I feel more useful working.”[2] Similarly, in a survey of 121 working Germans, most participants rejected the provision of a basic income, because it was independent of level of need or contribution.[3] In both the scholarly discussion of basic income and in public opinion surveys, the unconditional freedom granted by universal basic income (UBI) seems to directly contradict the social norm of reciprocity. Reciprocity, most generally, is the idea that those who enjoy a share of the benefits of social cooperation owe a corresponding contribution to that society in return, as long as they are able.[4] This concept of reciprocity is central to the idea of the social contract itself: citizens owe to each other some degree of cooperation in order to receive social benefits. Is it possible to reconcile reciprocity and freedom in this context? If so, how? I argue that UBI succeeds in reconciling reciprocity and freedom by making its definition more inclusive, and by restricting our definition of freedom to a more morally defensible conception of republican freedom, all while endowing trust in participants. First, I briefly define basic income. Second, I explain the ethical conflict inherent between freedom and reciprocity as discussed by contemporary basic income scholars, primarily Stuart White and Philippe Van Parijs. Third, I argue that republican freedom deserves moral priority over real freedom in a non-ideal society. Fourth, I argue that a more egalitarian and inclusive conceptualization of reciprocity is required for justice in a non-ideal society. Finally, I compare UBI’s efficacy in achieving this reconciliation to Anthony Atkinson’s proposal of participation income. Defining Basic Income and This Paper’s Normative Framework UBI generally has five definitional features: basic income is in cash, unconditional, universal, individual, and consistent. In this way, UBI is a significant departure from most welfare benefits in the United States. Existing benefits are almost all means tested and often in-kind (e.g., food stamps) rather than cash, given on a household basis (allowing for potential domination of one spouse over another), and conditional on the performance of paid work for a period of time—as is required by the Earned Income Tax Credit, Social Security, and Unemployment Insurance. There are also features of UBI that vary dramatically across proposals: the specific cash amount given, the frequency with which it is given, how it is funded, and the package of policies it entails. The exact features of basic income greatly affect the extent of the tension between freedom and reciprocity—for example, the larger the grant is, the greater the freedom of the individual, but also the smaller the impetus to reciprocate. For the sake of this paper, I will assume a UBI as a $1,000 monthly grant, as is being tested by Y Combinator, a startup accelerator, and I will assume that UBI will be in an addition to existing welfare, save for the most redundant programs. I will limit this paper to considering UBI in the context of the United States. As this is a primarily conceptual paper, I will not construct my argument from a specific full-bodied normative framework, such as republican or libertarian political theory. Rather, I will rely on the normative framework of an egalitarian policymaker interested in the principles of justice required for a non-ideal society, and I will hold that a nonideal society is one without institutions that fully correct for unequal access to the means of production and inequalities of natural ability.[5] The United States, of course, is one such nonideal society. As such, I write from a framework that (1) recognizes the inability of current institutions to meet the basic requirements of a social contract that requires all citizens, regardless of race, gender, or class, to be treated equally, and (2) strives to evaluate policies by their success in treating all citizens as moral equals while still protecting citizens’ basic freedoms. The Conflict Between Freedom and Reciprocity While UBI offers a radical but simple proposition to provide a basic level of economic security for all regardless of one’s history of paid work, it also appears to contradict the social norm of reciprocity: the idea that those who enjoy a share of the benefits of social cooperation owe a corresponding contribution to that society in return, as long as they are able. The idea of reciprocity is often incorporated as a central tenet in theories of justice, such as in John Rawls’s theory of justice as fairness, as well as in economic theory, as in Adam Smith’s theory that reciprocity serves as a social invisible hand that allows the free market to function. On a societal level, one might say that citizens internalize the idea of reciprocity by performing paid work, paying taxes, and performing civic duties, while receiving government benefits in the form of public services, protection, and the insurance of government transfers in times of need. Stuart White, in his book The Civic Minimum, provides a useful account of justice as fair reciprocity. In society’s nonideal form where institutions are incapable of correcting for inequalities of natural ability, society must only meet the “threshold of basic fairness”—meaning that class inequality is minimized to the extent possible and that all citizens have access to jobs with above-poverty wages, opportunities for self-realization, and security against abuse and vulnerability. In a society that has met this threshold, citizens are required to reciprocate either in the form of paid labor or specific kinds of care work. One reason that White finds fair reciprocity to be essential is that it is both a product and stimulus of a society of democratic mutual regard, in which “individuals seek to justify their preferred political and economic institutions to others by appealing to shared basic interests, and to related principles that express a willingness to cooperate with their fellow citizens as equals.”[6] As such, White finds this form of reciprocity necessary to the social cooperation inherent in a functioning social contract. Justice as inextricably connected to reciprocity seems to be critically at odds with the unconditional freedom granted by UBI. It is most at odds with Philippe Van Parijs’s account in “Why Surfers Should be Fed,” in which Van Parijs argues that the most central tenet of justice is not reciprocity, but rather “real freedom.”[7] Under this conception of justice, society ought to maximize individuals’ ability to pursue their own conception of the good life, including what they might want to do in the future. This would imply that even able-bodied individuals who decide to spend all their time surfing (i.e., not concretely contributing to society) deserve a basic income just as much as those who spend time working in various ways to contribute to society and the funding of basic income. His argument centers on the following provocative thought exercise: Consider Crazy and Lazy, two identically talented but rather differently disposed characters. Crazy is keen to earn a high income and works a lot... Lazy is far less excited by the prospect of a high income and has decided to take it easy. With the Basic Income at the highest feasible level… Crazy is rather miserable because her net income falls far short of the income she would like to have. Lazy however is blissful.[8] Our traditional understanding of reciprocity would say that Crazy is being exploited by Lazy, whom we might see as free-riding off of the hard work of Crazy. Van Parijs turns this argument on its head with his Job Assets Argument, in which he asserts that jobs are an asset essential to real freedom, and that in our arguably non-Walrasian world, there will remain “morally arbitrary inequality in opportunity” between those lucky enough to be employed, and the involuntarily unemployed.[9] Thus, it might be Crazy, not Lazy, who has unsustainable preferences, and perhaps individuals like Lazy deserve to live off of their share of capital rents that have been monopolized by individuals like Crazy. Whether or not one believes Van Parijs’s Job Assets argument, Lazy is still exploiting Crazy by free-riding off of the work of Crazy, thereby violating the norm of reciprocity. Van Parijs does not try to imply that Lazy is not exploiting Crazy; rather he argues that Crazy has also exploited Lazy in an equal if not more severe way. Crazy’s exploitation of Lazy, however, is an issue that White finds to be based in the structural inequalities of society that cannot be directly solved by basic income. Regardless of whose understanding of asset distribution one believes, the debate between White and Van Parijs demonstrates that there is a clear and serious tension between reciprocity, as it has been traditionally defined, and real freedom. Real freedom, by definition, places the individual’s ability to realize their own potential above all else, including reciprocal obligations. Thus, a basic income that prioritized individuals’ real freedom could make no promise that recipients would make specific contributions in return if these contributions conflicted with the recipients’ ability to realize their real freedom. To resolve this tension, it is necessary to critically examine what definitions of reciprocity and freedom are those most necessitated by the pragmatic justice of an egalitarian policymaker. A Republican Re-Conception of Freedom In this section, I assert that real freedom is the inappropriate freedom to be juxtaposed with reciprocity, both because real freedom is nearly impossible to measure and because republican freedom deserves moral priority over real freedom in a nonideal society. Republican freedom is defined as freedom from nondomination and independence from arbitrary power. Real freedom, as defined by Van Parijs, necessitates not only the negative freedom required by republican freedom, but also the resources and capacities to carry out one’s will.[10] First, it seems nearly impossible to measure whether or not real freedom is being maximized in a society, unless one makes the assumption that income can be translated to real freedom on a one-to-one basis. How is it possible to measure the achievement of individuals being as free as possible to do what they might want to do? While there are some ways to estimate achievement of republican freedom, such as the number of workers with basic protections or changing poverty rates, it seems impossible to measure real freedom without assuming that income and real freedom share a monotonic relationship.[11] Though we cannot expect an exact measurement of whether or not a society is meeting the goal set by a theory of justice, such as equality, it does seem important to be able to at least approximate the extent to which we are meeting that goal in order to reassess and reevaluate policies. For real freedom, this process of approximation seems impossible. Second, republican freedom deserves moral priority over real freedom even under the most base egalitarian framework. Philip Petit defines republican freedom as nondomination, or the absence of unreasoned control.[12] Under a republican conception of freedom, the protection of individuals’ negative liberty (e.g., the freedom from exploitation and violation) is prioritized over the protection of individuals’ positive liberty—like the freedom to choose to spend one’s day surfing. Elizabeth Anderson critiques Van Parijs for not considering the fact that certain freedoms might deserve to be considered more worthy of defense than others. In explaining what freedoms are worth defending, Anderson says: What we owe [to each other] are not the means to generic freedom but the social conditions of the particular, concrete freedoms that are instrumental to life in relations of equality with others. We owe each other the rights, institutions, social norms [and] public goods … to exercise the capabilities necessary for functioning as equals in a democratic state.[13] In stating this, Anderson asserts that in the context of UBI, republican freedom is more morally defensible than real freedom. To an extent this seems to be true. An argument for real freedom could easily be co-opted by the wealthy asserting that any form of taxation is an affront to their real freedom, which may consist of purchasing multimillion-dollar yachts. Cases such as this would seem to erode the foundation for a social contract grounded in some idea of reciprocity, as any level of tax or contribution necessary to fund the freedom of the disadvantaged could be seen as an undeserved attack on the real freedom of the advantaged. It would seem more morally desirable to an egalitarian policymaker to first protect individuals from base levels of oppression—such as a woman who can leave an abusive relationship or an immigrant who can leave an exploitative job due to UBI—before protecting an unmeasurable freedom to do that which one might want to do. In Stuart White’s ideal world, in which all citizens already possess egalitarian social rights and in which institutions have the capacity to correct for inequalities of ability, there seems to be a reason for thoughtful debate on the relative moral priority deserved by real freedom and republican freedom. Increasing equality in individuals’ sense of real freedom constitutes a necessary later step in treating all citizens as moral equals. However, in the nonideal society of the United States, republican freedom is both the freedom most deserving of moral prioritization for anyone concerned with egalitarian values and the freedom that is most compatible with reciprocity. As demonstrated by the yacht example, real freedom will often create conflict with even the broadest definition of reciprocity. However, republican freedom will rarely create this same conflict. In fact, one might even argue that protecting people from base levels of oppression and domination empowers people to better reciprocate, rather than removing the impetus to do so. Once society moves closer to White’s ideal society, it will be appropriate to reconsider the prioritization of real freedom. Until then, there is a hierarchical order of priority in which, to meet Stuart White’s “threshold of basic fairness,” republican freedom ought to be prioritized over real freedom. An Egalitarian Re-Conception of Reciprocity Although prioritizing republican freedom over real freedom has brought us closer to reconciling freedom and reciprocity, there remains the issue of what precisely we ought to mean by reciprocity. Reciprocity, most generally, is the idea that those who enjoy a share of the benefits of social cooperation owe a corresponding contribution to that society in return, as long as they are able.[14] If we take the existing structures of welfare benefits in the US as a model of what it means to reciprocate in our society, then reciprocation largely means to have paid work, to have recently had paid work, or to actively be in search of paid work. Paid work, as valued by the current structure of policies, is elevated as the most—if not the only—legitimate form of reciprocity. This constitutes an unacceptably exclusive form of reciprocity for a theory of justice concerned with treating all individuals as moral equals. Large parts of society are excluded from a narrow definition of reciprocity that focuses on the economic contributions made through paid labor in the form of taxes. The most excluded cohort is the severely disabled, who are mostly unable to obtain paying jobs to economically contribute to society. According to Eva Kittay, to assume (as does John Rawls) that individuals are “normal” and cooperating members of society and that justice for disabled individuals can be determined at a later point is to fail to meet a standard of justice in which principles apply equally to citizens capable of fully cooperating and those unable to cooperate.[15] That standard of justice is one which treats all citizens as moral equals. A second cohort that is excluded by a narrowly-focused definition of economic reciprocity is those who perform unpaid labor in the home, primarily women. This exclusion has been noted by feminist proponents of basic income who lament the androcentric basis of the current social safety net.[16] The US welfare system is almost entirely built on such androcentric norms; a number of benefits are conditioned on whether the recipient engages in paid work outside the home, including the Earned Income Tax Credit, Unemployment Insurance, the Child Tax Credit, and to an extent, Social Security. Single mothers are particularly penalized by the system’s current structure. These women are often forced to choose between taking care of their child and not having enough to live off, or working enough to pay for child care, not seeing their child enough, and still barely having enough to live off. Unsurprisingly, the poverty rate for single-mother families in 2016 was 35.6%, or five times the rate for married-couple families.[17] A narrow definition of reciprocity that excludes the disabled, women performing unpaid labor, and others such as children and the elderly, is unacceptable under an egalitarian framework in which humans are to be treated as moral equals. To solely focus on reciprocity as an economic activity is to neglect the fact that such economic participation would be impossible without the unpaid and socially necessary caregiving work within homes. In fact, one could argue that such a narrow-minded definition of reciprocity performs the precise injustice that reciprocity seeks to avoid: exploitation, in which those performing unpaid and socially unrecognized contributions to society are exploited by those who are performing paid contributions enabled by unpaid, unrecognized care givers. Lastly, the number of people excluded from a narrow definition of reciprocity as purely economic will only grow to be more unsustainable in a future scenario in which available employment decreases and more are employed involuntarily or part time. Basic income, by definition, does not depend on a form of reciprocity that only recognizes monetary contributions. Instead, basic income recognizes a more inclusive form of reciprocity in which recipients can reciprocate in a number of ways: child care, volunteering, civic participation, accepting lower paying jobs, and more. In this way, basic income not only acknowledges that there are multiple ways to contribute to society, but also is forward-looking in recognition of the fact that access to dependable, well-paying wage employment may decrease in future scenarios of technological unemployment. Participation Income vs. Universal Basic Income: A Matter of Trust We have now clarified the moral priority of republican freedom over real freedom under the framework of a pragmatic, egalitarian policymaker, as well as the need for a more inclusive definition of reciprocity. A policy that prioritizes republican freedom over real freedom would presumably first focus on offering a basic level of income (i.e., an amount sufficient to offer citizens the ability to “say no” to oppressive environments and situations, but perhaps not enough to do all that which they might want to). A policy that rejects the current exclusive definition of reciprocity would either explicitly expand reciprocity beyond financial contributions to include specific forms of participation or be entirely value neutral in allowing for a variety of interpretations of reciprocity. At first glance, Anthony Atkinson’s participation income appears to be the version of UBI which most directly addresses the tension between freedom and reciprocity inherent in basic income. Participation income is basic, like in UBI, but is conditional on “participation,” which includes a broad range of activities ranging from employment or self-employment to education, training, care-taking, or volunteer work. The condition necessitates “neither payment nor work,” and thus greatly expands what is meant by social contribution, despite not quite being value neutral.[18] Conceptually, participation income succeeds at addressing the serious concern regarding basic income’s threat to reciprocity by making reciprocity a condition of UBI. Furthermore, Atkinson’s broad definition of participation mitigates most concerns about the groups that are arbitrarily excluded from current interpretations of reciprocity. Of course, practically enforcing the conditions of participation income would be a public administration nightmare. It would be impossible for a government to measure whether or not a citizen made their “quota” of contribution hours for a month without enacting an immense surveillance state that would deprive from citizens the very freedom that basic income is supposed to expand. Nevertheless, participation income succeeds in providing a useful framing mechanism by which UBI proponents can assuage public concerns regarding the effect of basic income on traditional reciprocity. However, there is also a normative trade-off for this improved political framing. By making income conditional on immeasurable outcomes, rather than trusting citizens’ own sense of justice to constructively contribute to society, participation income fails to endow citizens with trust. This notion is both unreasonable and undesirable. It is unreasonable to think that citizens will wholly stop constructively contributing to society if the cash amount is in fact “basic”; one would only be able to live an extremely simple life off of $12,000 per year (it should be noted that the federal poverty level income for a family of four is $24,600, or about $12,300 per adult). It is undesirable because participation income continues to rely on the norm of distrust that is a foundation for today’s conditional welfare system. If UBI is to constitute the beginnings of a new, more just social contract, that contract cannot be created without the development of trust. In his essay “How can we trust our fellow citizens?” Claus Offe defines trust as “the belief that others, through their action or inaction, will contribute to my/our well-being and refrain from inflicting damage upon me/us.”[19] Offe notes that trust is often self-stabilizing; in other words, being trusted creates within us moral obligations that make us act in a trustworthy fashion in return. There is already some degree of empirical evidence that unconditional income creates self-stabilizing trust. For example, in a World Bank report reviewing 19 global experiments in unconditional cash income, only one study showed a statistically significant increase in the purchase of temptation goods such as alcohol and tobacco. Many studies actually showed statistically significant decreases in consumption of alcohol and tobacco. This result seems to further suggest that when people are trusted, they often act according to the moral obligations that receiving that trust creates.[20] Furthermore, in the Canadian Mincome experiment, participants stated they felt greater trust in their government and in themselves, with one respondent saying that “[basic income] trusts the Canadian people and leaves a man or woman, their pride.”[21] Alaska’s Permanent Dividend program offers insights similar to those of the Canadian Mincome experiment. Due to abundant oil production and revenue, the Alaskan government has, since the 1980s, paid out an annual dividend of around $1,000 to all eligible Alaskan residents. The majority of residents in Alaska now say that that they would prefer higher taxes as opposed to ending the Alaska Permanent Dividend,[22] indicating a new trust in government and fellow citizens. Economic research has recently showed that the Alaska Permanent Dividend has had no effect on full-time employment, and has actually increased part-time work by 17%.[23] The experiments in Canada and Alaska not only show that basic income has the potential to increase trust in others and the government, but also that there is little evidence of unconditional basic income negatively affecting economic reciprocity. As early experiments in basic income are beginning to show, the statement of trust made by unconditional income may reinforce the very reciprocity that many are concerned the unconditionality in basic income will destruct. Thus, while participation income provides useful political framing that connects basic income to reciprocity and boldly expands our definition of reciprocity, it fails to constitute either a practicable policy solution or an ideal toward which we ought to strive as a society. If we truly desire to create a fairer, more inclusive social contract, it must begin with trusting our fellow citizens. UBI is precisely the policy with which to create that new standard of trust. As experiments demonstrate, that trust will likely pay off. Conclusion I have shown that, for a theory of justice striving to treat individuals as moral equals, a republican conception of freedom is more appropriate than a conception of real freedom. I have also shown that current definitions of reciprocity are inadequate in treating all individuals as moral equals. I have compared the capacity of unconditional basic income and participation income to respond to this tension, and have asserted that only unconditional basic income succeeds in rectifying an exclusionary social contract by endowing all participants with trust. As the social contract currently exists, UBI may not be the most efficient way to reduce inequality. However, only UBI provides the groundwork for a new social contract in which not only freedom and reciprocity are reconcilable, but citizens are also trusted to meaningfully contribute to society. If current experiments in basic income continue and do not significantly diverge from the findings of ones previously conducted in Africa, Alaska, and Canada, this normative conclusion will continue to be furnished with empirical evidence about the self-stabilizing nature of trust endowed by UBI. Endnotes [1] A play on Philippe Van Parijs’s book title, What’s Wrong with a Free Lunch? [2] David Calnitsky, “‘More Normal than Welfare’: The Mincome Experiment, Stigma, and Community Experience,” Canadian Sociological Association 53, no. 1 (February 2016): 54. [3] Stefan Liebig and Steffan Mau, “A Legitimate Guaranteed Minimum Income?” in Promoting Income Security as a Right: Europe and North America, ed. Guy Standing, 210-224. (London: Anthem, 2004), 210. [4] Catriona Mackenzie, The International Encyclopedia of Ethics, s.v. “Reciprocity,” Oxford: John Wiley & Sons, 2013. [5] Stuart White, The Civic Minimum: On the Rights and Obligations of Economic Citizenship, (Oxford: Oxford University Press, 2003), 17. [6] White, The Civic Minimum, 17. [7] Philippe Van Parijs, “Why Surfers Should Be Fed: The Liberal Case for an Unconditional Basic Income,”Philosophy and Public Affairs 20, no. 2 (1991): 103. [8] Van Parijs, “Why Surfers Should Be Fed,” 105. [9] White, The Civic Minimum, 156. [10] Van Parijs, “Why Surfers Should Be Fed,” 104. [11] Brian Barry, “UBI and the Work Ethic,” The Boston Review, October, 2000, http://bostonreview.net/archives/BR25.5/barry.html. [12] Philip Petit, “A Republican Right to Basic Income?” Basic Income Studies 2, no. 2 (2007): 4. [13] Elizabeth Anderson,“Forum Response: A Basic Income for All,” The Boston Review, October, 2000, http://bostonreview.net/forum/basic-income-all/elizabeth-anderson-optional-freedoms. [14] Mackenzie, The International Encyclopedia of Ethics, 1. [15] Mackenzie, The International Encyclopedia of Ethics, 7. [16] Almaz Zelleke, “Institutionalizing the Universal Caretaker Through a Basic Income?” Basic Income Studies 3, no. 3 (2008): 2. [17] Kayla Patrick, “National Snapshot: Poverty Among Women & Families, 2016,” National Women’s Law Center: Washington, D.C., 2017. [18] Anthony Atkinson, “The Case for a Participation Income,” The Political Quarterly 67, no. 1 (January 1996): 69. [19] Claus Offe, “How Can We Trust Our Fellow Citizens?” in Democracy and Trust, ed. Mark Warren (Cambridge: Cambridge University Press, 1999), 47. [20] David Evans and Anna Popova, “Cash Transfers and Temptation Goods: A Review of Global Evidence,” World Bank Policy Research Working Paper 6886, The World Bank Africa Region, Office of the Chief Economist, Washington, D.C., 2014: 23. [21] David Calnitsky, “‘More Normal than Welfare’: The Mincome Experiment, Stigma, and Community Experience,” Canadian Sociological Association 53, no. 1 (February 2016): 61. [22] Michael Coren, “Alaska Shows Even People in the Most Conservative States Prefer a Basic Income to Lower Taxes,” Quartz, June 30, 2017. [23] Damon Jones and Ioana Marinescu, “The Labor Market Impacts of Universal and Permanent Cash Transfers: Evidence from the Alaska Permanent Fund,” NBER Working Paper No. 24312, The National Bureau of Economic Research, Cambridge, MA, 2018. References Anderson, Elizabeth. “Forum Response: A Basic Income for All.” The Boston Review, October, 2000, http://bostonreview.net/forum/basic-income-all/elizabeth-anderson-optional-freedoms . Atkinson, Anthony. “The Case for a Participation Income.” The Political Quarterly 67, no. 1 (January 1996): 67-70. Barry, Brian. “UBI and the Work Ethic.” The Boston Review, October, 2000, http://bostonreview.net/archives/BR25.5/barry.html . Calnitsky, David. “’More Normal than Welfare’: The Mincome Experiment, Stigma, and Community Experience.” Canadian Sociological Association 53, no. 1 (February 2016): 26-71. Coren, Michael. “Alaska Shows Even People in the Most Conservative States Prefer a Basic Income to Lower Taxes.” Quartz, June 30, 2017. Evans, David and Anna Popova. “Cash Transfers and Temptation Goods: A Review of Global Evidence.” World Bank Policy Research Working Paper 6886, The World Bank Africa Region, Office of the Chief Economist, Washington, D.C., 2014. Jones, Damon and Ioana Marinescu. “The Labor Market Impacts of Universal and Permanent Cash Transfers: Evidence from the Alaska Permanent Fund.” NBER Working Paper No. 24312, The National Bureau of Economic Research, Cambridge, MA, 2018. Liebig, Stefan and Steffan Mau. “A Legitimate Guaranteed Minimum Income?” In Promoting Income Security as a Right: Europe and North America, edited by Guy Standing, 210-224. London: Anthem, 2004. Mackenzie, Catriona. The International Encyclopedia of Ethics, s.v. “Reciprocity.” Oxford: John Wiley & Sons, 2013. Offe, Claus. “How Can We Trust Our Fellow Citizens?” In Democracy and Trust, edited by Mark Warren, 42-87. Cambridge: Cambridge University Press, 1999. Patrick, Kayla. “National Snapshot: Poverty Among Women & Families, 2016.” National Women’s Law Center: Washington, D.C., 2017. Petit, Philip. “A Republican Right to Basic Income?” Basic Income Studies 2, no. 2 (2007): 1-8. Putnam, Robert. Bowling Alone: The Collapse and Revival of American Community. New York: Simon & Schuster, 2000. Van Parijs, Philippe. “Why Surfers Should Be Fed: The Liberal Case for an Unconditional Basic Income.” Philosophy and Public Affairs 20, no. 2 (1991): 101-131. White, Stuart. The Civic Minimum: On the Rights and Obligations of Economic Citizenship. Oxford: Oxford University Press, 2003. Zelleke, Almaz. “Institutionalizing the Universal Caretaker Through a Basic Income?” Basic Income Studies 3, no. 3 (2008): 1-9.

Can You Rationally Disagree with a Prediction Market? Nick Whitaker Brown University April 2021 This paper brings together two literatures: That of the efficient market hypothesis in economics and the relatively recent literature on disagreement in epistemology. In economics, there has been a substantial discussion of how markets aggregate knowledge through prices. In the philosophy of disagreement literature, there is significant agreement that you should defer to those with more knowledge and better judgments than you. I argue that, given these two conclusions, we are epistemically bound to defer to prediction markets in most situations, though I discuss possible exceptions. On the website PredictIt, one can find betting markets for a number of future political events like “Who will be the 2020 Democratic nominee?”, “Will Maduro be in office at the end of 2019?”, and “Will Trump be impeached in his first term?” Shares can be bought at and sold at floating prices between $.01 and $.99, and pay out a dollar if the bet wins. Share prices can be converted into probabilities, i.e. a $0.25 share represents a P(.25). I pose the question of how a rational person must change their credence when they encounter a prediction market like those on PredictIt. I will argue that under almost all normal circumstances, it is not rational to disagree with a well-functioning market. In fact, one should adopt the credence suggested by the prediction market. As I argue, a well-functioning prediction market is, on a given issue, almost always one’s epistemic superior with regard to that issue because it tends to incorporate all available information and aggregate that information effectively in its suggested credence. Given that you are likely not incorporating all available information nor aggregating that information into your credence, you are in a worse epistemic position about a given issue than its prediction market is. Thus, upon encountering a prediction market, you are rationally bound to adopt the credence suggested by it. I see this conclusion as emerging naturally from the efficient market hypothesis (EMH) literature in financial economics and the burgeoning disagreement literature in epistemology, but I think the combined implications have been underappreciated. For example, together they imply that things which normally guide our credence on a given issue – like pundits’ predictions or our interpretations of poll data – ought to hold little influence, if any, over our credence relative to the credence suggested by a prediction market. In many cases, the suggested credence of a prediction market will be surprising. Often, one is inclined to reject it. After looking at enough prediction markets, on will almost certainly find a suggested credence that he or she is convinced is wildly wrong. Nevertheless, I will argue that we should adopt the credence implied by markets, despite how reluctant we may feel. Finally, as I will argue, if one refuses to adopt the credence implied by a betting market and they are not averse to betting, the most rational course of action would be to bet on that market. The Market as an Epistemic Tool: A Short History Markets are efficient. This is suggested by basic economic theory: Given competitive markets and free entry, if people knew the price of an asset would rise or fall, they would buy or sell the asset until the market price of the asset reflected that information. This obviously cannot be exactly the case in reality; no markets are perfectly competitive, and entry is never completely free. Yet just how efficient markets are has been surprising to many, as this fact has been established by over half a century of economic theory and empirical evidence. There are important outstanding questions about how strong a claim “efficiency” should imply, and whether there are times when markets are not efficient, referred to as market anomalies. But, let us begin by reviewing the history of the theory. Efficient Markets Hypothesis was popularized by University of Chicago economist Eugene Fama. The idea began as an outgrowth of his dissertation, published in The Journal of Business in 1965 as “The Behavior of Stock Prices.” The paper argues that stock prices are essentially a “random walk” in that the “patterns” perceived in the past performance of a stock in no way indicate the stock’s future performance. Thus, for asset price movement to be a random walk, the future price needs to be independent of past prices. As Fama writes: In statistical terms independence means that the probability distribution for the price change during time period t is independent of the sequence of price changes during previous time periods. That is, knowledge of the sequence of price changes leading up to time period t is of no help in assessing the probability distribution for the price change during time period t. (35) Given that future prices are independent from past ones, no amount of study of the past performance of a stock will allow one to predict future performance. To the extent that the future is known, we should expect that information to be already incorporated into the asset price. Thus, the question becomes: Why are future prices independent of past prices? It is this question that led Fama to his work on EMH. Roughly speaking, if markets are efficient, only what is truly unknown is not incorporated into an asset’s price, and thus future movements in that price are random. As investors with information about the future buy and sell a given asset, the price of that asset would come to reflect all available information about the future. In 1970, Fama published his most cited paper, “Efficient Capital Markets: A Review of Theory and Empirical Work” in The Journal of Finance. In the paper, Fama clearly defined the terms on which a market can be considered efficient: “A market in which prices always ‘fully reflect’ available information is called ‘efficient.’” As this cannot be exactly true, Fama proposes it rather as a null hypothesis in the paper. To test efficiency more precisely, Fama delineates three versions of the hypothesis: The weak form, the semi-strong form, and the strong form. The weak form states that markets are efficient if future performance cannot be predicted from past prices. The semi-strong form states that markets are efficient if future performance cannot be predicted based on any publicly available information. The strong form states that the future performance cannot be predicted even with insider information. As the title of the paper suggests, Fama discusses the theoretical and empirical foundations for our beliefs. The theoretical work is interesting, but perhaps not worth exploring here. Essentially, there are different mathematical models which are able to test different versions (weak, semi-strong, strong) of the hypothesis. As Fama explains, early studies mostly focused on the weak version, essentially testing for the independence of new prices from historic prices. As the weak version gradually became established, research turned to the semi-strong version, which can be thought of as the question of how quickly newly public information is incorporated into market prices. Fama finds that tests of the semi-strong EMH lend “considerable support” to the hypothesis (408). The strong hypothesis had not been extensively studied at the time, but limited evidence did show that insiders were able to generate super-normal returns, and thus asset markets are likely not strong-form efficient. As Fama concludes, “For the purposes of most investors the efficient markets model seems a good first (and second) approximation to reality” (416). Since its publication, Fama’s account of EMH has faced decades of empirical scrutiny and has become a major topic of debate in finance. This is especially true as EMH challenges the value proposition of active money managers, who charge their clients fees to supposedly “beat the market.” According to EMH, their ability to do this is essentially as good as anyone else’s. Thus, many have sought to demonstrate market inefficiencies of which savvy investors could take advantage. There is a certain irony to this process, as whenever an inefficiency becomes known it becomes accounted for in the market prices and thus the prices cease to be inefficient. Conversely, in the event that everyone believed markets were efficient and invested passively, markets would become inefficient. A major meta-analysis of EMH literature was conducted in 2002 by Burton G. Malkiel, one of Fama’s coauthors. As Malkiel writes, if market anomalies were abound, we would expect that actively managed funds would be able to capitalize on these anomalies and consistently make supernormal returns. Thus, we can test market efficiency by looking at whether actively managed funds have been able to outperform diversified index funds. When fees charged by actively managed funds are considered, investment firms have actually underperformed relative to the market (Malkiel 2002). This suggest that even to the extent markets are inefficient, we are bad at consistently identifying these inefficiencies. Beyond Finance: Prediction Markets The key insight of EMH is an epistemic one: Markets tend to reflect all publicly available information. Though the theory has been traditionally framed as a theory of asset pricing, research was quickly done as to what information about the future could be gleaned from asset prices. In 1975, Fama published a paper on “Short-Term Interest Rates as Predictors of Inflation” to do just that. Since then, the idea has been taken further, to structure assets for the explicit purpose of efficiently aggregating information about the likelihood of future events. Economist Robin Hanson has been a major proponent of this, proposing that we develop “prediction markets,” sometimes referred to as “idea futures” or “information markets”. Typically, a prediction market is structured as a binary option that pays out either 0% or 100%. Thus, the price of bets can be converted into credence. If the prediction market is quickly incorporating all publicly available information, as EMH would suggest, then we can expect the credences suggested by the prediction market to be maximally informed. Relative Epistemic Positioning Given the epistemic power of prediction markets, we may ask how we should respond when we disagree with the credence suggested by the prediction market. Perhaps the initial question in any disagreement scenario should be: “Are you in a better position to judge B than your interlocutor is?” This question can be answered by considering a number of factors. Bryan Frances, in his book Disagreement, enumerates a number of considerations for epistemic positioning. Some of his main criteria are: • Cognitive ability had while answering the question • Evidence brought to bear in answering the question • Relevant background knowledge • Relevant biases After these factors, we can follow the disagreement literature in categorizing our interlocutor as being an epistemic peer, superior, or inferior on the given issue B. With this in mind, we can ask a central question: Given the efficiency of prediction markets, what is their epistemic positioning relative to us? If prediction markets are approximately semi-strong efficient, then, by definition, they are incorporating all public information into their implied credence. In most circumstances, one’s credence is formed with less information than all publicly available information. Depending on the topic, the difference in information between you and a given prediction market may be small or vast, but regardless, the prediction market is likely your epistemic superior in this regard. Additionally, a prediction market is almost certainly has better judgment than you do. We can think of good judgment as aggregating information in an accurate way. Implicit in any bet is the bettor’s weighting of his or her evidence. Just as a bettor would have an opportunity to profit on unique evidence they possessed, so to could they profit from weighting the evidence in a more accurate way than others. For example, we can imagine a prediction market on a mayoral race for a town. Let us assume that all of the relevant information about the race was comprised of three polls, and everyone betting in the market was aware of this information. Though there is no disparity between the bettors this information, a bettor could gain an edge by having the best sense of which of the polls were more accurate than others. By making these bets, he would push the betting market towards aggregating the poll results in the most accurate way. A better would be incentivized to do this, as they could profit off of a correct opinion until it was fully represented in the market price. Indeed, we could think of good judgement (or accurately aggregating information) as another type of information, higher-order information. So, we should expect a prediction market to not only to be incorporating more information, but also to be incorporating more higher order information leading to prediction markets aggregating that information more accurately. Thus, we can classify prediction markets as epistemic superiors on their relevant proposition under normal circumstances. Disagreeing with Epistemic Superiors In his paper “Reflection and Disagreement,” Adam Elga discusses how we should be guided by our epistemic superiors. He gives the example of the weather person, to whom we defer completely. If the weather person says there is a 60% chance of rain today, my credence that there will be rain today becomes 60%. Elga calls this treating the weather person as an “expert.” When someone is an expert with regard to weather, “Conditional on her having probability x in any weather-proposition, my probability in that proposition is also x” (2). As Elga writes, this means deferring to the expert on two accounts: Information and judgement. By deferring to the weather person with respect to information, we admit that she has more information (regarding weather) than we have. By deferring to the weather person with respect to judgement, we admit that she has a better manner of forming opinions (regarding weather) than us. Presumably, some people or things should be treated as experts and some people or things should not be. If a person or thing does deserve to be treated as an expert on a given domain, we should defer to their credence. If a person or thing does not deserve expert treatment, perhaps they or it should play some other role in our credence formulation. As Elga points out, there are two obvious ways the forecaster could cease to be an expert, either by failing to have more information or in failing to have better judgement. If I knew that the weather person’s radar was broken, and thus her information was corrupted, she would cease to be an expert. Similarly, if she were very drunk such that her weather judgment was inhibited, she would also cease to be an expert. Given the previous discussion of EMH and prediction markets, I will assume that they are, in general, incorporating more information and better judgment into their suggested credence than a given individual is. Thus, a prediction market is an expert with regard to its topic, and one should normally defer to it. However, just as there are situations in which a weather person fails to be an expert with regard to weather, we might expect that there are situations in which prediction markets cease to be experts. Let’s discuss a few potential situations. Information Errors For any market to function, it must be sufficiently thick, as opposed to being a thin market, one with few buyers and sellers. If I set up a prediction market on a subject and only allow three of my friends to bet on it, the market would have only as much information as the three of my friends have, and thus could not be considered an expert. For my purposes, I will limit the following discussion to thick, functioning prediction markets, though thin markets would constitute exceptions to my arguments here. One initial first information error is that you might be privy to important insider information that has not been incorporated into prediction market prices. If that were the case, the prediction market would cease being an expert to you on account of it lacking knowledge you have. However, whether there is insider information that has not been incorporated into the price is a question of whether prediction markets are efficient in the semi-strong sense or strong sense. As has been discussed, stock markets have not been found to be efficient in the strong sense. However, in the stock market, buying and selling stocks based on insider information is illegal under insider trading laws. In many prediction markets, which are not regulated by the US Securities and Exchange Commission, this is not the case. So, one might expect more insider information is incorporated. Indeed, there is a substantial question of whether the insider information you possess is not already part of the price. If it is, your disagreement with the suggested credence of the prediction market may not be justified. So, there is a substantial question of whether your “insider information” has not already been incorporated into the suggested credence of the prediction market. However, let’s assume that the information is actually something only you possess. How then, should the prediction market be treated? In this case, Elga argues that we can treat the prediction market as a “guru.” In guru cases, rather than accepting a credence unconditionally as we do with an expert, we can accept their credence conditionally. We can formalize this following Elga. Let H represent a given proposition and P’ represent the prediction market’s probability function. In the expert prediction market case: P (H| Prediction Market has P’) = P’ (H) In the guru prediction market case where “X” is your insider information: P(H|Prediction Market has P’) = P’ (H| X) Thus, Elga advises we conditionalize the guru’s probability on our unique information. So we truly have unique information, we can conditionalize the prediction market’s implied credence on it to form our optimal credence. How exactly this conditionalization should work could be simple or complex. If you were the doctor of a presidential candidate and, after an appointment with the candidate, you came to the conclusion that the candidate had a terminal illness and would die before the election, P’(H | X) would be near zero, as we would obviously expect the prediction market to suggest something similar if the information was known. However, if you were a friend of a presidential candidate, and the candidate told you: “I have just decided that tomorrow I will be announcing new policy X. I have not told anyone besides you.” How could you conditionalize a prediction market’s suggested credence on this information? It is hard to say. Perhaps you could see if any other candidate had announced a similar policy, or look at how the policy was polling, to try to get a sense of whether your candidate friend more or less likely to be elected after he or she announces the policy. Yet, this will always require some degree of guesswork and judgement. At the same time, this problem is common to conditionalizing on other types of evidence. Let us assume that your P(raintomorrow)=.5, and your friend said, “What would your credence be if I told you my Dad guaranteed it would rain tomorrow?” You might have some sense of this depending on what you knew about your friend’s father, but some degree of fuzziness here seems inevitable. Another possibility the market might have anomalies or biases which would allow for a rational disagreement with its suggested credence. The most commonly discussed bias in prediction markets is called “Favorite-Long-Shot Bias.” The bias is an empirical phenomenon; bettors have been known to over-value “long-shot” bets relative to favored ones. For example, the 1/50 horse at the horse race might actually perform closer to 1/100. Both rational expectations and behavioral explanations have been proposed to explain this phenomenon as it violates EMH. The nature of the explanations themselves is not relevant to the current discussion, but the existence of favorite-longshot bias does suggest that if a prediction market is suspected to be manifesting the bias, one should treat the market as a guru and conditionalize the market’s implied credence on the bias: P (Long-Shot | Prediction Market has P’) = P’ (Long-Shot | Long-Shot Bias) We may not be able to conditionalize perfectly, but we could look to the typical effect size of long-shot bias in similar prediction markets, and try to work towards the conditional probability from there. Thus, the bias can at least be mitigated. A final information error might be that a prediction market is being fed bad information by a manipulating bettor, who, knowing that people were using the prediction market inform their view about the future, seeks to manipulate the prediction market. Hanson discusses this potential problem in 2007 paper, “A Manipulator Can Aid Prediction Market Accuracy.” As the title implies, Hanson comes to the surprising conclusion that manipulators not only do not impede the functioning of a prediction market, they make it more accurate. As Hanson suggests, we can think of a potential manipulator as adding “noise” into the market. Because of this noise, the expected return on accurate information increases, thereby attracting more investors. With more investors, more information comes into the market, making it more accurate. However, if you did suspected that other investors were not capitalizing on the manipulator and correcting the market, you could also conditionalize on the suggested credence of the market towards what the suggested credence would look like without a manipulator. Though there are potential information related risks, they seem to be sufficiently uncommon that one should not expect them in normal circumstances. Insider information is possible, though may not actually be truly non-public. Prediction market biases may exist, but can be accounted for. Market manipulation seems counterproductive. Information related errors should be looked for, but they are not able to diminish the established informative power of prediction markets. Judgment Errors The second type of errors, judgment errors, relate to the ways in which information is aggregated. Markets are one way of aggregating information, but there are others, like deliberation. What if you came to your credence as part of a deliberating group, incorporating the knowledge of many into your credence? Let us even assume, for the sake of argument, that your deliberating group had access to all the same information as all of the bettors in a given prediction market. If your credence differs from the credence suggested from the betting market, would it be rational to conciliate? Cass Sunstein takes on this issue in a 2006 paper, “Deliberating Groups Versus Prediction Markets.” Sunstein points out that this is a particularly important case, as many of our decisions and credences come about through deliberation with others. Why should we expect this deliberative process to be desirable, especially relative to prediction markets? Indeed, as Sunstein argues, we should not expect deliberation to work better. We should actually expect it to be a less efficient way to aggregate information. Sunstein focuses primarily on two reasons: Group members failing to disclose what they know out of deference to the public information announced by others and social pressures leading members to not dissent from the group. As Sunstein writes, “Groups often amplify rather than correct individual errors; emphasize shared information at the expense of unshared information; fall victim to cascade effects; and tend to end up in more extreme positions in line with the predeliberation tendencies of their members” (192-3). On the other hand, prediction markets provide potential financial reward for individually held information and contrarian opinions, succeeding exactly where deliberation fails. Indeed, the profit motives makes uncommon knowledge especially profitable, where social, deliberative situations make group approved, desirable information most valuable. Thus, deliberation is, on average, a worse method of aggregation. One still ought to defer to the judgment of the prediction market. What about if you create another information aggregating mechanism to inform your credence on a given issue that you think may outperform a prediction market? There have been two notable recent attempts at this: Nate Silver in his elections forecasting and Philip Tetlock’s Good Judgement Project. In 2008, Nate Silver rose to prominence by using Bayesian statistical techniques to aggregate poll results, leading to highly accurate electoral predictions. Silver’s work provides a case study in whether advanced statistical techniques can aggregate information more effectively a prediction market. In 2009, economist David Rothschild tested Silver’s prediction against those suggested by a leading prediction market at the time, Entrade. He concludes, “I demonstrate that early in the cycle and in not-certain races debiased prediction market-based forecasts provide more accurate probabilities of victory and more information than debiased poll-based forecasts” (895). Rothschild’s technique is interesting. When he debiases Silver’s results, they become more accurate than the raw prediction market results. But, when he accounts for the favorite-longshot bias discussed earlier in the prediction market results, the debiased prediction market becomes most accurate. To put this into Elga’s framework, the prediction market makes for a better guru than Silver. Silver addresses the study directly in his book, The Signal and the Noise. He takes some issues with Rothschild’s methodology, that he debiases the prediction market results, and, more importantly, that the prediction markets move in response to Silver’s poll aggregation. Yet nevertheless, as Silver writes, “Over the long run, however, the aggregate forecast has often beaten even the very best individual forecast.” Silver is skeptical of the current state of prediction markets, thinking that there is not yet enough competition and the markets are still relatively thin, but is open to their potential superiority. Thus, Silver asserts the earlier caveat, that the current set of prediction markets, given the current legal restrictions on them, may suffer from the market thinness discussed. Philip Tetlock’s work on forecasting has also become an interesting potential challenge to prediction markets. In Tetlock’s Good Judgement Project, he sought out people who were outstanding at predicting the future over a number if years. He called this group “superforecasters.” In his book on the subject, Superforcasting, Tetlock describes testing the results of teams of superforecasters against prediction markets. His results: “Teams of ordinary forecasters beat the wisdom of the crowd by about 10%. Prediction markets beat ordinary teams by about 20%. And superteams beat prediction markets by 15% to 30%” (207). The result is fairly surprising, given the power of prediction markets. But, it is perhaps not entirely fair. As Tetlock admits, “I can already hear the protests from my colleagues in finance that the only reason the superteams beat the prediction markets was that our markets lacked liquidity: real money wasn’t at stake and we didn’t have a critical mass of traders. They may be right” (207). Interestingly, the argument is very similar to that of Silver, that the relatively small scale of current prediction markets suggests they are not operating as well as they could be. So, if you are a superforecaster working with a team of other superforecasters, perhaps your group’s combined judgement is sufficiently better than current prediction markets that you need not defer to them. But, this may cease to be true if better prediction markets were developed. So even between the narrow cases of Silver and Tetlock, the practitioners themselves are skeptical of their own ability to beat more robust prediction markets. And, this makes sense. As soon as a strategy develops an edge on prediction markets, they are incentivized to bet on that information until their information is fully incorporated into the betting market’s price. Indeed, a betting market can, as is actually encouraged, to subsume all other deliberation mechanisms into it until it obtains maximal accuracy. Staying Steadfast Against Your Superiors Let us assume you do not adopt the credence suggested by a prediction market because you wish to remain steadfast and think the credence suggested by the prediction market is incorrect. Bryan Frances discusses a similar epistemic situation in his piece, “Philosophical Renegades,” where an amateur astronomer retains her belief that Jupiter has fewer than 10 moons even after the vast majority of professional astronomers have come to believe the planet has over 200 moons. The astronomer has no concrete reason to reject the opinions of the expert astronomer community, but perhaps would say she expects that the others are making a mistake. This is not unlike the situation one is in disagreeing with a prediction market, as the prediction market is likely aggregating all available evidence in an effective manner. To some extent, the rationality of retaining one’s credence in the face of this disagreement depends upon how much one knows about prediction markets. If he or she were unaware of their epistemic virtues, the disagreement may be justified. But, if he or she understood prediction markets, their disagreement may be blatantly irrational. There is another interesting dimension to disagreeing with prediction markets, whether that be because you remained steadfast or because you have conditionalized on the suggested credence of the prediction market. In either of these situations, you should see yourself as having the opportunity to arbitrage. Let us assume, for example, that a prediction market suggests that the chance of Donald Trump being elected is P(.42), as PredictIt suggests at the time of writing. Let us also assume that your credence in Donald Trump being reelected is (.1). Given your credence of (.1), you would be rational to take a bet at 9/1 odds or better that Trump is not reelected. A prediction market at P(.42) would offer odds at 11/8. Indeed, if you really believe your credence is (.1), this should be seen as a profitable strategy over the long run. If you do not have an adversity to betting, then you should bet. Even if you treat the prediction market as a guru and conditionalize against its suggested probability, rationality would still suggest you bet against the market, as it would have positive expected value. Conclusion The disagreement literature discusses the different ways in which we should engage with our epistemic peers, inferiors, and superiors. As I have shown, we should look to prediction markets as our epistemic superiors, and as experts or gurus in Elga’s sense. I see this as being action guiding in a number of ways. First, if we wish to have more accurate credences about future events, we should create larger scale prediction markets. Second, when we have access to sufficiently thick prediction markets, we should defer to their suggested credences. To the extent one disagrees with a prediction market suggested credence, they should bet in the market as they would have a positive expected return. Works Cited Christensen, David Phiroze, and Jennifer Lackey. The Epistemology of Disagreement: New Essays. Oxford University Press, 2016. Elga, Adam. “Reflection and Disagreement.” Nous, vol. 41, no. 3, Sept. 2007, pp. 478–502., doi:10.1111/j.1468-0068.2007.00656.x. Fama, Eugene F. “Short-Term Interest Rates as Predictors of Inflation.” The American Economic Review, vol. 65, no. 3, June 1975, pp. 269–282., doi:10.1787/157052064225. Fama, Eugene F. “The Behavior of Stock-Market Prices.” The Journal of Business, vol. 38, no. 1, 1965, pp. 34–105., doi:10.1086/294743. Fama, Eugene F., and Burton G Malkiel. “Efficient Capital Markets: A Review of Theory and Empirical Work.” The Journal of Finance, vol. 25, no. 2, May 1970, pp. 383–417., doi:10.2307/2325486. Frances, Bryan. Disagreement. Polity, 2014. Hanson, Robin, and Ryan Oprea. “A Manipulator Can Aid Prediction Market Accuracy.” Economica, vol. 76, no. 302, 2009, pp. 304–314., doi:10.1111/j.1468-0335.2008.00734.x. Hanson, Robin. “Decision Markets.” IEEE Intelligent Systems, vol. 14, no. 3, 1999, pp. 16–20. Malkiel, Burton G. “The Efficient Market Hypothesis and Its Critics.” Journal of Economic Perspectives, vol. 17, no. 1, 2003, pp. 59–82., doi:10.1257/089533003321164958. Rothschild, David. “Forecasting Elections.” Public Opinion Quarterly, vol. 73, no. 5, 2009, pp. 895–916., doi:10.1093/poq/nfp082. Silver, Nate. The Signal and the Noise. Penguin, 2013. Sunstein, Cass R. “Deliberating Groups versus Prediction Markets (or Hayek's Challenge to Habermas).” Episteme, vol. 3, no. 3, 2006, pp. 192–213., doi:10.3366/epi.2006.3.3.192. Tetlock, Philip E., and Dan Gardner. Superforecasting: The Art and Science of Prediction. Random House, 2016.

Public Funds, Private Interest The Role of Private Companies in Shaping US Cybersecurity Policy Justin Katz Yale University Author Danai Benopoulou Graham Gonzales Hans Lei Marko Winedt Editors Fall 2018 This paper compares current cybersecurity policy with the Cold War military industrial complex to understand how links between the private cybersecurity industry and government impact federal policy. I. Introduction Collectively driven by increased awareness of cyber threats, fear of snooping by government agencies, and growth in intelligence budgets, the private cybersecurity industry has recently exploded. Global cybersecurity spending is predicted to hit $90 billion in 2018[1] and grow at an annual rate of above 20% to $232 billion by 2022.[2] Along with industry expansion, connections between private cybersecurity firms and the government have multiplied. Government intelligence agencies have enlisted the services of private companies for everything ranging from espionage operations[3] to the development of offensive capacities.[4] However, as government and industry deepen their ties, it becomes increasingly possible for misalignment between public and private interests to drive policy in the wrong direction. Given that US cybersecurity strategy is currently ill-defined and malleable, missteps could have impacts for decades. Nevertheless, collaboration between government and industry is also in its infancy, so the nature of public-private relations has yet to solidify. This means that is still time for the government to change course. This paper will analyze the evolving relationship between government agencies and private sector cybersecurity firms in four parts. The first will explore the forms of government contact with the broader cybersecurity marketplace. The second will consider historical connections between the defense establishment and private companies – the Cold War military-industrial complex and the use of private military contractors (PMCs) since the late-90s – as a template for potential policy risks associated with a modern alliance between defense and industry. The third will examine how that public-private cybersecurity connections are distinct from previous military-industrial linkages and analyze the policy implications of those distinctions. The last section will offer some ways to leverage the advantages of the private sector while minimizing harm. II. Government Contact with the Cybersecurity Industry Government agencies have developed ties with the cybersecurity industry in two main ways. First, agencies have spurred demand for information security technology both directly, through government contracts, and indirectly, by encouraging investment by the private sector. Second, a revolving door between government and the private sector has packed corporate boardrooms and staff ranks alike with former intelligence and defense personnel. With growing national security threats and opportunities in cyberspace, members of the defense and intelligence communities have emphasized the need to both secure US critical infrastructure and develop offensive cyber capacities. In response, Congress has approved growing budgets for cyber defense, allowing millions of dollars to go to contractors.[5] More recently, the Pentagon requested $8.5 billion for “cybersecurity-related activities,” while in the FY 2019 budget President Trump called for $15 billion in total cybersecurity spending, a 4% increase over fiscal year 2018 requests.[6] Growth in government demand for private cybersecurity services has directly fueled the industry’s expansion by causing the government to outsource a sizable share of its spending to private contractors.[7] Indeed, in DC, where most contractors are located, almost 24,000 new cybersecurity job openings were posted in 2015, about double that of the next highest region.[8] Government investment in cybersecurity has also indirectly led to market expansion. First, the shifting composition of federal budgets during the 8-year Obama administration in favor of cyber, encouraged large defense contractors to invest more in information security. Despite the overall shrinking of military spending, investment in cybersecurity significantly grew. In response, big tech-centered defense contractors like Boeing, Raytheon, and even consultancy Booz Allen Hamilton have created cybersecurity branches.[9] Seeking to win contracts with innovative new tools, these larger companies have continued to acquire boutique firms offering custom software with narrow applications.[10] Although the Trump administration won a substantial increase in defense spending as part of a February 2018 budget deal, those increases may be temporary, given that ten-year spending caps imposed by the 2011 Budget Control Act remain in place and could force steep cuts at the end of the decade.[11] Therefore, cybersecurity offers a more stable source of demand for contractors than traditional spending. Second, greater government interest in network defense suggests to private firms that cyber threats are widespread, meaning they should invest in their own cybersecurity capacities. While increasing their own cyber spending, federal agencies have published recommendations on how firms should bolster their defenses. For example, Obama’s 2013 executive order commissioning a framework for critical infrastructure protection stated that the government should “provide guidance” on which commercially-available cybersecurity services companies should buy.[12] The Trump administration has pursued continuity with Obama-era policies,[13] and in its 2017 National Security Strategy urged coordinated responses to major threats in both the private and public sectors.[14] Additionally, the intelligence community has invited private firms to attend classified briefings informing them about emerging cybersecurity threats. According to one NSA official, the meetings aim to “scare the bejeezus out of them.”[15] Frightened CEOs then turn to cybersecurity companies for help. The Chief Security Officer of Mandiant, a private security outfit, alleged that executives often buy the firm’s products after attending classified NSA briefings.[16] Federal policy decisions guide the industry’s scale and composition, so firms within the market have a clear profit interest in the government’s cyber strategy. That is not to say, however, that government officials are distorting the scale of cyber threats for private sector benefit. Scare tactics are often necessary to convince recalcitrant executives to make necessary upgrades. However, the outsized effect of federal policies on this industry risks creating real or perceived conflicts of interest. Many top cybersecurity firms are led by experts who once held high-level posts within law enforcement and intelligence agencies. Endgame, for example, sells zero day vulnerabilities and global maps of network weaknesses almost exclusively to government agencies.[17] Its board includes former NSA chief Kenneth Minihan and is chaired by Christopher Darby, the current CEO of the CIA’s venture capital arm.[18] CrowdStrike, a cyber forensics firm, boasts two former FBI officials as top executives – CEO Shawn Henry, former chief of worldwide cyber investigations, and the company’s general counsel, who served as the deputy head of cyber for the Bureau.[19] Many other senior administrators with experience in intelligence and defense sit on corporate boards or serve as executives at major cybersecurity firms.[20] The revolving door between government and the private sector exists for lower level employees as well. Some ex-hackers found their own companies. For example, Brendan Conlon, a Naval Academy graduate who worked as a hacker for both the NSA and CIA, recently founded Vahna, a firm that publicizes its employees’ time working for government agencies.[21] One former NSA official suggests that the best private security companies are founded by members of the “SIGINT” community, who apply the hacking skills they acquired during their time in government to assess system vulnerabilities and respond to breaches.[22] Large defense firms are especially interested in acquiring startups founded by former intelligence community members to secure contacts within the CIA, NSA, and the Pentagon. Knowing that big companies will scramble to buy their startup, government employees become more likely to move to the private sector. Lastly, even if government employees do not start their own company, they frequently move to the private sector with their training in hacking techniques. Though government agencies have taken pains to recruit technically skilled employees to work in their security and hacking divisions, the government lacks the resources to pay competitive salaries compared to the private sector. As a result, many military and intelligence personnel transition to industry work after receiving government training. The cycle has become so predictable that agencies now only plan to keep new hires for a few years.[23] Thus, almost all sectors of the cybersecurity industry have at least some form of contact with government. Private firms have an interest in shaping government cybersecurity policy for their benefit, and these firms may have a unique ability to do so based on these widespread connections. Of course, the revolving door between government and the private sector is not limited to the cybersecurity industry. However, this dynamic presents unique risks in the cyber sphere, given the differences between public and private interests in the cybersecurity industry and several unique characteristics of public-private relations on cybersecurity issues. The next two sections explore those concerns. III. The Cyber-Industrial Complex – Lessons from the Cold War and Private Military Contractors Relationships between the defense establishment and industries that seek government influence are hardly a new phenomenon. Throughout the Cold War, policymakers faced a military-industrial complex, where government demand for military goods and services propped up a lucrative defense contracting industry. In turn, this industry lobbied Congress and the Pentagon for ever-increasing levels of spending. More recently, during the 2003 invasion of Iraq, the Pentagon hired PMCs for operational support. Common challenges between those two episodes demonstrate how ties between the cybersecurity industry and government could negatively impact policymaking. A. Increasing Costs and Threat Inflation From the beginning of the Cold War, connections between private contractors and government encouraged policymakers to overstate Soviet threats and waste money on unnecessary military buildup. A classic example is Eisenhower’s attempt to downsize the B-70 bomber program during his first term. The bomber program involved contracts with thousands of private firms, with production so dispersed that a majority of congressmen had at least one important supplier in their districts.[24] Immediately after announcing the cuts, Eisenhower met fierce opposition from Congress, which accused him of jeopardizing American national security by letting the Soviets outpace American airpower. Eventually, Eisenhower caved and reinstated the program. Air Force officials later testified that claims of a “bomber gap” were invalid, since US capabilities far exceeded those of the USSR.[25] Private contracting had introduced new benefactors of military spending with considerable leverage over policymakers. To justify higher expenditures that kept contractors’ factories running, lawmakers manufactured exaggerated threats. The use of PMCs has also created the potential for overstating threats. Over 60 firms serviced contracts worth billions of dollars during the Iraq War, carrying out many crucial combat operations.[26] However, much of the stated pretense for the Iraqi invasion was unfounded – the Bush administration’s claims that Hussein helped plan 9/11 and that the Iraqi government was nearing the acquisition of nuclear weapons ultimately proved incorrect.[27] It is beyond the scope of this article to speculate on whether the connections between top officials and private beneficiaries of the war – most notably Dick Cheney and Halliburton – motivated the administration to distort the Iraqi threat for financial gain. However, the perception that those ties influenced the invasion undermined the administration’s credibility and damaged Bush’s Iraq policy.[28] These incidents suggest two related concerns for cybersecurity policy: cybersecurity industry players may encourage government officials to overstate the risk of cyber-attacks for private gain, or the public will perceive that they are doing so. There is already evidence that industry interests have outsized influence in national conversations. Former intelligence personnel with a financial stake in private contractors use their credentials as ex-government officials to support extensive cyber operations. After the Snowden disclosures, some of the most stalwart defenders of NSA snooping had both impressive government credentials and deep financial stakes in the agency’s contractors. Stewart Baker, former NSA general counsel who testified before Congress claiming that cutting back PATRIOT Act surveillance programs would help terrorists, now lobbies for NSA contractors including SAIC and the Computer Sciences Corporation.[29] Jack Keane, a former four-star general who defended the NSA’s programs on cable news, is also a board member of the NSA contractor General Dynamics. Retired General Wesley Clark emphasized the need for the PRISM program while simultaneously taking payments from a private equity firm with substantial financial stake in NSA contractors.[30] Of course, there is nothing wrong with former top brass opining about what they consider important defense issues. However, given that officials enjoy a privileged place in national security conversations, conflicts of interest potentially open up avenues for abuse and may cause speculation about corruption. Relationships between local governments and private firms may prevent elected officials from checking threat inflation. From Maryland to Texas, local and state governments have designed tax incentives and run advertising campaigns seeking to create a “cyber Silicon Valley.” Some have even used tax dollars for direct investment in startups.[31] If tech firms set up shop in regions desperate to keep the jobs they provide, then the congressional representatives from those areas will likely lobby extensively for greater government funds devoted to cybersecurity. Representatives of cybersecurity districts may warn of a B-70 bomber-style “cyber gap” as an excuse to spend more on firms with local power. The notion that the cybersecurity industry can influence public threat perception through multiple channels is worrying. Given current trends and cybersecurity’s rapid growth, there is a risk of creating even more problematic relationships in a poorly-understood industry. Besides leading to wasteful and unnecessary spending, an overemphasis on threats could prevent policymakers from properly assessing tradeoffs between security and other interests such as Internet freedom and governance. Even if private actors do not put pressure on policymakers to distort threats for personal gain, the appearance of close ties between industry and government can create perceived conflicts of interest. This might in turn lower trust in government and limit officials’ ability to craft constructive policy. However, despite similarities, the risks of malignant cyber threat inflation and massive government waste are lower than during the Cold War or the invasion of Iraq. First, apparent overstatement of cyber threats is at least partially due to the fact that many do not take threats seriously enough. Therefore, apparent threat inflation may be more indicative of attempts to increase stakeholder attention on an important issue than private sector manipulation of government policy. Second, powerful private interests have an incentive to counter the cybersecurity industry’s threat narrative. Large tech companies recognize that overstating the cyber threats may encourage Congress to mandate that companies meet certain cybersecurity baselines. Since those firms want to avoid burdensome regulation,[32] they have an incentive to lobby lawmakers and make cyber threats seem less severe. B. Inefficiency Even if public-private ties do not drive unnecessary spending, they can drive up costs and make it more difficult for governments to provide necessary services. Theoretically, private contracting lowers government costs by leveraging the competitive forces of the market. Federal agencies can allow firms to bid against each other and award the contract to the company that makes the best offer. However, when firms have government ties, it becomes easier to spend money by lobbying to win more lucrative contracts rather than offering the best one. During the Cold War, private contracts were the products of political negotiation, not competitive bidding, so the firms with the best lobbyists secured the most lucrative contracts. The Pentagon sometimes passed over firms offering the lowest price to grant awards to the firm whose “turn was next.”[33] That process both increased costs by granting contractors monopoly power and privileged firms that already had connections in the system.[34] The use of PMCs increased costs in other ways. By offering salaries that exceeded military pay, contractors lured talented soldiers into the private sector. Then, the contractors sold their services to the government at a higher per-soldier cost to cover their overhead.[35] It is possible that links between the cybersecurity industry and government could create similar inefficiencies. First, former government workers now working as contractors can leverage connections to negotiate deals, even if they do not offer the best package. Second, as traditional defense contractors pivot towards the cybersecurity market, they may use their status as trusted collaborators to win awards over more competitive firms. The fact that many of the biggest cybersecurity contractors are companies with longstanding connections to the intelligence community could raise suspicions that the most entrenched firms, and not necessarily the best, receive government funds. Also, cybersecurity contracts may require that companies have security clearance, limiting the pool of competitors to insiders.[36] Third, cybersecurity firms poach the best technical personnel from government. If federal agencies contract government-trained hackers at a higher cost, then the government ends up paying more for an identical service. Already, some agencies, unable to keep sufficiently skilled technicians away from the private sector, plan on contracting with cybersecurity firms who hire government-trained personnel.[37] Although the government should leverage its own monopoly power to bring down prices and maximize efficiency, current trends suggest that the influence of private firms will serve to increase their margins and waste federal funds. C. Differing Roles and Constraints Even when the government and the private sector carry out similar functions, they occupy different roles and face different constraints. Those distinctions become clear when examining the PMC industry. Private contractors are just that: private. This means they can perform tasks that governments are either legally or politically constrained from doing. Relying on PMCs to carry out combat operations reduces the danger faced by US service members, thereby lowering the political barriers to conflict. Additionally, PMCs are not subject to congressional constraints – for example, the Bush administration used PMCs to circumvent limitations on US military involvement in the Colombian civil war.[38] While the US has used PMCs to expand its operational flexibility, contractors are in no way beholden to American interests. PMCs have worked with dictatorships, drug smugglers, and al-Qaeda-linked terrorist organizations.[39] By increasing demand for PMCs, US operations in Iraq encouraged investment in startups and the expansion of existing firms. As operations in Iraq wind down, those firms need new customers – and there is no guarantee that Washington will like them. US demand for privately-produced cyber weapons and security products raises similar concerns. First, private tools can provide ways for governments to evade legal prohibitions on certain cyber techniques. For example, while CrowdStrike CEO Shawn Henry worked at the FBI, he developed technology to remotely monitor a target’s computer undetected. However, the FBI needed a court order to use the technology. At CrowdStrike, he uses a similar tool, but, as a private entity, he can deploy it without going to court.[40] In an attempt to indict WikiLeaks’ founder Julian Assange, the Justice Department organized a group of small cybersecurity firms, mostly tied to the public-sector security community, to dig up dirt. The group planned to launch an intimidation campaign against WikiLeaks’ followers and discredit the organization by tricking it into publishing fake documents.[41] If performed directly by part of the federal intelligence community, such tactics would spark outrage. While that operation failed, it suggests that, by unloading dirty work onto private companies, the government could skirt political and legal barriers. That may seem like an attractive option in the short run, but in the long run it risks eroding public trust and landing intelligence agencies in even greater legal trouble once laws catch up with technological innovation. Second, the US government has no guarantee that cyber weapons firms will not peddle their wares to countries that threaten American interests. For example, the Mubarak regime and the Bahraini government cracked down on political dissidents allegedly using software purchased from Gamma, a UK firm.[42] US-based Blue Coat has sold Deep Packet Inspection, a technology used to censor journalists and track down dissidents, to Syria, Myanmar, Egypt, Qatar, China, and Venezuela, all countries with spotty human rights records.[43] At first blush, given that the US government does not deal with these companies, it seems that US connections to the cybersecurity industry have no bearing on the development of a worldwide network of cyber mercenaries. While demand from authoritarian regimes for surveillance products would exist regardless, US reliance on private firms to build cyber weapons compounds the problem in two ways. First, demand from the US government increases the size of the market. This is an issue in the market for zero-day exploits, cyber-attacks that exploit previously-unknown technical vulnerabilities. When the US pays millions in government contracts for zero-day exploits, it encourages more companies to enter the business, some of which will inevitably sell to whoever wants to buy.[44] Second, by buying exploits from private companies, the US legitimizes an international cyber arms market. That makes adversaries more likely to brazenly seek out private firms to meet their intelligence needs. An unregulated international trade in cyber vulnerabilities leads to the proliferation of offensive capabilities, multiplying the threats that the US will face in the future. IV. Unique Characteristics While many challenges look similar to those arising from past public-private relationships, several unique characteristics of the cybersecurity industry create new dynamics. First, government dealings with the cybersecurity industry are subject to higher levels of secrecy than most other public-private relationships. The intelligence community hides its contracts behind a shroud of hyper secrecy. One of the documents in the Snowden dump emphasizes the importance of preventing any association between the NSA and one of its contractors, the Computer Sciences Corporation.[45] Similarly, in 2010, Endgame’s modus operandi relied on avoiding any mention in media at all, let alone in relation to the NSA.[46] In this context, intelligence contractors often have better knowledge of the government’s projects than lawmakers, meaning they can use their inside scoop to lobby Congress and win even more contracts.[47] As a result, it is difficult to conduct an appropriate cost-benefit analysis of the tradeoffs associated with existing ties. Second, the cybersecurity industry has other customers besides the government. While PMCs and defense contractors can only sell their services to government agencies, most cybersecurity firms can market and develop products for the private sector as well. Therefore, the size, scope, and composition of the cybersecurity industry is largely determined by factors outside the government’s control. On the one hand, that means the government may have trouble reversing any negative effects of the industry on policy. If a strong cybersecurity industry causes poor government policy, rather than the other way around, then improvements in protocol surrounding agencies’ relationships with industry will not have much of an effect. On the other hand, if firms are participants in a broader private cybersecurity industry, then they will have to adjust their behavior to market realities. For example, if firms encourage government to adopt policies that lead to artificial demand for cybersecurity products, then they risk creating a bubble[48] that would hurt them financially if it bursts. Therefore, firms either avoid extensive lobbying for unnecessarily favorable policies, reducing their distortionary effect, or they engage in such lobbying and weaken their influence in government in the long run once the bubble bursts. Additionally, companies may have less of an incentive to engage in the sorts of problematic rent-seeking behavior explored earlier. If they cannot win government contracts, instead of spending millions on lobbying campaigns, firms might just look for customers in the private sector.[49] Finally, contracting may stymie vital information sharing. During the Cold War and the Iraq invasion, the Department of Defense could hire a single contractor (or group of contractors) to complete a single product or mission. The intelligence and defense establishment have largely replicated this model – single firms produce discrete software tools that the agencies subsequently integrate into their operational doctrine. However, in doing so, agencies lose the ability to work collaboratively and share information to solve important security problems.[50] In fact, with most contractors in direct competition with one another, firms are likely to guard their methods as proprietary secrets. In the current system, the only way contractors can integrate their teams to work on a single project is if one firm buys out another. But that, in turn, reduces competition in the industry as a whole, which can also stifle innovation. While certain characteristics of the cybersecurity industry allow it to self-correct for some of the negative policy effects of public-private ties, the government must take additional steps to be able to eliminate them all. V. Ways to Mitigate the Threat The government benefits from contact with the private cybersecurity sector – contractors allow the intelligence community to tap into the industry’s innovative power and give agencies the flexibility to temporarily increase the size of its workforce for time-sensitive projects. Therefore, policymakers should make changes that retain those benefits while minimizing the costs. First, government agencies should rely less on contractors and more on public-private partnerships to develop new technologies. For example, after Google told the NSA that hackers in China breached their networks, the NSA drafted a “cooperative research and development agreement” where the government and a firm collaborate to develop a new product. The government fronts the R&D costs, while the company participates in the development phase and has the right to patent and build the product designed. In addition, the government can “use any information gained from the collaboration.”[51] This sort of agreement allows the government to access the productive capacities of the private sector, but reduces superfluous spending. While under a traditional contract, a firm gets paid so long as it produces a desired product, under a public-private partnership such as the one formed between the NSA and Google, the firm only profits if they produce a useful tool that someone is willing to buy. Therefore, under this less traditional agreement, firms have no incentive to engage in completely spurious projects without any commercial value. Additionally, all tax dollars go directly towards research and development, eliminating the increased costs resulting from the markup rate that firms would charge the government under a traditional contract. Lastly, a less reliable stream of payments reduces the incentives for big contractors to acquire smaller ones and develop monopoly power in the industry, increasing the number of competitors in the industry and encouraging innovation. Second, the government should try to bolster its in-house cybersecurity capacity. If it can provide more of the services it needs on its own, then it can limit the prevalence and influence of cybersecurity contractors on policy. To do so, all agencies should include a non-compete clause in their employment contracts that prevents former employees from being hired back in a contracting role for a certain period of time.[52] Moreover, agencies should consider adding incentives to stay in government. Additional compensation would be a start, but government needs to find an incentive that is unique from the private sector, such as the intangible benefits of public service or additional prestige. Third, when the US does need to use contractors, it should improve its protocol for awarding contracts. Agencies should implement mechanisms to fast track approval of security clearances to allow more firms to compete in the bidding process, allowing the government to drive down the cost of securing contracts. Fourth, the government should negotiate multilateral agreements to prevent the export of cyber weapons systems to countries on the arms export blacklist for NATO, the US, and the EU. The EU and the US have already banned the export of surveillance technology to Iran and Syria, but efforts should go further. However, such an initiative faces two challenges. First, “cyber weapons” are difficult to define, given the overlap between offense and defense in the cyber sphere. Second, it seems almost impossible to control the cross-border flow of software over the Internet. Despite these challenges, a ban would at least discourage large firms in Western countries from selling to rogue regimes. Since those companies likely offer the best products, a ban would succeed in limiting the proliferation of advanced cyber technologies to adversarial actors. Finally, public and private actors alike should make efforts to increase transparency. Expanding in-house capacity and reducing reliance on contracts should make intelligence and defense agencies more accountable to the public. However, the best way to hold agencies accountable is to subject them to greater scrutiny. When former government officials make statements, media outlets and lawmakers should investigate and report their financial conflicts of interest. Then, policymakers can evaluate whether the speaker’s testimony is biased, enabling nuanced debate on US cyber threats. When intelligence agencies or the Pentagon request more money for cybersecurity, they should disclose, at least to Congress, specific details about how that money will be spent. That disclosure should make it easier to identify unnecessary spending, parse out corporate interests, and prevent agency officials from awarding contracts based on connections instead of merit, making bidding processes more competitive. Of course, some aspects of intelligence ought to be kept secret. But it is impossible to make informed policy judgments without some understanding of where money goes. Endnotes [2] "Cybersecurity Market by Solution (IAM, Encryption, DLP, UTM, Antivirus/Anti-Malware, Firewall, IDS/IPS, Disaster Recovery, DDOS Mitigation, SIEM), Service, Security Type, Deployment Mode, Organization Size, Vertical, and Region - Global Forecast to 2022." Markets and Markets Research. July 2017. Accessed April 18, 2018. https://www.marketsandmarkets.com/Market-Reports/cyber-security-market-505.html. CAGR from author’s calculations. [3] Talbot, Daniel. "The Cyber Security Industrial Complex." MIT Technology Review. December 06, 2011. Accessed May 09, 2016. https://www.technologyreview.com/s/426285/the-cyber-security-industrial-complex/. [4] Robertson, Jordan, and Michael Riley. "US Contractors Scale Up Search for Heartbleed-Like Flaws." Bloomberg. May 2, 2014. Accessed May 08, 2016. http://www.bloomberg.com/news/articles/2014-05-02/us-contractors-scale-up-search-for-heartbleed-like-flaws. [5] Bamford, James. "NSA Snooping Was Only the Beginning. Meet the Spy Chief Leading Us Into Cyberwar." Wired Magazine. June 13, 13. Accessed May 09, 2016. https://www.wired.com/2013/06/general-keith-alexander-cyberwar/. [6] United States. White House. Office of Management and Budget. Analytical Perspectives, Section 21: Cybersecurity Funding. Washington, DC: US Government Publishing Office, 2018. 273-87. [7] Fox-Brewster, Thomas. "Embracing The Awful Irony At A Huge Counter-Terrorism Fair In Paris Days After ISIS Attacks." Forbes. November 22, 2015. Accessed May 09, 2016. http://www.forbes.com/sites/thomasbrewster/2015/11/22/paris-hosts-milipol-homeland-defense-expo-after-isis-attacks/#7fc15fc97da6. [8] Sorcher, Sara. "The Race to Build the Silicon Valley of Cybersecurity." The Christian Science Monitor. December 2015. Accessed May 09, 2016. http://passcode.csmonitor.com/goldrush. [9] Bamford, “NSA Snooping.” [10] Byrt, Frank. "U.S. Defense Contractors Are Scrambling To Fill Massive Cyber Security Contracts." Business Insider. November 19, 2010. Accessed May 09, 2016. http://www.businessinsider.com/obama-is-spending-a-ton-on-defense-spending-in-cyber-security-2010-11. [11] O'Brien, Connor. "Military Hawks Win Big in Budget Deal — for Now." Politico, February 9, 2018. Accessed April 18, 2018. https://www.politico.com/story/2018/02/09/budget-deal-military-hawks-333128. [12] Exec. Order No. 13636, 3 C.F.R. (2013). [13] Fazzini, Kate. "Under Trump, Some Subtle Cybersecurity Changes." The Wall Street Journal, December 13, 2017. Accessed April 18, 2018. https://blogs.wsj.com/cio/2017/12/13/under-trump-some-subtle-cybersecurity-changes/. [14] United States. The White House. National Security Strategy of the United States of America. 2017. [15] Harris, Shane. War the Rise of the Military-Internet Complex. Boston, Mass.: Houghton Mifflin Harcourt, 2014. 180. [16] Ibid, 180. [17] Harris, @War, 104. [18] Greenberg, Andy. "Inside Endgame: A Second Act For The Blackwater Of Hacking." Forbes. February 12, 2014. Accessed May 09, 2016. http://www.forbes.com/sites/andygreenberg/2014/02/12/inside-endgame-a-new-direction-for-the-blackwater-of-hacking/#5da8ea7a52d9. [19] Harris, @War, 109. [20] Benner, Katie. "Cybersecurity's Money Men." The Information. January 21, 2014. Accessed May 9, 2016. https://www.theinformation.com/cybersecuritys-money-men. [21] Harris, @War, 121. [22] Ibid, 120. [23] Ibid, 223. [24] York, Herbert. Race to Oblivion: A Participant's View of the Arms Race. Simon and Schuster, 1971. Accessed May 11, 2016, 53. http://www.learnworld.com/ZNW/LWText.York.Race.Ch03.html. [25] Brito, Jerry, and Tate Watkins. "Loving the Cyber Bomb? The Dangers of Threat Inflation in Cybersecurity Policy." Harvard National Security Journal 3 (2011): 39-84. Accessed May 11, 2016. HeinOnline. 66. [26] Singer, Peter. "Outsourcing War." Foreign Affairs 84, no. 2 (March/April 2005): 119-32. 122. [27] Brito and Watkins, "Loving the Cyber Bomb?,” 43. [28] Martha Minow, Outsourcing Power: How Privatizing Military Efforts Challenges Accountability, Professionalism, and Democracy, 46 B.C.L. Rev. 989 (2005), http://lawdigitalcommons.bc.edu/bclr/ vol46/iss5/2. [29] Fang, Lee. "Many of the NSA's Loudest Defenders Have Financial Ties to NSA Contractors." The Intercept. May 12, 2015. Accessed May 11, 2016. https://theintercept.com/2015/05/12/intelligence-industry-cash-flows-media-echo-chamber-defending-nsa-surveillance/. [30] Ibid. [31] Sorcher, “The Race to Build the Silicon Valley of Cybersecurity.” [32] Etzioni, Amitai. "The Private Sector: A Reluctant Partner in Cybersecurity." Institute for Communitarian Studies, December 19, 2014. https://icps.gwu.edu/private-sector-reluctant-partner-cybersecurity. [33] Markusen, Ann. "Defense Spending: A Successful Industrial Policy?" International Journal of Urban and Regional Research 10, no. 1 (1986): 105-22. Accessed May 11, 2016. http://dx.doi.org/10.1111/j.1468-2427.1986.tb00007.x. [34] Adams, Walter. "The Military-Industrial Complex and the New Industrial State." The American Economic Review 58, no. 2 (May 1968): 652-65. 658. [35] Singer, “Outsourcing War,” 129. [36] Chesterman, Simon. "‘We Can't Spy …If We Can't Buy!’" European Journal of International Law 19, no. 5 (November 2008): 1055-071. [37] Harris, @War, 223. [38] Singer, “Outsourcing War,” 126. [39] Ibid, 125. [40] Seabrook, John. "Network Insecurity." The New Yorker. May 20, 2013. Accessed May 11, 2016. http://www.newyorker.com/magazine/2013/05/20/network-insecurity. [41] Ibid, 115. The collaboration dissolved in 2011 when Anonymous hacked into one of the coordinators’ emails and released correspondences about the group’s plans. [42] Keating, Lucy. "Surveillance: A Thriving British Industry." The Bureau of Investigative Journalism. December 01, 2011. Accessed May 11, 2016. https://www.thebureauinvestigates.com/2011/12/01/surveillance-a-thriving-british-industry/. [43] Reporters without Borders. Enemies of the Internet. Publication. 2013. 7. [44] Bamford, “NSA Snooping Was Only the Beginning. Meet the Spy Chief Leading Us Into Cyberwar.” [45] Shorrock, "How Private Contractors Have Created a Shadow NSA." [46] Greenberg, “Inside Endgame.” [47] Chesterman, "‘We Can't Spy …If We Can't Buy!’" [48] Some commentators think government policies might create a bubble. See Harris, @War, 122; for evidence that the value of cybersecurity firms has declined in the last year, see King, “Under Pressure, Cybersecurity Ripe for M&A This Year.” [49] Naturally, none of those principles strictly hold – look no further than the success of IT lobbyists in recent years to win government money. See Brito and Watkins, "Loving the Cyber Bomb?,” 69. [50] Chesterman, “We Can’t Spy…If We Can’t Buy!” [51] Harris, @War, 175. [52] The CIA already does this: see Chesterman, “We Can’t Spy…If We Can’t Buy!” References Adams, Walter. "The Military-Industrial Complex and the New Industrial State." The American Economic Review 58, no. 2 (May 1968): 652-65. Bamford, James. "NSA Snooping Was Only the Beginning. Meet the Spy Chief Leading Us Into Cyberwar." Wired Magazine. June 13, 13. Accessed May 09, 2016. https://www.wired.com/2013/06/general-keith-alexander-cyberwar/ . Benner, Katie. "Cybersecurity's Money Men." The Information. January 21, 2014. Accessed May 9, 2016. https://www.theinformation.com/cybersecuritys-money-men . Byrt, Frank. "U.S. Defense Contractors Are Scrambling To Fill Massive Cyber Security Contracts." Business Insider. November 19, 2010. Accessed May 09, 2016. http://www.businessinsider.com/obama-is-spending-a-ton-on-defense-spending-in-cyber-security-2010-11 . Chesterman, Simon. "‘We Can't Spy …If We Can't Buy!’: The Privatization of Intelligence and the Limits of Outsourcing ‘Inherently Governmental Functions’." European Journal of International Law 19, no. 5 (November 2008): 1055-071. Chief Financial Officer, Office of the Undersecretary of Defense (Comptroller). Defense Budget Overview: US Department of Defense Fiscal Year 2017 Budget Request. Washington, D.C.: Department of Defense, 2016. "Cybersecurity Market by Solution (IAM, Encryption, DLP, UTM, Antivirus/Anti-Malware, Firewall, IDS/IPS, Disaster Recovery, DDOS Mitigation, SIEM), Service, Security Type, Deployment Mode, Organization Size, Vertical, and Region - Global Forecast to 2022." Markets and Markets Research. July 2017. Accessed April 18, 2018. https://www.marketsandmarkets.com/Market-Reports/cyber-security-market-505.html. Etzioni, Amitai. "The Private Sector: A Reluctant Partner in Cybersecurity." Institute for Communitarian Studies, December 19, 2014. https://icps.gwu.edu/private-sector-reluctant-partner-cybersecurity . Exec. Order No. 13636, 3 C.F.R. (2013). Fang, Lee. "Many of the NSA's Loudest Defenders Have Financial Ties to NSA Contractors." The Intercept. May 12, 2015. Accessed May 11, 2016. https://theintercept.com/2015/05/12/intelligence-industry-cash-flows-media-echo-chamber-defending-nsa-surveillance/ . Fazzini, Kate. "Under Trump, Some Subtle Cybersecurity Changes." The Wall Street Journal, December 13, 2017. Accessed April 18, 2018. https://blogs.wsj.com/cio/2017/12/13/under-trump-some-subtle-cybersecurity-changes/. Fox-Brewster, Thomas. "Embracing The Awful Irony At A Huge Counter-Terrorism Fair In Paris Days After ISIS Attacks." Forbes. November 22, 2015. Accessed May 09, 2016. http://www.forbes.com/sites/thomasbrewster/2015/11/22/paris-hosts-milipol-homeland-defense-expo-after-isis-attacks/#7fc15fc97da6 . Greenberg, Andy. "Inside Endgame: A Second Act For The Blackwater Of Hacking." Forbes. February 12, 2014. Accessed May 09, 2016. http://www.forbes.com/sites/andygreenberg/2014/02/12/inside-endgame-a-new-direction-for-the-blackwater-of-hacking/#5da8ea7a52d9 . Harris, Shane. War the Rise of the Military-Internet Complex. Boston, Mass.: Houghton Mifflin Harcourt, 2014. Keating, Lucy. "Surveillance: A Thriving British Industry." The Bureau of Investigative Journalism. December 01, 2011. Accessed May 11, 2016. https://www.thebureauinvestigates.com/2011/12/01/surveillance-a-thriving-british-industry/ . King, Rachel. "Under Pressure, Cybersecurity Market Is Ripe for M&A in 2016." The Wall Street Journal. February 29, 2016. Accessed May 08, 2016. http://blogs.wsj.com/cio/2016/02/29/under-pressure-cybersecurity-market-is-ripe-for-ma-in-2016/ . Markusen, Ann. "Defense Spending: A Successful Industrial Policy?" International Journal of Urban and Regional Research 10, no. 1 (1986): 105-22. Accessed May 11, 2016. http://dx.doi.org/10.1111/j.1468-2427.1986.tb00007.x . Martha Minow, Outsourcing Power: How Privatizing Military Efforts Challenges Accountability, Professionalism, and Democracy, 46 B.C.L. Rev. 989 (2005), http://lawdigitalcommons.bc.edu/bclr/ vol46/iss5/2. O'Brien, Connor. "Military Hawks Win Big in Budget Deal — for Now." Politico, February 9, 2018. Accessed April 18, 2018. https://www.politico.com/story/2018/02/09/budget-deal-military-hawks-333128. Office of the Press Secretary. "Cybersecurity National Action Plan." The White House. February 09, 2016. Accessed May 09, 2016. https://www.whitehouse.gov/the-press-office/2016/02/09/fact-sheet-cybersecurity-national-action-plan . Panetta, Leon. Speech, The Global Threat of Cyber Attacks, Business Executives for National Security, New York City. Accessed May 11, 2016. http://www.cfr.org/cybersecurity/secretary-panettas-speech-cybersecurity/p29262 . Robertson, Jordan, and Michael Riley. "US Contractors Scale Up Search for Heartbleed-Like Flaws." Bloomberg. May 2, 2014. Accessed May 08, 2016. http://www.bloomberg.com/news/articles/2014-05-02/us-contractors-scale-up-search-for-heartbleed-like-flaws . Reporters without Borders. Enemies of the Internet. Publication. 2013. Seabrook, John. "Network Insecurity." The New Yorker. May 20, 2013. Accessed May 11, 2016. http://www.newyorker.com/magazine/2013/05/20/network-insecurity . Shorrock, Tim. 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Framework for Improving Critical Infrastructure Cybersecurity. 2014. United States. The White House. National Security Strategy of the United States of America. 2017. United States. White House. Office of Management and Budget. Analytical Perspectives, Section 21: Cybersecurity Funding. Washington, DC: US Government Publishing Office, 2018. 273-87. York, Herbert. Race to Oblivion: A Participant's View of the Arms Race. Simon and Schuster, 1971. Accessed May 11, 2016. http://www.learnworld.com/ZNW/LWText.York.Race.Ch03.html .

Financial Literacy, Credit Access and Financial Stress of Micro-Firms Evidence from Chile Lucas Rosso Fones University of Chile Author Christopher (Casey) Lingelbach Emily Belt Orly Mansbach Editors Fall 2019 Download full text PDF (23 pages) Abstract In Chile, as well as in the majority of the economies in the world, there exists a wide range of programs targeted towards the support of micro-entrepreneurs, providing either funding for their projects or business training. Using the 2006 and 2009 Chilean Social Protection Survey (EPS) dataset, data from the Superintendence of Banks and Financial Institutions (SBIF), and using an instrumental variables (IV) approach, this article presents evidence against financial literacy training programs as it finds no significant relationship between financial literacy on credit access or financial stress of micro-firms. Moreover, using a subsample of the data, this article shows that the results must be interpreted as an “upper bound,” thus strengthening these conclusions. I. Introduction In Chile, as in most of the world, micro-firms—firms with 10 or fewer employees—play a substantial role in the performance of the economy by their contribution to production and employment. Therefore, over the last few years, authorities have developed several policies targeted to encourage entrepreneurial activities. These policies include business skills training, asset transfers and credit subsidies. For example, since 2010, a large-scale government program run by the Chilean Ministry of Social Development offers an in-kind transfer of start-up capital plus 60 hours of business training to approximately 2,000 micro-entrepreneurs each year. Due to this governmental interest in micro-firms, there is a wide literature that has studied the effect of micro-firm support on growth, unemployment, poverty, productivity, and other economic variables. Overall, the evidence leans toward a positive and statistically significant effect of credit-access programs on these variables; however, the evidence with respect to business skills is weaker. Conversely, other studies have linked financial literacy with the probability of having access to credit and the level of debt, though these studies are usually at the individual or family level. For instance, Alvarez & Ruiz-Tagle provide evidence that financial literacy is positively related to credit access, but they find no significant evidence for financial stress. Economic models of investment often rely on the assumption that firms decide the amount of capital and labor that maximizes their profit. This assumption is called the rationality of firms. Furthermore, these models evaluate the present value of the expected cash flows in relation to the initial investment. From the work of Modigliani & Miller it follows that, in a world with taxes, levered firms (companies with more debt than equity) have a greater value than non-levered firms, at the expense of a higher bankruptcy probability. However, under the assumption of rationality of firms, these models are unable to take into account the lack of financial skills of those who run the firms, which might affect their decision-making and lead them to choose sub-optimal levels of debt. This issue is especially important in micro-firms due to the often limited human capital of their owners. Thus, it is likely that micro-firms with limited financial skills hold high levels of debt or fail to renegotiate their debts, which can affect the individuals’ utility through larger levels of poverty or unemployment, among other effects. From a policymaker’s standpoint, there are two possibilities to support entrepreneurs: business training or funding support. On the one hand, business training intends to provide skills for better management of the business. For example, such training programs may provide client negotiation skills, marketing skills, working capital management, growth strategies, and more. On the other hand, funding support seeks to fix liquidity constraints which diminish the rise of new business and the prevalence and growth of existing ones. This paper intends to establish a causal relationship between financial literacy and both credit access and financial stress of micro-firms. Evidence in favor of a causal relationship would encourage the design of business training programs as a complement to the existing asset-transfer programs for micro-entrepreneurs. Using data from the 2006 and 2009 Social Protection Survey (EPS) and information from the Superintendence of Banks and Financial Institutions (SBIF) this paper presents evidence against financial literacy programs for micro-firms given that it does not find statistically significant coefficients for either credit access or financial stress. Nevertheless, a sharp reader may have concerns about the internal validity of the results as data restraints do not allow an experimental design for a specific policy. However, this paper tries to provide evidence regarding the effect of greater financial literacy on micro-firm financial decision making, giving broad conclusions on this matter and contributing to future policy design. In addition, as there are very few financial skill programs, it is unlikely that this may drive this paper’s results. Additionally, due to the endogeneity of financial literacy (the correlation of the variable and the error term used in this model), this paper proposes an instrumental variable (IV) approach, using the number of banks at a township level as an instrument for financial literacy. As it will be argued later, this instrument satisfies both the relevance and exogeneity conditions. Likewise, given the limited amount of observations that this sample contains, it is not possible to estimate the coefficients using the fixed effects model, which may drive this paper’s results. For instance, it is reasonable to think that those who appear as micro-firm owners in both years are the ones with more financial literacy, causing biased coefficients due to a non-random attrition, the process by which the strength of the relationship gradually decreases. Hence, by comparing a pooled model with a subsample of individuals only from the EPS 2006, this paper establishes an “upper bound” for the estimated coefficients. Given that this paper finds no significant results, this work supports the evidence found on other business training studies, such as the results presented by Karlan & Valdivia. The rest of the paper is divided into seven sections. Section 2 carries out a brief literature review. Section 3 describes the data, defines the main variables and presents some stylized facts. Section 4 presents the underlying economic model that sustains this investigation. Section 5 presents in detail the empirical model and discusses the main estimation problems. Section 6 shows the main results and robustness checks. Finally, section 7 presents conclusions and public policy recommendations. II. Literature Review There is a rich literature related to studying the effect of micro-entrepreneur support on poverty alleviation, unemployment, and other variables, especially regarding the evaluation of financial aid programs (credit subsidies, asset transfers, and more) and business training programs. For instance, Bruhn & Love exploit the almost simultaneous opening of more than 800 bank branches in Mexico targeted to low-income individuals, using this event as a “natural experiment.” With this experimental design and using a difference-in-difference strategy (comparing areas that received banks to similar ones that did not across time), they present evidence of a positive relationship between credit access and poverty alleviation. In the same way, Beck, Demirgüç-Kunt & Levine, using a dynamic panel at country level, find a negative and statistically significant relationship between credit access and inequality. This relationship is due to the heterogeneity in the improvement of credit access, being low-income individuals the ones who benefit the most from improved credit access. Likewise, Levine, Loayza & Beck use both cross-section and dynamic panel approaches, as well as instrumental variables to find a negative relationship between financial intermediary development and economic growth. These results are in line with Aghion et al. which finds that higher credit restraints affect economies’ mean growth. We now turn our attention to the mixed evidence of business training programs for micro-entrepreneurs, which cover a wide range of useful managing skills such as promotion skills, working capital management, and negotiation strategies. The work performed by Karlan & Valdivia or Almeida & Galasso fail to find significant evidence of business training programs for micro-entrepreneurs in Peru and Argentina. In contrast, Berge et al. and Bjorvatn & Tungodden find positive effects of human capital accumulation programs for micro-firm owners in Tanzania, while Mano & Iddrisu find the same in Ghana. Moreover, considering micro-firm owners in Chile, Martinez, Puentes & Ruiz-Tagle use the MESP program and an experimental design to provide useful evidence regarding a positive relationship between a combination of an asset transfer and business training on employment and wages of low-income micro firm owners, most of whom are women. However, they are unable to study the effect of each component of the program by itself. Examining financial literacy levels, literature focuses mainly on individual or family level. For example, Alvarez & Ruiz-Tagle, using an IV identification strategy, find some evidence related to wider credit access for households with higher financial literacy; however, they find no evidence for the levels of financial stress. Regarding individuals, some evidence shows that lower understanding of financial concepts can trigger larger levels of debt and higher probability of default. Nevertheless, it is also important to consider that lower levels of financial literacy might suggest a lower propensity to sustain relationships with financial institutions. Finally, considering micro-firm support programs, the work performed by Drexler et al. studies the effect of two types of financial skill training programs in the Dominican Republic. The first provides standard classes covering accounting and financial contents while the second offers basic classes teaching rules of thumb of finance and accounting. Among their results, the authors conclude that lower-complexity courses are more effective on financial decision-making of the treated. Despite not finding significant effects on profit or sales of any of the programs, they find some evidence of an increase in bad week sales. Overall, literature tends to lean in favor of a positive relationship between credit access and different variables related to utility of economic agents. However, evidence is mixed regarding business training programs. Further, these programs rarely focus on financial literacy or link this variable to the probability of having access to credit (at least not at a micro-firm level) despite its potential relevance in explaining the firm's liquidity constraints. Therefore, this paper seeks to provide evidence for the relation between financial literacy and the two dependent variables of interest: credit access and financial stress, with the purpose of public-policy recommendations. III. Data and Stylized Facts The data used for this work comes mainly from the Chilean Social Protection Survey (EPS), specifically the surveys of 2006 and 2009. This paper also uses data from the Superintendence of Banks and Financial Institutions (SBIF), which provides information on the distribution of bank branches at a township level, to create the instrument proposed in this paper. In both the EPS 2006 and the EPS 2009, the surveys interview roughly 15,000 households with a total of 81,096 and 74,047 observations, respectively. That being said, this paper only considers individuals that declare being owners or partners of some business. Furthermore, defining micro-firms according to the amount of workforce, this paper drops every business with more than 10 workers. Ultimately, after cleaning the database, 935 observations remained, of which 575 come from the EPS 2006 and 360 from the EPS 2009. One of the greatest strengths of the EPS is that it has a section of questions related to financial knowledge and the risk aversion of the individual. That section allows this paper to develop a Financial Literacy Index (FLI) and a risk aversion index, both in line with the ones presented by Flores, Landerretche & Sanchez. Moreover, consistent with Alvarez & Ruiz-Tagle, this paper defines financial stress as the debt to income ratio. In this matter, financial stress is defined as the total amount of debt related to business reported by the interviewee, divided by his mean annual income. Moreover, a proxy for the formality of the business is created by generating a dummy variable that takes the value of one when the firm declares sales taxes and zero if not. In Table 1 there is a summary of the main variables used for this investigation. Regarding FLI, on average, individuals interviewed answered correctly to 41 percent of the questions. Table 2 shows the distribution of correct answers. Surprisingly, just 1.07 percent of the sample answered correctly to the six questions of basic financial concepts and less than 25 percent of those interviewed responded correctly to more than half of the questions. Moreover, regarding the compound interest rate question, which is arguably the most important question when establishing a relationship with a financial institution because loans are calculated over a compound interest rate, just a 2.78 percent answered correctly. This number is considerably lower than the one found by Lusardi & Mitchell for baby boomers in the US, which was around 18 percent. Looking at credit access and financial stress, only 16 percent of the sample has some debt when interviewed, while the mean debt represents 19 percent of the individual annual income. Nevertheless, this last number is mainly driven by the relationship (or lack of relationship) with the financial institutions. Moreover, conditional on having a loan, financial stress rises to 14.3. However, despite the magnitude of the mean, it is important to consider that this debt considers long run loans such as land or equipment loans. Appendix 3 shows the means for these variables by sex and age, showing that individuals between 24 and 54 years old have greater levels of financial stress as well as the largest share of individuals that participate in the financial markets. Now this paper proceeds to look at the township-level distribution of bank branches. Townships have on average 36 bank branches. However, it is important—especially for a geographically unique country like Chile—to consider the heterogeneity of the data given the concentration of bank branches within the wealthiest, more urbanized and more educated townships, like the ones in the Metropolitan Region. Appendix 4 details the distribution of bank branches by regions. For example, there are 75.8 bank branches in each township from the Metropolitan Region, while in the third region the number goes down to 6.1. IV. Theoretical Framework For a better understanding of the empirical strategy, it is essential to rely on a theoretical model that provides an economic interpretation for the results obtained. As mentioned earlier in this paper, assuming that the firms evaluate business projects using a simple stochastic model of present value, this statement can be formalized with the following equation: (1) Yt=-I0+i=1niEtt Where Yt is the expected present value of the project in t, yt is the cash flow on period t, δ∈ (0,1) corresponds to the discount rate, and Et is the expectation operator, conditional on the set of information t. This expression is a simplification of the one proposed by Campbell & Shiller, which is very useful for the purposes of this investigation. If we assume that not all of the individuals have access to the same set of information t, or they do not understand completely all the information available, it is reasonable to think that some entrepreneurs might forecast their cash flows incorrectly. This will likely affect the expected present value of the project; thus, these estimations can compromise the firm’s liquidity or restrain their access to external funding due to lack of information. Likewise, wrong cash flow estimations might affect the firm’s decision whether to invest or not, as well as their growth possibilities given that projects are subject to the condition Yt > 0. A key assumption of this model is that individuals overestimate their cash flows as the result of a smaller set of information, which will be called t'. This can be taken from the evidence presented by Agarwal, Driscoll & Laibson who show that on the mortgage market, individuals fail to minimize their debt costs, which can be extensible to other types of debt. In that case, individuals underestimate the debt cost as they do not understand how much they pay nor their options associated with their loan. One clear example is that, on the compound interest question (see Appendix 1), 96.3 percent of those interviewed answered incorrectly and 29.3 percent of those interviewed answered as if it was a simple interest rate, which reaffirms the conclusions of Agarwal et al. Therefore, considering the assumptions mentioned above, we have that: (2) Yt-Yt'=i=1niEtt-Ett'<0 In which the right-hand expression would be the present value of the estimation error, which depends on the information gap t-t'. Thus, the bigger the information asymmetries, the less accurate the estimations for projects run by entrepreneurs with limited access to information—or in this case, entrepreneurs with low financial literacy—will be. In addition, this model, sustained by the evidence presented by Agarwal et al. predicts that the transmission channel for illiteracy will be related to costs, not income. Another important factor is the decision of individuals to increase their stock of financial knowledge. It is easy to see that increasing financial skills endowment has costs and benefits. On the one hand, benefits are related to the model shown above as they allow better access to information and hence allow the individuals to make better investment decisions. On the other hand, the process of acquiring basic financial knowledge takes time and resources, which implies costs. Overall, theory predicts that individuals optimally choose the stock of financial knowledge that maximizes their welfare, as formalized by Jappelli & Padulla. However, this model runs out of the main goal of this investigation. Finally, it is important to mention that, according to the theoretical model presented by Modigliani & Miller, in the presence of information asymmetries between firm owners and the market, levered companies are more valuable as they signal a low bankruptcy probability to the market. This would generate, consistent with the work of Ross, an incentive to be levered. This statement generates some concern regarding the prediction that firms with bigger financial stress have owners with lower financial literacy. V. Identification Strategy For the identification strategy, two models are estimated in parallel: one for financial stress and the other for the dummy variable of credit access. As such, this paper estimates the following equation: (3) Yit=Xitβ+δFLIit+t+it In which Yit represents the two dependent variables, financial stress and credit access, for each specification. Xit is a vector of individual control variables (such as education, age, or gender) and firm control variables as a dummy for formality, business age, and amount of workforce. t corresponds to a dummy variable that takes value 1 for year 2009 and 0 for 2006, to control for year-fixed effects. Our parameter of interest, FLI, corresponds to the financial literacy index, which consists of the amount of correct answers from the set of financial questions of the EPS (see Appendix 1 for more detail). it is the error term of the model. Finally, I use robust standard errors to control for possible heteroscedasticity. Regarding the variable of interest of this work, there are reasons to believe that it presents endogeneity issues due to measurement errors of the index or spillovers from those who participate actively in financial markets, as explained by Alvarez & Ruiz-Tagle. The first issue is a result of the noisy nature of financial literacy, while the second occurs because some financial concepts might be learned by participating in financial markets. It is well known that measurement errors on right-side variables will tend to bias the coefficients towards zero, while spillovers are expected to bias the FLI upwards. Therefore, given that both sources of bias operate on opposite directions, the end result will depend on which effect is dominant. In order to tackle the problem of endogeneity, this paper suggests an IV approach, using the amount of bank branches at a township level as an instrument for the FLI. This instrument can be considered exogenous for the financial stress variable as there is no theoretical reason to believe that this might correlate with the level of financial literacy of the interviewee. However, when analyzing access to credit, the relationship is more plausible, because micro-entrepreneurs can choose where to set up their business. That being said, the EPS dataset does not ask for the township in which the business is located, but for the township where the individual lives. Individuals likely did not decide to live in a township due to the supply of financial institutions, but rather due to the accessibility of the township, supply of education establishments, green area supply, compatibility with neighbors, and other variables. Thus, this IV fulfills the exogeneity condition on both specifications. Then, the first stage regressions can be written: (4) FLIict=Xitβ+δBct+t+ict In which Bct would be the number of bank branches on the township c. Another problem related to the estimations is that, when using a pool sample with observations of the EPS 2006 and 2009, it is likely that there will be non-random attrition bias if the reason to disappear from one survey to another is correlated with the FLI. Furthermore, one can think that those interviewed with lower financial literacy will have a higher bankruptcy probability and therefore lower probability to declare being a business owner on the EPS 2009, generating upward biases. The next section tackles this issue and reaffirms the robustness of the results obtained. VI. Main Results and Robustness Checks Table 3 shows the main results of both dependent variables. Columns 1 and 3 show the estimations using Ordinary Least Squares (OLS) with year fixed effects while column 2 and 4 show the results using IV. We notice that for none of the specifications is there a statistically significant coefficient for the FLI; however, in column 2, the coefficient is almost significant at a 10 percent level (p-value of 0.117). Also, we can see that coefficients are considerably larger when using an IV approach, which suggests that the attenuation bias (the underestimation of the absolute value of this data caused by errors in the independent variable) dominates the spillover effect of those who participate on the financial markets. These results are similar to the ones obtained by Alvarez & Ruiz-Tagle, in which they argue that the positive relationship between financial literacy and financial stress might be explained by greater credit access or overconfidence of the more literate individuals. The positive relationship between the FLI and the probability of having access to credit also has the expected sign; however, the significance is weaker than the one presented by Alvarez & Ruiz-Tagle. The lower panel of Table 3 shows the main results of the first stage. Shown in both models, the number of bank branches fulfills the condition of relevance as the F test is greater than 10 and the coefficients are highly significant in both specifications. Regarding the control variables, the reader can see that they all go in the expected directions. However, this paper believes it is important to discuss in detail the formality dummy variable, given that the coefficient is negative and statistically significant for credit access. At first, intuition would suggest a positive relationship between the formality of the business and the probability of getting a loan and its financial stress. Further, one would expect that formally constituted companies should have better access to request a loan on a financial institution. However, it is likely that for micro-firms as the ones studied in this paper, obtaining a loan as a formal company is more of a restraint than an advantage. The reason is very simple: an individual can leave personal assets such as his/her house or car as collateral, which reduces the bank’s risk, so unincorporated companies would take more loans than formal companies. Overall, these results suggest that business training programs related to financial skills would not be effective to diminish the financial stress (and with that the survival probability) nor the probability of having access to credit of micro-firms, as better financial literacy has no significant effect on either of these variables. Thus, a more effective policy design would be related to providing asset transfers and loan subsidies, consistent with the empirical evidence shown in the literature review. A. Robustness Checks Given that the pooled model presented in the previous subsection has observations for micro-entrepreneurs from years 2006 and 2009, it is likely that these results may be biased due to non-random attrition, in which the results gradually decrease in strength. Intuitively, it is reasonable to think that those who report themselves as micro-firm owners on both the 2006 and 2009 surveys are the ones with higher financial literacy levels (as financial literacy would be a useful tool for making optimal financial decisions and diminish the probability of bankruptcy), which would generate upward bias on the estimations presented in Table 3. In that case, results shown before should be interpreted as an “upper bound,” proving solid evidence against a causal relationship between financial literacy and the two dependent variables studied for this investigation. In order to test this hypothesis, this paper estimates again columns 2 and 4 of Table 3, but only for a subsample of year 2006 observations. If the hypothesis is true, both the significance and the coefficients must fall on this new specification. Table 4 shows the results obtained from this subsample, using the IV approach as on columns 2 and 4 of Table 3. From the table above, one can see that the results obtained are consistent with this paper’s hypothesis, as the coefficients (and their p-values) fall on both specifications when using the subsample of observations from 2006. For financial stress, the estimated coefficient falls from 3.899 to 1.698 (and the p-value increase from 0.12 to 0.36), while credit access falls from 2.693 to 2.117 (p-value changes from 0.21 to 0.30). One possible concern regarding these results is that they can be driven by the narrowing of the sample, as for the pooled model the sample was already limited on observations. However, one can see that the standard error falls when the regressions are estimated for the subsample of the year 2006, despite reducing the size of the sample. Furthermore, the instrument bank branches on township is still highly significant (at a 99 percent level for both specifications) and has an F test of 11.54. This implies that the results shown on Table 3 should be interpreted as an “upper bound,” due to the attrition bias, presenting robust evidence against financial training programs, as there is no significant relationship between financial literacy and access to credit or financial stress of micro-firms. VII. Final Conclusions This paper intended to establish a causal relationship between the financial literacy level of micro-entrepreneurs, their probability of having access to financial markets, and their financial stress. Based on the literature regarding this subject and given the large empirical evidence in favor of financial aid programs for micro-firms, as well as the mixed results in business training programs, this paper intended to contribute new evidence relative to the effectiveness of policies that involve business training for micro-firm owners. By using an instrumental variables approach, this paper tried to tackle the endogeneity problems that the financial literacy index (created following Flores, Landerretche & Sanchez) is exposed to. This paper uses the number of bank branches at a township level as an instrument for the index, which fulfills both the exogeneity and relevance conditions. Overall, my results suggest that there is no causal relationship between financial literacy and the two dependent variables studied. Further, due to non-random attrition bias, these results must be interpreted as an “upper bound” which provides solid evidence against financial training programs. 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 • Question 2: Lottery Division. If five people hold the same winning ticket from a lottery of $2 million, how much will each receive? 
 • Question 3: Interest rate. Assume that you have $100 in a savings account and the annual interest rate that you receive for this savings is 2 percent. If you keep the money for 5 years on this account, how much money will you have in five years from now?
 a. More than $102 b. Exactly $102 c. Less than $102 
 • Question 4: Compound rate. Let’s say you have $200 in a savings account, which accumulate 10 percent in return each year. How much would you have after two years? 
 • Question 5: Inflation. Suppose you possess $100 in a savings account which gives you a return rate of 1 percent yearly. If the inflation is 2 percent, after one year you could buy:
 a. More than $100 b. Exactly $100 c. Less than $100 
 • Question 6: Risk diversification. Please answer if the next statement is true or false: buying a stock form a company is less risky than buying the same money on several stocks from different companies 
 (b.) Likewise, I use the following risk aversion index proposed by Flores et al. (2011). Risk aversion: 
 • Is 0 if the interviewee prefers a fixed and stable income for the rest of his life 
 • Is 1 if he/she prefers a job in which he/she can, with the same probability, have twice his income 
or 3/4 of his income for the rest of his life. 
 • Is 2 if the interviewed prefers a job in which he/she can, with the same probability, have twice his income or 1/2 of his income for the rest of his life 
 • Is 3 if the interviewed prefers a job in which he/she can, with the same probability, have twice his income or 1/4 of his income for the rest of his life 
 (c.) Type of debts considered for the Financial Stress variable: 
 • Machinery
 • Land and/or agricultural facilities • Animals (cattle)
 • Bank credit line
 • Other 
 Appendix 2: Financial Literacy Index Appendix 3: Descriptive Statistic for FLI and Dependent Variables Appendix 4: Bank Branches Distribution in Chile Appendix 5: Regressions for Financial Stress and Credit Access Detail Appendix 6: Regressions for Subsample Year 2006 Appendix 7: Instrumental Variables