Landsburg, Efficiency and Rape.

Steve Landsburg has been getting very hot and bothered about the Stuebenville rape. He asks 'Let’s suppose that you, or I, or someone we love, or someone we care about from afar, is raped while unconscious in a way that causes no direct physical harm — no injury, no pregnancy, no disease transmission. (Note: The Steubenville rape victim, according to all the accounts I’ve read, was not even aware that she’d been sexually assaulted until she learned about it from the Internet some days later.) Despite the lack of physical damage, we are shocked, appalled and horrified at the thought of being treated in this way, and suffer deep trauma as a result. Ought the law discourage such acts of rape? Should they be illegal?

As usually happens with Landsburg's lucubrations, there is something obvious he is missing. 
What is it?  Public policy, in Econ, is about balancing costs and benefits. It is the latter he has forgotten to speak off so as to elide the obvious fact that Laws are created by either
1) the 'Stationary Bandit' of the State which taxes benefits accruing to individual agents for which task it gains legitimacy by levying punitive fines and/or imposing corporal punishment on transgressors of Social Conventions. One reason people may acquiesce in the State's policing functions is that their own property and personal rights are safeguarded in their absence or other state of non-competency. In the rape case, the State became the guardian of the girl once she lost competency by reason of intoxication and has, as a matter of empirical fact not moral speculation, the duty to punish the transgressors- perhaps in a way that sets an example and creates a deterrent.
2) Communities bound together by some tie- perhaps contiguity, perhaps genealogy, perhaps identity of interest cab create Laws vesting different types of Rights. Once again, it is the essence of rights possessed by virtue of belonging to the Community that they continue to operate and remain enforceable in the absence or non-competence of the agent concerned.

In neither case, does any philosophical puzzle for Utilitarianism arise from the Stuebenville rape case because that ideology has always recognized that
a) doing righteous things itself generates Utility
b) present Utility can be the capitalized value of a future stream
c) (since Wicksteed) that the correct Utility calculus in (b) concerns true opportunity cost- i.e. is computed globally across all possible worlds.

Now, following H.L.A Hart, it is entirely uncontroversial to say that it is of the essence of the Law and Social Conventions that they are defeasible especially under the rubric of a change in the information set regarding Wicksteed opportunity cost. But this does not give rise to any great quandary for the layman nor any aporia for the intellectual.

To see why, suppose the following-

We learn that an act of necrophilia has been committed on a corpse in a mortuary. The immediate friends and family of the victim bear a terrible psychic cost. The friends and families of other eligible corpses handled by that mortuary also bear a high psychic cost. Anybody about to die or who has friends or family about to die also bears a psychic cost. More generally, there is a diffused psychic cost of an ‘what sort of world are we living in?’ type.

Now let us look at an actual case- a young woman in Taiwan was raped by a mortuary attendant. The rape caused her to come back to life. Her family decided to forgive the mortuary attendant. Here the ‘victim’ who previously bore no psychic cost receives such a large psychic benefit that it makes sense for Public Policy to make an exception to the rule ‘punish necrophiliacs’ such that it becomes ‘punish necrophiliacs IFF their horrible crime fails to restore life to the corpse they violate AND Society is so constituted that the victim may be reasonably be expected not to suffer so extreme a stigma as to prefer death’.
True, the Social Cost of such a Law may be more cases of necrophilia but the pay off might be  more victims brought back to life who might otherwise have been killed by their violators.

By failing to take notice of psychic benefits- or Kenneth Boulding's notion of psychic capital- Landsburg condemns himself, and his readers, to an exercise in futility. He refuses to give himself access to the Econ theory which made talk of costs relevant to issues of Public Policy. One reason why he might be inclined to do so has to do with the redistributional consequences of external costs, including psychic costs. Now, standard Econ- e.g. in constructing Cost of Living indices- distinguishes an Income effect from a Substitution effect such that one can meaningfully speak of Hicks-Kaldor improvements- i.e. situations where Society is made better off because it is possible for the people gaining a benefit to compensate those incurring a cost such that the latter are no worse off than before. If one does not distinguish the Income effect from the plain fact that an adversely affected agent has accepted some substitute by way of compensation, one can't say if a Hicks-Kaldor improvement has occurred. For e.g.  Paul Pennyfeather, in Waugh's first novel, suffers a catastrophic loss by reason of the drunken loutishness  of a fellow undergraduate at his Oxford College.  Paul loses a valuable scholarship, his place at University and his chance to rise in the world. The offending student, Sir Alastair Digby Trumpe, sends him Five pounds by way of compensation. Since Paul is now a much poorer man he has to take the compensation- but this does not mean it is adequate. (In the novel, his High Victorian scruple that 'a gentleman never accepts an illicit perquisite' is shown to be deontological pi-jaw simply). Later, however, it turns out that being expelled from College is what permits Paul to marry a wealthy widow with whom he is infatuated. Alastair now qualifies as his true benefactor and best man. However, it turns out that the widow is running a White Slavery syndicate- for which Paul receives the blame and has to go to Jail. Oddly, Jail suits Paul and he is perhaps better off than in his original position. 
In Waugh's books- Decline and Fall, Vile Bodies, A Handful of Dust- though people have consistent preferences under the rubric of the Substitution effect- they continue to prefer caviare to bacon and Dickens to Maeterlinck whatever their socio-economic position- the reverse tends to be the case for massive reversals of Fortune which Economists study under the rubric of the Income effect. The upshot is that Waugh, inheritor of the High Victorian Gothic style, is able to arrive at a sort of Stoic ataraxia such that the Efficient cause of Happiness is immune to Externality. True, the Substitution effect, at the level of cocktails and canapes, continues to operate and, absent transaction costs, can be brought under the banner of the market; but radical Income effects open the gates to a Catholicity of inwardness.

Returning to Landsburg, for whom the Income effect is anathema because it raises the question of Income distribution in Society (vide his misreading of the Ramsey rule) ,  every access and approach to ataraxia must be vitiated by the putting forward of the following false question to The Law.

' When we say that the law should encourage all and only those actions that are efficient, what, exactly, should we mean?'

further to which he offers the following analysis.

Definition 1. The action is efficient if my willingness to pay exceeds your willingness to accept. For example, if I’m willing to pay $100 for the privilege of harvesting the tree, and if you’d accept less than $100 to part with it, then the tree-cutting is efficient.

Definition 2. The tree-cutting is efficient if it would occur in a world with no transactions costs (i.e. a world in which there are no impediments to bargaining).

In many circumstances (ones where Income effects are negligible, for example) these definitions are equivalent, and economists often pretend they’re equivalent always — (well, bad economists do when writing stupid blogs) but sometimes they’re not

Example 1. I want to punch you in the nose non-consensually. (The non-consensuality is a big part of my enjoyment.) I’d pay $100 to punch you in the nose, and you’d accept $50 to take the punch. By Definition 1, the punch is efficient. But the punch would be unlikely to occur in a world with no transactions costs, because it would require bargaining, hence consensuality on your part, which kills my interest. So by Definition 2, the punch is inefficient.

Example 2. I am willing to pay $100 to cut down a tree; you are willing to accept no less than $150 to part with it. By Definition 1, the cutting is inefficient. But part of the reason I’m willing to pay only $100 is that I’m credit constrained. In a world with no transactions costs, I’d borrow more, and would be willing to pay $200 to cut down the tree. So by Definition 2, the cutting is efficient.

Example 3. I am willing to pay $1000 to cut down a tree; you are willing to accept $500 to part with it. By Definition 1, the cutting is efficient. But the only reason I’m willing to pay so much is that I make an excellent living in my job as a mediator who helps people overcome transactions costs. In a world with no transactions costs, I’d be much poorer and would be willing to pay only $200 to cut the tree. So by Definition 2, the cutting is inefficient.

Landsburg's confusion, which arises out of his failure to do a proper Cost/Benefit, Income distinguished from Substitution effect, Econ analysis, nevertheless reveals  a fundamental problem re. Counterfactuals and Revealed Preferences. Essentially, to be able to speak of efficiency we have to have something like a David Lewis/Stalnacker  notion of ‘closest possible worlds’. But, once we grant the metaphysical reality of these worlds strange things start to happen which beg the question of whether Preferences can be consistent. If they can’t, then talk of efficiency is stymied- it’s an anything goes universe.
In
Example 1) we might make a sort of Konus index over possible worlds so that you get to non-consensually punch a guy whom we know (by examining the closest possible world) would settle for less than you are prepared to pay. But this does not really get rid of the problem. If your Preferences are consistent and robust to small perturbations of the Information set, you don’t want to non-consensually punch the guy whose closest, possible world, counter-part consents. This is when things get spooky. There are a whole lot of things you want to do now, and would happily pay for, but which you wouldn’t if you knew how easy, uncontroversial and therefore the reverse of thrilling, they are in the closest possible world. In other words, knowledge of your Konus Preference Map over all possible worlds would cause you to change that very Preference Map, more especially for positional goods or thymotic services.
There are a lot of problems with modal realism of this sort even though Lewis developed it going forward from a Schelling type analysis of the Co-ordination problem. Essentially, for this approach to work, there has to be some underlying ‘basic preferences’ that can be objectively determined which agents ‘ought’ to have. But if such basic preferences are inter-subjectively discoverable in some possible world then who needs markets? An altruistic Central Planning Authority, setting each agent's ration, would eliminate a source of Pareto inefficiency.
2) This same consideration arises with respect to Landsburg's Second Example.
 Here the credit constraint mentioned is equivalent to assuming imperfect arbitrage relating to information available from possible worlds. Clearly, in this scenario, my ‘true’ credit worthiness, based on modal realism, is greater than what obtains in this world and this creates the inefficiency. Again, spooky stuff starts happening when we think about this. If modal realism is true, why don’t we know more about possible worlds? Or perhaps we do have this knowledge at some ‘basic’ level. 
Here we come up against Lewis’s arguments that there is some ‘elite eligible’ criterion which is just better at determining the truth of things than that which arises out of our, this world, conventions.

Example 3) The transaction cost arbitrageur here, to be successful, must have better ‘Lewis elite eligible’ criteria yet he is an agent in this world just like any other. But this means the quest of Efficiency must give rise to a Rent. The spooky bit arises because, admitting a notion of meta-preferences, the arbitrageur can have a rent dissipation ratio higher than One. This is because self-contestation of the rent can outweigh the Rent to Information or potential Efficiency gain.In any case, iff, as I think plausible, the diachronous nature of meta-preferences makes them essentially ontologically dysphoric, then Consequentialism is empty.

I suppose Paul Pennyfeather, who returned to College to study Theology, might well have changed his name to Frank Ramsey. Landsburg, on the other hand, in a glaring example of a blogger becoming as egregiously shite as the type of bigot attracted to his blog, might just as well change his name to Sanjeev Sabhlok and get himself a Baba already.