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Professor [David] Teece doesn't dispute estimates that his career earnings from expert consulting amount to at least $50 million.
That is from today's WSJ, it is a fascinating article about economic consulting. Teece estimates that sixty people at his firm earned $500,000 or more last year. Here is Teece's home page. Here is another article on Teece.
Posted by Tyler Cowen on March 19, 2007 at 08:29 AM in Economics | Permalink
Comments
Is there anything the man wouldn't shill for? Isn't it odd that a company can come to an "expert" who has no knowledge of the subject, the "expert" will crunch some numbers and then magically the numbers end up telling a story the company likes?
Posted by: eriks at Mar 19, 2007 9:58:18 AM
note that the majority of his earnings come
from his stock ownership in the company lecg.
Posted by: sa at Mar 19, 2007 10:57:30 AM
From the WSJ article:
"Judges don't always agree. In a 2001 case involving a patent owned by Rambus Inc., a semiconductor company, federal district court judge Robert Payne of Richmond, Va., branded Prof. Teece's estimate of the royalties owed to Rambus "a wild guess" and refused to admit that section of his analysis as evidence. The judge added, "I have the impression, from what I have read, that Mr. Teece will say just about anything.""
I would be really curious to hear Tyler's opinion on this kind of consulting. I'm a very free market kind of guy but the expert witnesses seem to produce some of the most amazingly propaganda crap out there, Teece himself putting forth absurd estimates of lost sales in the Napster case and the Rambus sham. Don't they give economists a bad name? If you can pay someone to say anything, how valuable is anything they say in an objective arena?
Posted by: Johnny Debacle at Mar 19, 2007 11:19:22 AM
The problem is that there is little sorting done by the court, so experts that look good to juries that don't know much go at a higher premium than those who know things but don't come off as well to the juries. With better sorting before they get to the juries, this wouldn't be as big of a problem.
Posted by: Sebastian Holsclaw at Mar 19, 2007 11:55:19 AM
Seeing academic economists in their consulting capacity is, without a doubt, one of the most depressing aspects of my real-world education about academic economists. I have seen more than one brilliant economist produce what I consider shoddy garbage in their capacity as consultants.
For many academic economists, their academic work is where they put their energy and their integrity. For many of those same academic economists, their consulting work is where they whore themselves out to the highest bidder for cash, and in some cases, for access to extremely good data from their clients for the purposes of further academic research. As far as I see, the quality of the work simply does not appear to play any factor whatsoever. In my view, many consulting economists are simply selling their name as a brand and then attaching it to pretty much anything.
My view: Courts and regulatory agencies should disregard any consultant testimony unless that testimony consists simply of direct cites to the consultant's own peer-reviewed research.
Posted by: Keith at Mar 19, 2007 11:58:38 AM
If the goal is to have truly “independent, unbiased” expert testimony, then the system is fundamentally flawed. In my opinion, the problem is that the system includes lawyers.
At the end of the day, two economists present all the arguments about why a number should be either high or low, depending on who hired them. I can see no other outcome to a system in which: 1) lawyers, who have a stake in the game, are deciding which experts to hire; 2) an expert’s bills are paid by one side of a dispute; 3) an expert’s scope of work and underlying technical assumptions are defined by one side of a dispute; and 4) an expert’s access to information from the “other side” is severely hampered due to document production games played by lawyers.
While there is a system by which expert testimony can be stricken from the case prior to trial if it is found to be truly junk, judges seldom rule to exclude an expert completely because you are then left with only one biased damages expert left to testify. The result is two guys playing reverse chicken, pushing the limits as far from the middle as they are comfortable, knowing that exclusion would be damaging to their careers, and favorable damages judgments will lead to more lucrative work.
Everyone responds to the incentives put in front of them by the system. It’s curious that anyone who reads this website would be surprised that the players act in this way.
Posted by: Brent at Mar 19, 2007 12:18:06 PM
We have jury duty, can't we have expert duty and make it just a little better paid.
Given the obvious problems with the current system and the increasing weight given to experts, isn't there a good case for the idea that exeprts could have a civil duty to contribute to the justice system in the same way citizens have such a duty? At least for academic experts paid in public universities.
If parties to a dispute want experts they must agree to covering the costs of these individuals' regular salary for the time invovled in the case. Then there would be some expert selection process like jury selection.
Completely crazy?
Posted by: aaron_m at Mar 19, 2007 12:55:27 PM
But isn't it true that even when you take away the allure of money, there are still many issues that economists cannot agree on. I am not an advanced econ scholar- I just hold a BA in Econ but if my memory serves me well, one could argue almost anything using fundamental economic analysis. The source of differing views often lies on the degree to which a certain variable influences the outcome. But a variables significance can by put forward based on sound economic analysis. In that view I would not call what Teece is doing immoral.
Posted by: Martin at Mar 19, 2007 1:01:11 PM
"In that view I would not call what Teece is doing immoral."
Well, that depends. I haven't seen Teece's testimony or his work on that issue, so I can't speak specifically to what Teece did.
But before somebody takes money to advocate a certain position, I personally would like to see them study the significance of variables and form an informed opinion about how the variables affect the outcome, and then to consult for the side that they conclude is actually right, even if it might mean a smaller (or no) paycheck now and them. From my point of view, that's part of the price you pay for having a tenured position, especially at a government funded university, and even more especially when you are using the perceived integrity and objectivity of being an academic to influence others.
If somebody has to keep themselves in ignorance in order to advocate a position, then they're full of it, and I judge them harshly at a moral level.
People respond to incentives, but I can judge individuals based on their particular response to given incentives. If an evil genie appeared and gave people $10,000 every time they ran over a pedestrian in their car, I might predict that people would run over more pedestrians, but I'd still disapprove of people who ran over people for money.
Posted by: Keith at Mar 19, 2007 3:19:12 PM
Well Keith- what if you are asked to testify in court about your prediction that "...people would run over more pedestrians". What if I asked you not to express your personal feelings i.e. "I'd still disapprove of people who ran over people for money" and limit your analysis to causation and effect. Now imagine (just a simplification) that your testimony causes a jury to acquit some plaintiff who ran over a pedestrian for money based on your analysis that $10,000 is a factor that can influence some individuals to run over a pedestrian. You might argue that you would want to also include your opinion that- "I still disapprove of people who ran over people for money". But one might also say that your personal views lie outside of your scope as a economic consultant.
Likewise if you are asked on to appear on the prosecutions side of the same case. The prosecutor would ask you to limit your testimony to an economic analysis of the negative results of allowing people to hit pedestrians for $10,000. The prosecutor would ask you to please keep your personal views out of the case (just imagine you suffer from major road rage and strongly approve of hitting pedestrians).
In both cases I don't think you have sacrificed your morals, you have just been forced to limit your response to a professional capacity. Likewise with any other job like say a policeman you are asked to limit your actions to your professional capacity (i.e. arrest a kid with pot- maybe it is his third strike!) and let the relevant deciding body adjudicate.
Of course you have to draw the line somewhere, but often the line you draw will be the result of allowing your personal views to affect your professional duty. Like pharmacists who refuse to give the morning after pill.
Posted by: Martin at Mar 19, 2007 4:15:06 PM
Well, Martin, you're kinda forgetting the most important part here. I have the option of deciding which side I will work for and whether or not I will testify at all. There is no professional duty for economists to consult that I know of.
If anybody wanted me to testify, they'd get my full report, which would say "In my opinion, $10,000 is an incentive for running over pedestrians, and jailing people for running over pedestrians is, in my opinion, a disincentive away from running over pedestrians." The jury, judge, and both attorneys could do with that what they liked.
As for pharmacists, I think they have every right (as long as they've cleared that with their employer) to refuse giving out the morning after pill, so long as there is ample opportunity for customers to use other pharmacists that have no such moral issue. I may require a pharmacist to violate their beliefs if that was the only way for a customer to get their morning after pill in time. I think it's pretty easy to acommodtae everybody on that one. I think the people who want to make every pharmacist, regardless of their personal beliefs, hand out the morning after pill under every circumstance, are ogres.
Posted by: Keith at Mar 19, 2007 5:12:25 PM
Some realities in the economic consulting profession:
1) 99.9% of the time, you do not get to decide which side you want to be on. Nor do you know many of the facts of the case prior to being hired, due to confidentiality reasons. If you are uncomfortable with a position your client wants you to take, you don’t take that position. This obviously strains the relationship with the client.
2) You do not get to set your own scope of work. You are supposed to do what you are hired to do.
3) There is a difference between presenting one side of an argument and being flat out disingenuous.
4) An expert report will never see the light of day during the trial (again, due primarily to confidentiality reasons). The only reason the expert report exists is to explain expert positions prior to trial.
It’s not a perfect system, but it is what we have. It is very closely tied to the way litigation works: both sides present an argument and the jury decides who is telling the closest to the truth.
Posted by: Brent at Mar 19, 2007 6:48:34 PM
3) There is a difference between presenting one side of an argument and being flat out disingenuous.
In economics, I don't believe there is a relevant distinction. A consultant is handed a large data set and from there, he cleans it, loads it into Stata or his software of choice and proceeds to crank out a whole bunch of regressions. Out of probably dozens of specifications, the only ones that will be used in court are those that show a statistically significant result that the consultant can vouch for on the stand. I should point out that publishing in journals tends to be similar, except the stakes are much lower.
Now I doubt most lawyers have the training or technical knowledge to challenge a tenured professor on the stand about his research and doubt even more that a jury of average citizens could figure out what was really going on. Presenting this kind of shoddy research is lying by omission and the people who do it ought to know better. Economists, unlike doctors or lawyers or accountants, have no recognized set of professional ethics and that lack leads to things like this.
Posted by: Ricardo at Mar 19, 2007 10:22:58 PM
Dohh!!!
I knew I shoulda' finished my degree! Now look at me. . . what a disgrace. .
Posted by: Ray G at Mar 19, 2007 11:42:45 PM
Brent, you confused the economic consulting profession, i.e. economists who join consulting firms to work full-time, with academic economists who consult on the side, which is what I'm talking about. If you want to join a litigation consulting firm and make that your job, great. We all know that you're a hired gun.
But if you're using the imprimatur and prestige of your academic position to lend your name to crappy arguments and shoddy work in exchange for money, then yeah, I'll judge you. I find it unseemly to take the name you've built up doing good work and lend it to bad work in exchange for money.
Posted by: Keith at Mar 20, 2007 7:18:40 AM
"But if you're using the imprimatur and prestige of your academic position to lend your name to crappy arguments and shoddy work in exchange for money, then yeah, I'll judge you."
I agree with you. There are definitely people in the industry that will "say anything." Also, you aren't free from scrutiny just because you have academic credentials (for an example, the testimony of Nobel prize winner Robert Lucas was once excluded, primarily for being shallow). I also think that the work done in a litigation context is fair game when it comes to reputation.
However, there is a difference between those who will "say anything" and economists that present one side of an academic argument in a litigation context. Don't be too quick to paint everyone in the industry with the same brush.
No one is going to have the opportunity to testify at trial with an opinion that is completely independent and unbiased, if, for no other reason, your client has some input into your scope of work and the underlying assumptions of your analysis. At the end of the day, you have to rely on the facts presented to you by your client regarding the technology/issue/market in dispute in the lawsuit to make certain assumptions. The whole point of the lawsuit is that two sides disagree on those types of issues. The point of decision becomes: is the position I am being asked to take in relation to this assumption reasonable?
In the end, there are financial incentives to take positions that are favorable to your client, and some people are more comfortable taking extreme positions than others. Where is the line in which analysis becomes hired gun junk? As with any analysis, don’t be too quick to judge until you look at the work carefully.
Posted by: Brent at Mar 20, 2007 3:43:31 PM
"Economists are great at answering hypothetical questions with great precision," says Asim Varma, a partner in the Washington, D.C., law firm of Arnold & Porter. "But you have to find out what the assumptions are. If they're spinning the assumptions to help the client, all that precision is illusory."
telling commentary
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