Economic Consulting, Or “Why If You Think You Can Make $750 An Hour Cleaning Data You Will Be Very Disappointed”…

If you’ve been following the news, you’ve likely noticed that there’s a pending lawsuit against Harvard University regarding discrimination against Asian-American students in the admissions process. I’m going to do a post on the substance of the case soon, but for now I want to talk a bit about the case logistics. (If you’re going to read about the case, take my usual disclaimer of “the media is not always great at reporting scientific findings properly” with you.)

More specifically, people in my circles are discussing David Card’s $750 billing rate, so let’s talk about “economic consulting.” (note: this has a particular meaning and is different from “economist who happens to be acting as a consultant”) “Economic consulting” most often translates to “litigation support”- damages calculations for product liability cases, impact reports for M&A, etc. Most of the time this involves putting an expert in the courtroom, and it’s thought to be helpful if they sound fancy, so they work with high-profile academics and such to be the actual experts. In fact, the first part of the expert reports is usually a pretty salesy bio of the expert, followed by how much the expert is getting paid- hence the knowledge of the $750 figure. (Expert reports generally aren’t made easily publicly available, but Card posted his in this instance, which is why people are aware of the number.)

It’s important to know that Card is not sitting there getting paid $750 an hour to clean data, run regressions, and whatever other tasks are involved in producing expert testimony. Instead, Card is affiliated with an economic consulting firm called Cornerstone Research, so they were probably involved in much of this work. (I’m pretty sure this has been acknowledged publicly in the expert report and/or other.) The expert billing rate is specific to the expert, however, so it’s likely not the case that the client is paying $750 an hour for most of the work done. ($750 also doesn’t seem unreasonable for Card’s level of fancy- one of the experts I worked for in grad school wasn’t nearly as fancy as Card and billed at $675.) That said, Card’s contract with the firm could take a number of forms (eg. does he get a percent of billings) and generally depends crucially on whether he brought the business to the firm or vice versa.

The “client,” in most cases, is one of parties in the lawsuit, meaning that the expert isn’t sought out or assigned by the judge in the case. As such, there are generally two experts for a given case, and each expert’s mandate is to make a case for their side. (This is similar to the principle that it’s not a lawyer’s job to make the opposition’s case for them, but it’s a little more awkward if they think the opposition is right than it would be for a lawyer.) Here’s another fun part- technically speaking, only what the expert knows is “discoverable” in court, so technically the consultants could do all of the analysis and just not share results that are inconvenient to the case with the expert. I would hope this doesn’t happen very often just on principle, but I don’t have good data. Also, this leads to some interesting questions as to at what point in the process the actual expert is brought in, since it’s not really possible to know beforehand what the answer is going to look like when the question involves actual data.

Speaking as one of the economic consultants that supported the experts, the tasks can be really boring or pretty interesting- for example, how would you try to show that banks knew about Enron’s troubles and kept lending to them anyway? (My contention is that it involves interest-rate spreads. Oh, and a PSA: if you ever take such a job, make sure you are familiar with how to run a Hausman test.) Some tasks are just, well, weird…one time I had to call a phone sex line to try to reverse engineer how its automated cell center technologies function- for the record, I was not mad about the task so much as I was about the fact that we were representing a huge patent troll.

Here’s an interesting article about one such economic consulting firm…I’m not endorsing the tone per se, but there’s a lot of detail here on the history of the industry and whatnot:

These Professors Make More Than a Thousand Bucks an Hour Peddling Mega-Mergers — ProPublica

These Professors Make More Than a Thousand Bucks an Hour Peddling Mega-Mergers — ProPublica

The economists are leveraging their academic prestige with secret reports justifying corporate concentration. Their predictions are often wrong and consumers pay the price.

Source: www.propublica.org/article/these-professors-make-more-than-thousand-bucks-hour-peddling-mega-mergers

Lastly, and perhaps most hilariously, remember when I said that what the expert doesn’t see generally isn’t discoverable to the opposing side? Well, the reverse is also true- all relevant work product must be provided to opposing counsel upon request. But…you know those episodes of Law and Order where Michael Cutter requests a document and gets 30 boxes in response along with a flippant “well it’s in there somewhere”? That practice has a nerd equivalent, and it’s pretty amazing (click for the full thread):

I’ll state for the record that I didn’t do any of this, but I guess that’s partly because I didn’t think of it. Also, there really should be a Law and Order spinoff that focuses on the economic consultants, right after we get CSI: Regression Analysis off the ground.

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