Wednesday, 24 August 2016

Are markets efficient?

In this audio from the Chicago Booth Review Eugene Fama and Richard Thaler discuss this question. A fun and interesting discussion on issues like market efficiency, bubbles and behavioural economics.

Tuesday, 23 August 2016

Some non-shocking statistics on gender pay from the IFS

At the IEA blog Ryan Bourne writes,
‘On average, women in paid work receive about 18% less per hour than men’. So reads the opening line of an Institute for Fiscal Studies–Joseph Rowntree Foundation press release for a new briefing note today.

Here we go again. It’s a shame that another two high-profile organisations are propagating this. As we argued in last week’s ‘How much do you earn?’ paper, these aggregate statistics are largely meaningless and designed to create a sense of unfairness. Are these workers full time or part time? In the public or private sector? How many years’ experience? The education level of the workers? What type of roles? What is the age profile of the workers? And what about all those compensating differentials which we know are important?

This is not merely theoretical, because using these stats as a catalyst to force pay to be equal for work which the market rates unequally produces damaging distortions in the economy.

But taken with all these caveats, the IFS report helpfully provides us with some facts which are pretty intuitive:
1) The gender wage gap per hour is falling (down from 28 per cent to 18 per cent between 1993 and 2015), which we’d expect given educational and societal trends. Though it must be said, this is not based on the ONS’s preferred definition of the pay gap, or their preferred data source.
2) The wage gap between young men and women, where you’d expect societal and educational trends to bite most, is just 6 per cent (before you even control for any of the points above).
3) The wage gap prior to having children is much lower at 10 per cent than the overall average wage gap, suggesting that having children is a big contributory factor.
4) Indeed, following the arrival of the first child, the wage gap steadily increases, on average, to 33 per cent after 12 years.
5) Why is this? A big clue is that 20 years after the birth of their first child, women have on average been in paid work for four years less than men and have spent nine years less in paid work of more than 20 hours per week.
A lot of research now tell us that points 4 and 5 are some of the most important reasons for the male/female wage gap.

In a paper, "A grand gender convergence: its last chapter" by Claudia Goldin in the American Economic Review (104(4): 1091-1119),  it is argued that reducing the gender gap in pay requires greater temporal flexibility, to help counter points 4 and 5, in the labour market. Being able to work long hours and work particular, antisocial hours is limited by childcare responsibilities. This effects women more than men and thus changes to the structure of labour markets with regard to hours worked and remuneration will advantage women to a greater degree than men.

The abstract of the paper reads,
The converging roles of men and women are among the grandest advances in society and the economy in the last century. These aspects of the grand gender convergence are figurative chapters in a history of gender roles. But what must the "last" chapter contain for there to be equality in the labor market? The answer may come as a surprise. The solution does not (necessarily) have to involve government intervention and it need not make men more responsible in the home (although that wouldn't hurt). But it must involve changes in the labor market, especially how jobs are structured and remunerated to enhance temporal flexibility. The gender gap in pay would be considerably reduced and might vanish altogether if firms did not have an incentive to disproportionately reward individuals who labored long hours and worked particular hours. Such change has taken off in various sectors, such as technology, science, and health, but is less apparent in the corporate, financial, and legal worlds.
But presumably firms reward individuals who labour long hours and work particular hours because it is profit maximising for them to do so and thus this may be a feature of the particular industries in which it occurs. If so this could be a difficult thing to change, it would take either a change in the cost structure of the industry, what would bring about such a change?, or a change on the demand side, that is, customers would have to start demanding a different set of goods or services. Why would they do so?

Sunday, 21 August 2016

Errata section added

Sadly the webpage for my favourite theory of the firm book has had to have a section on errata added to it.

Yes I've already come across errors in the book, some due to the publisher but also some, more embarrassingly, due to me! I guess I should have checked things more thoroughly. There are three things you must do when writing a book; proofread, proofread, proofread.

Matt Ridley on the fate of economic libertarianism

Matt Ridley sums up the current state of economic liberalism in just a few words:
It is the same around the world. Economic liberty is out of fashion. There is almost no country trying the sort of free-market reforms – tax cuts, deregulation, privatisation – that so many countries achieved in the 1980s and 1990s. China and Russia, liberalised briefly in the late twentieth century, seem to be heading back to Big Brother. Brazil has seen its market reforms congeal into crony-corporatism. India and Japan are hardly paragons of small-government economic liberalism. Even here in Britain, I doubt Theresa May took Hayek’s “Road to Serfdom” to Switzerland as holiday reading.
Sad but true, just think of the case of New Zealand. The days of Rogernomics are long gone if this current government (or opposition) is anything to go by. I don't see the likes John Key, Gerry Brownlee or Andrew Little sitting up in bed reading The Wealth of Nations or The Constitution of Liberty.

But why is liberalism out of favour?
Unlike welfare-socialism and crony-capitalism, it fails to create vested interests dependent on its subsidies. The whole point of running for president [or Prime Minister] is to be able to hand other people’s money to your favourite causes and generate grateful patronage. Laissez-faire robs you of that treat.
Anything that stops politicians from bribing some of the people with some other people's money will not go down well with either the politicians or those who, gratefully, receive the largess.

Friday, 19 August 2016

It does exist!

A specimen of the once thought only mythical beast has been spotted in the wild, well on my desk anyway,


The only known example of this rare creature outside of captivity in the UK was sighted this afternoon. And unlike the Loch Ness Monster this picture is real!

The Big Mac index 2016

From the Economist magazine comes the 2016 Big Mac Index:


While it is not shown in the graphic above if you look at the more detailed version of the raw index you find that the New Zealand dollar is undervalued by 16.2% when compared to the US dollar but is overvalued by 7.1% when compared to Sterling. Adjust for GDP per person and the New Zealand dollar is undervalued by 1.1% when the base currency is the US dollar compared to being overvalued by 14.1% when the base currency is Sterling.

Boudreaux on robots

At Cafe Hayek Don Boudreaux makes a good point about the effects of robots on employment:
Robots not only do not threaten to increase long-term unemployment, they make our lives easier and more prosperous – and they’ve done so for eons. Witness the wheel, the lever, the bucket, the shovel, the cart, the harness, the plough, the rope, the spear, the knife, the pulley, the pipe, the pump, the oar, the sail, the printing press – and, of course, the steam engine, the locomotive, the bulldozer, the bus, the jet engine, the kitchen blender, the washing machine, the light switch, the flush toilet, the microprocessor. As Deirdre McCloskey writes in her new volume, Bourgeois Equality, “[t]he repeated alarms against robots are silly, since robots are merely mechanical slaves for our benefit.”
I agree with Boudreaux and McCloskey on this. Changes in technology are nothing new and employment has kept on growing. Why should today be any different? New technology changes the types of jobs there are but it doesn't reduce the number of jobs. And it makes us richer. What's not to like?

Tuesday, 16 August 2016

The greatest book ever written is now out

I've just received an email telling me that the greatest book ever written, aka The Theory of the Firm: An overview of the economic mainstream, has now been published.



So start buying. Its a great book, well worth buying for wives, husbands, girlfriends, boyfriends, mistresses, mothers-in-law, toy-boys, family, friends, pets, total strangers you meet in the street, or any combinations of the above. Its great for Christmas, holiday reading, birthdays, Mother's day, Father's day, any day.

Honestly I don't really care why you buy it, what's important is that you do buy it, preferably multiple copies, often!

Fleckner on Adam Smith on the joint stock company

That Adam Smith was not a huge fan of the joint stock company is well known. But what exactly did he think and why did he think it? And why was he wrong? These questions are considered in a new paper Adam Smith on the Joint Stock Company by Andreas Martin Fleckner.

The abstract reads:
In 1784, Adam Smith released the third and definitive edition of the Wealth of Nations, the most influential work in economics ever written. Of the eighty pages he added, more than thirty deal with “joint stock companies” and other commercial organizations. While these additions caused many observers to praise Smith as the first to coin the governance problems in firms, a closer examination of his remarks reveals that Smith’s theory of the firm, or the lack thereof, is in fact one of his work’s weaker parts. Smith thought history had shown that joint stock companies cannot compete with smaller firms, attributed this fact to certain organizational deficits, and concluded that joint stock companies should be established only under rare circumstances. Yet, in the following decades, exactly the opposite came to pass, with joint stock companies thriving in almost all fields and markets today. What made Smith so pessimistic about the joint stock company? The answer lies, this paper argues, in the sources Smith consulted, the companies he studied, and the general beliefs he held. Why did Smith’s pessimism turn out to be wrong? Smith probably overestimated the joint stock company’s weaknesses and underestimated developments that helped overcome them, such as technological progress, organizational innovations, and regulatory responses.
Fleckner raises a number of interesting questions to do with Smith's analysis of the firm. Let me make a couple of comments.

First Fleckner notes that Smith (and the classical economists who followed him) showed little interest in the firm. It could be argued that there are two reasons for this. Firstly the An Inquiry into the Nature and Causes of the Wealth of Nations was largely a book concerned with macro economics, in particular with growth theory and thus a study of firms as such had little to offer. The historian of economic thought D. P. O'Brien has remarked that
"[c]lassical economics ruled economic thought for about 100 years. It focused on macroeconomic issues and economic growth. Because the growth was taking place in an open economy, with a currency that (except during 1797-1819) was convertible into gold, the classical writers were necessarily concerned with the balance of payments, the money supply, and the price level. Monetary theory occupied a central place, and their achievements in this area were substantial and - with their trade theory - are still with us today".
Secondly large firms were not an empirically important part of the economy in Smith's day. Most production at the time was little more than household based production or small scale production based around a master craftsman and a few apprentices. Often the larger firms that did exist were partnerships rather than joint stock.

This lack of interest in the firm by Smith, and the following classical economists, explains why "Not once does he speak of a “firm,” nor does he develop anything that would resemble a theory of the firm." And when Smith does show interest it is not in terms of the firm in general - the no theory of the firm point - but in particular firms, the regulated and joint stock companies - mainly the East India Company.

Fleckner also notes that Smith placed his discussion of the joint stock company in a section of the Wealth of Nations to do with goods and services provided by the government. Smith put the discussion in the section to do with “Expence of publick Works and publick Institutions”. Smith explains that: "The third ... duty of the sovereign or commonwealth is that of erecting and maintaining those publick institutions and those publick works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could never repay the expence to any individual or small number of individuals, and which it, therefore, cannot be expected that any individual or small number of individuals should erect or maintain".

Fleckner explains,
Smith adds two further distinctions before he finally gets to the joint stock company. In a first step, Smith subdivides the public goods into “publick Works and Institutions for facilitating the Commerce of the Society” (pp. 93–150), “Institutions for the Education of Youth” (pp. 150–92), and “Institutions for the Instruction of People of all Ages” (pp. 192–237). In a second step, he breaks the first group into those public works and institutions “necessary for facilitating Commerce in general” (pp. 93–107) and those “necessary for facilitating particular Branches of Commerce” (pp. 107–50). What kind of public works and institutions does Smith have in mind here? For “facilitating Commerce in general,” Smith thinks of the “erection and maintenance of the publick works which facilitate the commerce of any country, such as good roads, bridges, navigable canals, harbours, &c.” (pp. 93–4). This list at the outset of the section is almost complete, supplemented only by a “coinage” (pp. 94–5) and a “post-office” (pp. 95, 99, 243–4).

In the first (1776, vol. II, p. 340) and second (1778, vol. II, p. 342) editions, Smith’s discussion of public works and institutions that facilitate commerce concludes at this point. In the third edition, his older remarks become the first subsection, on the promotion of commerce in general, followed by new thoughts on public works and institutions that facilitate particular branches of commerce.
These new thoughts include thoughts on the joint stock company. This seems a strange place to put such a discussion.

Fleckner goes on to say that,
Unlike the older parts, the new section on particular branches of commerce lacks a concise definition and a list of introductory examples. Smith speaks in a rather bored tone of “particular institutions …, which again require a particular and extraordinary expence” (p. 107). To illustrate, he adds (ibid.): “Some particular branches of commerce, which are carried on with barbarous and uncivilized nations, require extraordinary protection. An ordinary store or counting-house could give little security to the goods of the merchants who trade to the western coast of Africa. To defend them from the barbarous natives, it is necessary that the place where they are deposited, should be, in some measure, fortified.”

If Smith had stopped here, with the insight that overseas trading requires additional protection, and moved on to other branches of commerce, hardly any reader would have criticized him for leaving out important information, given the wide range of topics under consideration. Yet, Smith does not stop here. He gets carried away by his example and, to mimic a British idiom, literally goes round the fortified houses. In the next sentence, he mentions another example of a place where commerce needs special protection: “Indostan” (p. 107). This brings him, for the first time, to the trading companies (p. 107): “[I]t was under pretence of securing their persons and property from violence, that both the English and French East India Companies were allowed to erect the first forts which they possessed in that country.” Now Smith goes into the details of overseas trading and discusses the role of ambassadors, ministers, and consuls (p. 108), along with an outline of commercial organizations engaged in overseas trading (pp. 107–10). He then examines in great depth, without any further sub-division, regulated companies (pp. 110–22) and joint stock companies (pp. 122–50). While Smith’s original context, the promotion of particular branches of commerce, seems to be almost forgotten, the facilities that prompted him to discuss overseas trading are frequently mentioned: “forts” and “garrisons,” also “settlements” and “habitations.” For Smith, the protection of foreign trading posts is apparently the most important cost factor in overseas trading. Ships and cargoes, in contrast, are only rarely brought up, and never as a major item of expenditure. Not even once does Smith refer to the scope, the duration, and the risk of the voyages as factors that caused overseas trading to be more capital-intensive than local exchange.
Fleckner then says,
Returning to the initial question of why Smith added his comments to the chapter on public expenses: Has Smith made a good case for discussing the joint stock company in this context? Is it clear how the joint stock company relates to “publick Works and Institutions for facilitating the Commerce of the Society”? Does it intuitively make sense how Smith incorporates his remarks?
In Fleckner's view the answer to this question is no. But let me make the case that if thought of in modern terms the answer could be yes.

What the government was doing can be seen as a form of contracting out. Today if the government want some good or service provided, eg rubbish collection, instead of providing that good itself the government pays a private firms to do it.

If "extraordinary protection" needs to be provided to traders in "barbarous and uncivilized nations" and the government doesn't want to provide such protection services itself then it could get the private trading firm to do so. And if the government doesn't want to pay for such services directly it could give the firm a monopoly as a way for the firm to recover its costs. So the consumer rather than the government ends up paying. Great for the government even if not so great for the consumer.

Now it seems unlikely that Smith was thinking in this way but it does at least make some sense of the placement of Smith's discussion.

Another point to keep in mind when thinking about Smith's analysis of companies is his criticism of firm's structure, eg are they partnerships, joint stock, regulated companies etc, versus his criticism of monopolies. Smith saw the, obvious, problems with giving a firm a monopoly to trade and saw shortcomings, mainly related to principal-agent issues, with the joint stock companies. But these are separate issues and should be treated as such.

And Smith did see a use for the joint stock company is areas such a banking, insurance, water supply and construction of aqueducts and canals.

Key findings on alcohol consumption and a variety of health outcomes from the nurses’ health study

From the American Journal of Public Health, Volume 106, Issue 9 (September 2016): Key Findings on Alcohol Consumption and a Variety of Health Outcomes From the Nurses’ Health Study by Elizabeth Mostofsky, Kenneth J. Mukamal, Ed L. Giovannucci, Meir J. Stampfer, and Eric B. Rimm.
Conclusions. Regular alcohol intake has both risks and benefits. In analyses using repeated assessments of alcohol over time and deaths from all causes, women with low to moderate intake and regular frequency (>3 days/week) had the lowest risk of mortality compared with abstainers and women who consumed substantially more than 1 drink per day. (Am J Public Health.2016;106:1586–1591. doi:10.2105/ AJPH.2016.303336)

Sunday, 14 August 2016

The role of governments in hostile takeovers

Maximilian Rowoldt and Dennis Starke discuss "The role of governments in hostile takeovers – Evidence from regulation, anti-takeover provisions and government interventions" in the latest issue of the International Review of Law and Economics (Volume 47, August 2016, Pages 1–15).

The abstract reads:
This paper addresses the role of governments in hostile takeovers by analysing 263 hostile takeover bids in Europe and North America during 2000–2014. Our results suggest that governments may influence the openness of the domestic hostile takeover market through takeover regulation, potentially implementing protectionism. The corresponding features of the regulatory regime may in turn stimulate the deployment of anti-takeover provisions by entrenched target managers. Rather than increasing takeover premiums, anti-takeover provisions are associated with lower success rates of hostile bids, and may thus harm corporate governance. Governments’ direct intervention in hostile takeovers is more likely in case of a foreign bidder, large transactions, high unemployment and high GDP growth rates, pointing to both protectionist and populist motives. The hostile bid failed in all cases of government intervention identified in our sample. Direct government intervention may thus serve as ultimo ratio in order to block unwanted transactions.

Rowoldt and Starke write
Hostile takeover bids emphasise the conflicting interests of shareholders, managers and governments (Romano, 1988; Shleifer and Vishny, 1997). While targets’ shareholders are interested in maximising their return on investment, targets’ management may seek to entrench themselves and protect their job position by deploying anti-takeover provisions (ATPs). The misalignment of shareholder and management interests is especially pronounced in the case of hostile takeover bids (Armour and Skeel, 2007; DeAngelo and Rice, 1983; Jensen and Meckling, 1976). Against this background, the role of governments is of particular importance as they define the playing field for hostile takeovers through takeover regulation. Furthermore, governments may directly intervene in corporate takeovers. Takeover regulation and direct intervention in hostile takeovers may therefore follow national interests.
One is left wondering exactly what the "national interest" is. Interestingly the French takeover regulations were amended in 2014 in ways that help block unwanted foreign takeover bids. In particular, the French government eliminated mandatory board neutrality and shifted to a system which enables managers to deploy ATPs without shareholder approval.
A neutrality rule provides restrictions on board activity once a bid has been commenced or is imminent. These restrictions prevent a unitary board of directors or a management board from using corporate powers provided to them to frustrate the bid without obtaining shareholder approval for using the powers for such a purpose. The term ‘neutrality’, whilst widely used, is somewhat misleading as the requirement is not that the board remains neutral. In all Member States the board is required to give its views – whether in favour or against – on the hostile bid, and can legitimately search for an alternative and, in their view, more favourable suitor. It is only in relation to the use of board power to defend a bid where such a rule neutralises or disempowers the board in the absence of contemporaneous shareholder approval. (Gerner-Beuerle, Kershaw and Solinas 2011)
Rowoldt and Starke continue
In this paper we examine the role of governments in hostile takeovers and its implications on corporate governance. We focus on hostile takeover bids as they pronounce the conflict of interest between strong corporate governance and protection of the domestic industry. Our analysis involves three steps. First, we focus on the direct effects of takeover regulation. We analyse whether national takeover regulation is a potential protectionist tool for governments. In particular, we test whether the existence of a board neutrality rule (BNR) affects the openness of the domestic hostile takeover market to foreign bidders as measured by the likelihood of cross-border hostile bids and the deployment of ATPs by the target’s management. Second, we turn to the implications of takeover regulation on corporate governance by examining whether ATPs stimulate management entrenchment as measured by the success rate of hostile bids or benefit shareholders by strengthening their bargaining power. We measure bargaining power as the likelihood of bid increases and the final takeover premium. Third, we analyse determinants of direct government intervention in hostile takeovers and its consequences on the bid success.

Our results indicate a lower probability of cross-border hostile bids in case no BNR is considered in takeover regulation of target countries. Takeover regulation may thus limit the openness of the domestic hostile takeover market to foreign bidders. This supports the notion that takeover regulation may serve protectionist motives of governments as indicated by the implementation of the European Takeover Directive 2 (Davies et al., 2010). As board neutrality is only one feature of the legal environment, we additionally use alternative measures of shareholder protection in our analysis and find similar results. Thus, our results may be driven by the general legal environment and not necessarily the BNR alone. However, the recent reform of the French takeover law and the implementation of the European Takeover Directive emphasise the particular importance of board neutrality as a potential protectionist tool (Hopt, 2009). Moreover, not only board neutrality but also the general regulatory environment fall into governmental responsibility and may thus be used by governments to implement protectionism.

With this respect, the regulatory choices made by governments may affect corporate behaviour. In specific, board neutrality determines whether target managers are able to deploy ATPs without shareholder approval. Our results show a negative association between BNR and the application of ATPs by targets’ management, confirming that if takeover regulation grants the option to deploy ATPs to the targets’ management, they are likely to exercise it.

Regarding the role of ATPs in corporate governance, our results indicate that the application of ATPs does neither increase the likelihood of bid increases nor the final takeover premium offered. On the contrary, ATPs seem to decrease the likelihood of a successful completion of a transaction. This finding supports the management entrenchment hypothesis. A regulatory framework that favours ATPs may therefore increase managerial power and in turn decrease the effectiveness of the corporate government system (Humphery-Jenner, 2012; Masulis et al., 2007).

Finally, our results suggest that direct government intervention is more likely in case of a foreign hostile bidder, pointing to protectionist motives for government interventions and supporting prior evidence provided by Dinc and Erel (2013). Additionally, we find positive associations between negative government interventions and transaction size as well as the unemployment rate in the targets’ nation supporting the idea that government intervention follows populist motives in search for votes (Hopt, 2009).

Besides, the hostile takeover bid failed in all of the identified cases of negative government intervention. Due to this missing variation in the bid outcome in case of a negative government intervention in our sample, we are unable to empirically assess the corresponding relationship. However, this observation potentially points to the role of direct interventions for governments as ultimo ratio to block hostile takeovers of domestic companies.
Ref.:
  • Gerner-Beuerle, Carsten, David Kershaw and Matteo Solinas (2011). Is the Board Neutrality Rule Trivial? Amnesia About Corporate Law in European Takeover Regulation, LSE Law, Society and Economy Working Papers 3/2011 .




Tolerance in the United States: Does economic freedom transform racial, religious, political and sexual attitudes?

This is the title of a forthcoming article in the  European Journal of Political Economy by Niclas Berggren and Therese Nilsson. The abstract reads:
Tolerance is a distinguishing feature of Western culture. Still, it varies between and within countries, as well as over time, and irrespective of whether one values it for its own sake or for its beneficial consequences, it becomes important to identify its determinants. In this study, we investigate whether the character of economic policy plays a role, by looking at the effect of changes in economic freedom (i.e., lower government expenditures, lower and more general taxes and more modest regulation) on tolerance in one of the most market-oriented countries, the United States. In comparing U.S. states, we find that an increase in the willingness to let atheists, homosexuals and communists speak, keep books in libraries and teach college students is, overall, positively related to preceding increases in economic freedom, more specifically in the form of more general taxes. We suggest, as one explanation, that a discriminatory tax system, which is susceptible to the influence of special interests and which treats people differently, gives rise to feelings of tension and conflict. In contrast, the positive association for tolerance towards racists only applies to speech and books, not to teaching, which may indicate that when it comes to educating the young, (in)tolerant attitudes towards racists are more fixed.

The Olympic Games are a human rights disaster

So writes Ilya Somin at the FEE website. The Olympic Games cause a great amount of harm to many people in the host city, in particular to the poor and politically weak.
Host cities routinely lose enormous amounts of money on the games, and end up with decaying stadiums that have little or no value. Even worse, governments often forcibly displace large numbers of people from their homes and businesses in order to make room for Olympic venues. Over one million people lost their homes for the 2008 Beijing games alone. Brazil has similarly evicted large numbers of people for the currently ongoing Rio Olympics, and even more to build stadiums for the 2014 World Cup. Most of those evicted are the poor and people lacking in political power.

The Olympics have also often become propaganda showcases for authoritarian regimes, as happened with the 2008 Olympics in China, and the 2014 Winter Olympics in Sochi, Russia. In an earlier era, the the same problem arose on an even more egregious scale with the 1936 Olympics in Nazi Berlin, and the 1980 games in the Soviet Union.
But, Somin goes on to argue, none of this has to happen.
We can reform the Olympics to put an end to it. The forcible evictions are perhaps the easiest problem to fix. The International Olympic Committee and the international community more generally should insist that organizers commit to building the necessary venues without forcibly displacing residents. If a city cannot or will not do that, it should not be allowed to host the games. No sports event is worth the forcible displacement of innocent people from their homes.

We can also put an end to the economic harm caused by the Olympics by insisting on private funding, instead of government subsidies. The 1984 Los Angeles Olympics, almost the only modern games to avoid massive losses, did so by relying on almost entirely on private funds. Government subsidies for sports facilities have a strong tendency to cause more economic harm than benefit. Private investors have stronger incentives to use resources efficiently, since their own money is at stake. And if they do err, at least the taxpayers won’t be left holding the bag.

Finally, we can end the use of the games as a propaganda tool for repressive regimes by limiting host rights to liberal democracies. If the IOC again awards the games to authoritarian states, the West should boycott. The mere threat of a large-scale boycott might well disincentivize such regimes from trying to host in the first place, and prevent the IOC from awarding them the games if they do bid.
The problem I see with Somin's reforms is that they would result in the IOC getting a lots less money from the games and that is something they will fight to the bitter end to avoid. Many of the problems we see with organisations like Fifa are present in the IOC and until there is genuine reform of the IOC itself you will not see any changes to the Olympics. Until then money will talk and the poor and powerless will pay the price.