The Marginal Burglar

There is always a danger that an argument made metaphorically might be misunderstood - unintentionally or otherwise. Let me then make this metaphoric argument more explicit. Professor Landsburg argued that foreclosure is for one very sensible reason, hidden deep in his article, that contracts need to be enforceable, and for another reason that I mocked: that the benefit to those who subsequently bought the foreclosed house compensated for any harm to those who lost a house.

My parody suggested a similar principle at work for a burglar who robbed a house. Prof L. suggested that the burglar derived no net benefit from his burglary because the effort of burglary was exactly compensated by the by the benefit he derived from it. He also suggested that I probably didn't appreciate this point and that I ought to consult his textbook for illumination.

Well, I didn't, but I'm pretty sure I know what he means. In an economy consisting of rational agents, the burglar robs the house when he decides that the various efforts and risks involved - getting shot by a homeowner, getting sent to prison, being unable to get warranty service on the stolen HDTV, balance the benefit of getting the loot. If the costs are less, so goes the theory, more homes will be burgled and more individuals will be attracted to the profession. The "marginal burglar", Landburg's phrase, is in the situation of exact balance, with costs precisely balancing benefits, hence, says the Prof, he gets no net benefit from the burglary (on average, I presume). Of course the same applies to the home buyer, whether the home is newly built or foreclosed, so his claim is actually a red herring, irrelevant to the basic argument.

Let's take his rational pricing theory one step further. The guy who bought the HDTV that got burgled similarly should have priced the risk of loss to burglary, and incidental damage to his doors or windows, into his decision to lay out a couple of grand for the idiot box in the first place. Hence, for the "marginal HDTV owner" nothing was lost either. Most victims of burglary are going to suspect that the Prof's rational pricing theory is failing to capture some interesting aspects of reality. There are more things in Heaven and Earth, Steve, than are dreamt of in your theory.

So is there any point to his story at all? Yes, a small one: if buyers of foreclosed homes get a better deal on price than they otherwise would, then yes, they do accrue some benefit. This calculation ignores many other things that make foreclosure a nuisance for all concerned: the cost of the procedure, the long typical time the house is unoccupied, the risk that an unoccupied house will be vandalized or otherwise damaged.

Prof L likes to turn counter intuitive aspects of economics into SLATE columns. This time he packaged a very small truth in econospeak and tried to sell it as something deep.