Bounty hunting

Amazing! They’ve got the URL and everything. And they have the TCS style perfect. You might almost think it was serious.

Sounds like an excellent idea. Mr. President I suggest we implement this one immediately as a no-bid contract with Halliburton

Oh, and another thing. Go fuck yourselves.

Dick, you should know that Halliburton already has OBL in custody. This is obviously a way of getting around those messy no-bid contracts. No complaints about bugs in the food, no worries about overzealous security folks playing Barry the Baptist with detainees, just a direct 1B dollar check. If anyone out there hasn’t bought Halliburton stock, you are missing out!

It would have been better if they’d credited the article to “Jonathan Wild”

President Bush: I urge you to heed the call of James D. Miller, game theorist and Republican candidate for the Massachusetts State Senate, and offer a $1 billion bounty for bin Laden. Unleash the power of the free market and watch our loathsome international criminals and drug lords disappear.

Then, of course, you have the problem of regulatory capture.

Say you adopt massive bounties as a standard feature of counterterrorism operations. This, naturally, will require some kind of regulatory apparatus to register groups and ensure that they’re following the law in some fashion.

What happens when the bounty hunter industry becomes powerful enough to take over this function?

If I am not completely mistaken than this is the same James Miller who write a pathetically whiny article for Forbes a few months ago, complaining that economics (!) departments at US universities were too far too the left to give him tenure. Now I am a pretty libertarian and free-markets (non-tenured) economist myself, and I can say with some confidence that he is full of it. In the same article he displays a staggering ignorance about the difference between tenuring someone and giving someone a non-tenured reappointment, and advocates attacking Iran. One might consider that the Smith folks didn’t want to give him tenure because he has a pathetic publication record and because he is a fool? Just wondering….

What’s a billion dollars? That can hardly buy any sharks with lasers!

I wonder which of James Glassman’s clients the TCS was published for.

The only failure of imagination in the plan is the reality-show tie in: Non-Survivor, with a billion dollar prize for the winner. This is some must-watch TV. Much, much cleaner than the Paddy Chayefsky fund-the-terrorists-directly scheme in Network.

…Rupert? Rupert?

To mr dick cheney and the white house, watch out you don’t turn into one of these bored people:
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Phill 08.10.04 at 6:00 pm

That’s pretty funny all right – especially since, as Peter Murphy implied above, what’s so ‘free market’ about that $1 billion reward? That ain’t consumer dollars, that’s money ponied up by the gummint. I love that idea of free market – give them entrepreneurs enough gummint money and see what a brill job they’ll do. Oh.

Melville’s “Confidence Man” includes a proposal to put Christian missions out to bid on “sound Wall Street principles”.

Practically ever cliche of prosperity theology, management gurus, self-help, futurology, New Age, etc., etc. was already there in Melville’s book almost 150 years ago. Everyone should read it.

It’s a hard book to read because it doens’t follow novelistic rules. Think of it as post-modern.

“Think of it as post-modern.”

Better, think of post-modernists as Melvillians. After all, who had the idea first?

Great post, Alex. And now, I’m going to add some great thoughts that Tabarrok had at his blog, because they should also be posted here.

“I’m puzzled, don’t the gang know that the United States has been putting bounties on terrorists since 1984? Or that Qusay and Uday Hussein were located due to a reward – as was Al Qaeda leader Khalid Sheikh Mohammed, as was Ramzi Yousef, the mastermind of the 1993 WTC bombing as were the terrorists responsible for the destruction of Pan Am 103?”

Let me answer that, Alex: No, the gang does not know, because they’d rather ridicule than learn. A pretty sad performance from these “intellectuals.”

Thanks for the plug, Alex. Now perhaps, you’d care to tell us how many publicly quoted bounty hunting companies there are in the USA who have raised money from “the markets”. Because that was a) the subject of the article Chris linked to, and b) the author’s only rationale for raising the bounty forty-fold.

As I noted to Alex privately, there are structural problems with offering $1B.

But there is a related conceptual problem as well, which I will attempt to explain slowly so that keith understands the two reasons why everyone is making fun of it.

Think back to the scene in _Liar’s Poker_ that gave the book its title. John Gutfreund, offered a $1MM bet by one of his traders, raises him to $10MM–at which point the trader puts his bill back in his pocket.

The reason the trader backs down is that the raise is CREDIBLE–just as the raise from $5MM to $25MM was credible in the post 11Sep01 world. Independent analysis easily understands the risk/reward scenario was altered.

What happens if I offer to bet Alex $10MM? Alex may bother to check Forbes listings, or the genealogy charts of Corning or Houghton-Mifflin just to make certain, but the odds are good he just LAUGHS.

The offer isn’t credible.

Neither is a jump from $25MM to $1B. In the absence of new information, the paradigm hasn’t shifted, the risk/reward doesn’t change, and NO ONE WILL BELIEVE the shift.

The second reason it is not to be taken seriously is that, if there is truly a free market, IT WON’T MAKE INVESTORS MONEY.

Again, this is a simple risk/reward analysis. In the absence of information to the contrary (which is available but ignored here for simplification purposes), the chance of collecting the $1B is dependent upon (a) the skills of your bounty hunters and (b) the NUMBER OF FIRMS hunting. Not necessarily in that order.

Remember, this is Winner-take-all: firms that do not catch ObL return nothing. The equation for Rate of Return is roughly r(0,max)*(prob. capturing ObL).

Miller is NOT postulating a monopoly consortium in which all possible searchers work for the same firm. He’s arguing “free market.” The free market will lead to people LOSING MONEY–free to s/t/a/r/v/e/choose, as it were.

Who wins in this scenario, in the BEST case? (1) the bounty hunters who contract for expenses plus a percentage of the reward, (2) the bounty hunters who contract fixed-rate and do NOT find ObL, and (3) the one group of investors who sponsor the group that finds ObL, PROVIDED the expenses and fees at a reasonable rate of return are less than the final payout.

Who loses? (1) ALL THE OTHER INVESTORS, (2) any bounty hunter who takes an expenses plus fee contract, does not find ObL, and who passed up other work (opportunity cost), and (3) the taxpayers, who almost undoubtedly paid more than they had to due to the discontinuity.

Then consider the not-best cases: ObL dies and is turned in by allies or like-minded personnel, ObL is captured by someone OTHER THAN the Bounty Companies, ObL remains uncaptured because he is not Che, etc.

In all of the not-best cases, ALL of the investors and most of the bounty hunters lose.

In summary, (1) the discontinuity IN AND OF ITSELF makes the offer less credible, and it will therefore be severely discounted (the probability that extraneous incremental costs will be incurred in proving that your company earned $1B is significantly greater than zero) and (2) the free market, if truly free, will lead to a significant wasting of resources and drain on capital. (The latter would, of course, have to be added into the calculated return for investors–so any investment group assuming that $1B will be paid will overvalue their property.

(This is the other half of the lottery problem: if fair value of a ticket is $1 for a $12MM jackpot, does that mean a $24MM jackpot makes the value of the ticket $2–or does it mean that more people are likely to play, and the value needs to be adjusted because the probability of spliting the jackpot is higher?)

So we made fun of the idea, which may or may not have been stolen by Miller and which causes more problems than it solves.

What Miller proposed is the opposite of Greg Easterbrook’s Op-Ed proposal in the NYT a while back that an approximately revenue-neutal 50c/gallon gas tax be enacted, the neutrality being used in a combination to reduce other taxes and increase funding for alternative energy research.

Easterbrook proposed a MARGINAL change in the face of new information (monies spent buying oil fund Middle Eastern terrorists who are willing to attack the U.S.). Miller suggests a discontinuity in a void of information as a solution.

Easterbrook’s proposal may not finally pass muster, but it passes a sniff test. Miller’s doesn’t, which is why we feel free to make fun of it.

So, since one individual doesn’t have $10M means that the government couldn’t have $1B, and the fact that most firms may lose money in a given market means that none of them will be able to raise capital? Surely, nobody will ever invest in a software company since few people can tell the difference between professional engineers and a bunch of Harvard students (who haven’t even graduated!) with an idea of competing against IBM. The nerve! Or between wild-eyed celebrity worshippers who want to run their own network and a guy with an ambition to build a 24 hour news network (yeah, like anyone would watch that!). Or between this idiot McCaw who wants to build a phone network based on technology that even AT&T passed on and these other idiots that want to build a nationwide fiber optics network and carry long distance. Michael Milken? Never existed.

Eric,

All of your examples come from REGULATED industries with barriers to entry, where an investor would be reasonably certain that a small, finite number of firms are going to provide and thrive. (Note that no one gave McCaw any funding while AT&T had a monopoly on telephone service. In both his case and Milken’s, they went into an ESTABLISHED market and expanded it–precisely the type of “value add” that is not present in the proposal.)

In the proposed scenario, we would have to assume (1) that ONLY experienced bounty hunters can find ObL and (2a) that it will take a combination of them to do it AND (2b) that the combination will be less than 40 hunters.

(We know from the current $25MM market that no individual bounty hunter believes it worth his/her while to search for ObL, therefore any combination that offers the individuals less than $25MM each will not be accepted by them.)

There are, realistically, NO barriers to entry to bounty hunting (incidental expenses such as travel create some minor barriers, but it is clear that those are incidental even in the context of $25MM). So your professional bounty hunters would be competing with multiple Pakistani, Afghan, Iraqi, and other hunters who are likely to know the area better–or who have to be b/r/i/b/e/d/ paid from the potential reward to help.

The proposal is not a MARKET scenario, so it cannot be a viable “free market” solution.

Hmmm… I had no idea that software development was a regulated industry *now*, much less in 1986. Thanks for the tip.

It looks like the only position being defended is that capital markets never invest in startups, they only invest in existing companies with proven cash flow or startups in existing industries. Which begs the question – how did those existing companies or industries start up in the first place? We must conclude from the existence of companies that were once deemed “risky” that capital markets do invest in companies that may have the appearance of being risky to outside observers. In the US in 1999-2000, 574k plants (“plants” being both locations and entire businesses) opened and nearly 543k closed (similar data for each of the years from 1990-2000 available in the Stat Abstract), and there were 37-40k business bankruptcies in that same period. Assuming that at least some of those were publicly traded companies, and if by “risky” we mean “not everyone is guaranteed profitability and in fact most will not make it because barriers to entry are minute”, I’d say that markets finance risky investments regularly.

Regarding whether or not the $1B dollars would change the situation, I think the answer deserves more analysis than has been given it here. The offer in and of itself does not yield more information. However, information is a scarce good that must be produced. Local Pakistanis aren’t interested in the $25 M because they could never enjoy any significant portion of it before they met an untimely death by murder for revenge or by suicide to find relief from the isolation required to avoid murderers. If I had a 5% chance of getting that $25M, I might be able to raise $1.25M. My own labor and travel costs would eat through that fairly quickly, and I would be lucky to hire a few translators and ex-GIs. We would have to rely on existing, word-of-mouth information or knock on doors and grease palms – a very low yield, high cost means of gathering information that would deplete the money raised quickly. On the other hand, if I had a similar chance at $1B, I might be able to raise $50 M. Hmmm … with that kind of scratch, I might be able to afford to assign surveillance teams on several UBL family members and associates, buy a UAV with eavesdropping equipment designed to my specs, analyze data, and make a few $1M bribes. I could literally generate information by associating the correspondence between known UBL associates and wireless traffic picked up by the UAV until I narrowed his location down. Someone else might propose to trap UBL by offering unrefined nuclear material and designs actually purchased from AQ Khan. A Pakistani villager growing tired of UBL’s attitude might realize that he could afford to move his extended family to his own private island and live in comfort and safety on $1B.

I think there are problems with the idea of offering a $1B bounty, but only Fester’s Place has defended those to my liking. Here, it seems that the only grounds of protest is that there will be no change from the raised bounty. I think that blowback is more likely to be a worse outcome than no change at all (which seems to have been taken up in the last few posts). What happens when an over exuberant Duane Chapman wannabe goes to Pakistan and starts beating villagers until they talk? Is the short term brouhaha worth the long term advantage of shutting UBL up? I also think that moral hazard is a possibility after the first successful demonstration of the method. How do we really know UBL is the head of al Qaeda and not some clean-handed puppet master who controlled UBL the same way UBL controlled Mullah Omar? It’s unlikely but possible, and $1B certainly increases the rewards to someone with the intelligence and balls to pull off a stunt like that.

There’s an op-ed very similar to Miller’s in The Washington Times:
http://www.washingtontimes.com/commentary/20040814-091554-9700r.htm

I suppose that there’s no problem that can’t be solved by throwing more money at it. $1 million isn’t enough of an incentive to prove the Poincare Conjecture (http://www.claymath.org)? Why not offer $100 million? That will certainly meet the reservation wage of all of those mathematicians who couldn’t be bothered for a mil.

Except of course, for public schools. It’s absurd to think that paying teachers more might attract more capable people.