The Right Coast

Editor: Thomas A. Smith
University of San Diego
School of Law

Wednesday, April 28, 2010

Towards a behavioral economic theory of porn viewing at the SEC
Tom Smith

In this paper I consider whether lax enforcement of rules against viewing pornography by SEC employees may be in fact a form of executive compensation that allows the SEC to pay employees less than they otherwise would for a similar level of expertise and diligence.  Porn viewing at work is usually regarded as a classic instance of agency costs, in particular, shirking behavior.  Rather than carefully reading the registration statement of a new variable annuity product, for example, and carefully considering whether it has complied with all the requirements of inter alia the Investment Company Act, the SEC worker may spend two hours perusing the archives of Jenna Jameson's greatest hits.  However, in order to agree to do the former task without the opportunity to do the latter, the SEC worker would in equilibrium insist on being paid a higher salary or enjoying other perks, such as the opportunity to play wastebasket basketball for extended periods.  The second part of the paper is an extended comparison between porn viewing and insider trading as unorthodox but potentially efficient forms of executive compensation.  Finally, porn viewing provides SEC workers and investment bankers with a common interest, even though investment bankers prefer live sex shows, which are typically beyond the means of SEC workers, unless they want to go to the really sleazy places.  This cultural commonality, I argue, actually improves the SEC regulatory function by giving them a sympathetic insight, through the activation of mirror neurons, into the investment banking culture and business.

https://rightcoast.typepad.com/rightcoast/2010/04/towards-a-behavioral-economic-theory-of-porn-viewing-at-the-sec-tom-smith-.html

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Tom Smith
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Comments

These insights should also be applied to other agencies. For instance, agencies producing no obvious benefit to society but that simply hinder productivity, i.e. most of them, could be perhaps be improved by said activities. Being distracted from work, shirking, could be a net economic gain. Maybe not pareto optimal but closer. Clearly more research needs to be done. This is a pathbreaking paper that will open an entirely new field for investigation. I'm preparing a grant proposal as soon as I stop typing this comment.

Posted by: john knox | Apr 28, 2010 11:30:46 AM

The Washington Post article said that a recent survey said 16% of all men admit having watched porn on the internet at work. If true, and assuming 2000 male SEC staff, shouldn't they have busted about 300 guys instead of 30? Could it be that the real problem is that the SEC isn't getting enough?

Posted by: MDF | Apr 28, 2010 6:29:57 PM

Very good. It's not behavioral economics, tho, because there's no psychology in your write-up, merely conventional price theory. Indeed, except for the last sentence, it would probably get rejected from a journal as being too obvious.

Something else very basic that you might mention is that there is a niche for at least one organization of Wall Street financiers and lawyers that caters to workers who like the particular fringe benefit of unlimited porn-watching. Most workers do not value that perk very highly, and hence would not take the lower wage it requires. Enough do, however, to make it worthwhile for at least one organization to do that--- and if there is only one, it has monopsony power, a further bonus. The SEC, it seems, fills the niche for that particular sort of sexual perversion. Similarly, we'd expect other Wall Street organizations to specialize in S+M, homosexuality, and transvestitism, the size of the niche organization depending on the popularity of the perversion. Goldman Sachs, for example, with its high number of Democratic Party donors, enslaved juniors, and execs who like to show up for Congressional hearings, is perhaps the S+M firm.

Behavioral econ would enter if we go deeper and ask whether the SEC employees who spend all day on porn are truly happy, or whether they were lured in by the apparently utility-maximizing perk of slack effort (is "slack" the right word here, though?) and then are trapped by a compulsion which makes them humiliated and unfilfilled on the one hand and unable to leave for a normal job on the other.

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Could it be that the real problem is that the SEC isn't getting enough?

Posted by: Tom L. | May 1, 2011 11:10:13 PM