Can the Chilean Miners Solve the Cartel Problem?

The rescue of the Chilean miners was a heartwarming miracle. The miners have both my sympathy and respect – I can’t even begin to imagine what those first 17 days were like, trapped far underground without any hint that rescue was even possible. I wish them the best as they try to return to normal life.

I also thank them for providing an excellent case study for my microeconomics class. According to media reports, the 33 miners agreed to a pact of silence in which none will speak about the details of the first 17 days of their ordeal. In addition, they struck an agreement to coordinate the telling of their story and to share equally the resulting profits.

In short, the Chilean miners formed a cartel. A justified and moral cartel to be sure — they deserve whatever profits they can jointly extract from their ordeal — but a cartel nonetheless.

All of which raises a natural question: Can such a cartel be successful? Or will it succumb to the perennial challenge that confronts all cartels: how to enforce a joint agreement in the face of individual temptations? A unified silence may well maximize the financial value of the story and defend the privacy of those moments that some miners do not want to share with the world. But the media circus will tempt some miners to cheat on that agreement either for monetary gain or to ensure that their individual perspective gets reported.

I wouldn’t want to downplay the solidarity among these men, but over at the New York Daily News, Jaime Urabarri reports that there are already concerns that the agreement may break down. In “Chilean miners may break pact of silence, for the right price,” he writes:

Some of the rescued Chilean miners are apparently willing to tell their story for the right price, despite a promise made between all 33 of them that none would reveal details about the worst of their 69-day ordeal buried underground.

During a special Sunday mass held in honor of last week’s dramatic rescue, miner Jorge Galleguillos said that the pact was non-binding and hinted that he’s entertaining offers to spill the beans on exactly what happened.

“I have to think about myself,” he argued, without going into specifics about what information he’d be willing to share.

There are also rumors that some of the miners have already reached deals to tell their story. El Mercurio reported last week that Victor Segovia agreed to sell the contents of the journal he kept during his time in the mine for $50,000 to German newspaper Bild.

My prediction? Regardless of how this turns out, the Chilean miners will show up in the next edition of many economics textbooks.

Are Chile’s Building Codes Getting Too Much Credit?

Many commentators have pointed to Chile’s stringent building codes as a key reason why the death toll from its earthquake (in the hundreds at this writing) has been so much lower than in Haiti (in the hundreds of thousands).

Unfortunately, much of this commentary confuses two separate concepts: building quality and building codes. Building quality clearly played a key role in minimizing death and damage from the earthquake. Indeed, Chilean buildings are well-known for incorporating earthquake resistance techniques such as the strong columns, weak beams system.

That doesn’t imply, however, that building codes deserve credit for the quality of the buildings. Indeed, I can think of three other factors that likely deserve some credit as well:

  • Chile’s wealth. In 2009, per capita income in Chile was eleven times higher than in Haiti. Even in the absence of any building codes, the relatively rich Chileans would not be living in buildings as fragile as those in Haiti.
  • Chile’s history of earthquakes. In 1960, Chile suffered the largest earthquake on record (9.5), killing several thousand people. Even in the absence of any building codes, memories of that quake would have encouraged Chileans to construct more earthquake-resistant buildings. In Haiti, in contrast, the last major earthquake was in 1842, before the memories of any living Haitians.
  • Chile’s enforcement of building codes. Building codes are just pieces of paper (or their electronic equivalent). Governments can create all the codes they want, but if unscrupulous officials don’t enforce them—or get bribed to look the other way—they can be next to useless. Chile ranked among the 20 least corrupt nations in the world in 2009; Haiti was among the 12 most corrupt.

My point is not that building codes had no effect. I bet they did. But that’s not the whole story when it comes to building quality. Chileans would have built better buildings than Haitians anyway.  And Chileans live in a society where building codes actually get enforced. For both those reasons, we shouldn’t overstate the importance of building codes alone in explaining Chile’s resilience and Haiti’s devastation. Nor should we leap to the conclusion that the way to deal with Haiti’s future earthquake threats is to import Chile’s building code.

My second point is a scientific one. In principle, Chile’s earthquake provides an opportunity for researchers to evaluate just how important building codes have been in protecting Chile’s buildings. Enterprising analysts should look for situations that allow us to identify the effect of building codes versus other factors. For example, much has been made of the building code revisions that Chile adopted in 1995. That suggests one empirical strategy: compare what happened to buildings that were constructed in 1994 to buildings that were constructed in 1996. Did the 1996 ones perform much better? That would suggest that the building codes really helped. Or did 1994 buildings do just as well as the 1996 ones? That would suggest that the codes had little effect, perhaps because they were just capturing practices that were already in use by Chilean builders.

For related discussions, see this piece from Fast Company and this piece from the Infrastructurist. The comments on the second piece include an interesting discussion of the extent to which Chilean buildings would have been earthquake resistant in the absence of building codes. One commentator offers the extreme view that the building codes had no effect, while others offer the other extreme. I think the truth is in the middle.