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Last semester I wrote a thesis entitled:

Taking Control:

An analysis of the mechanism of perfection by control in the PPSA, and a critique of the mechanism by an application to control of an ADI account, and control of Bitcoin.

The White Flight Control Room prior to STS-114 in 2005 This overall view of the Shuttle (White) Flight Control Room (WFCR) in Johnson Space Center's Mission Control Center (MCC) was photographed during STS-114 simulation activities.

See section 21(2)(c)(vi) of the Personal Property Securities Act (2009) for relevance.
Picture in the public domain (License: PD-USGOV-NASA).



With the kind supervision of Jason Harris, I was able to write a paper that straddled two relatively novel areas of law that interested me: the Personal Property Securities Act (2009) and Bitcoin. Since I will be submitting parts of the paper for publication, I am not going to post the whole thesis here. However, I am happy to post my abstract:

This thesis is a critical analysis of a complex, and largely novel part of the Personal Property Securities Act (2009) – perfection by control. This Act serves to rank the interests of secured parties in the collateral that secures them.

Whilst most interests are ranked according to the time that they are registered, there are a few exceptions to this. Most relevantly for this thesis, one such exception is security interests perfected by control. These interests are in intangible assets. Where the control provisions are satisfied, they grant the secured party a super-priority over registered interests.

The nature of this super-priority is explored in the first case study, which analyses a priority contest between a Bank’s interest (so perfected), and the proceeds of a purchase money security interest (a lesser super-priority).

However, the Achilles heel of the control provisions is the restriction of the asset-classes to which control applies, and its corollary: asset specific tests for control. This weakness is highlighted by the second case study – a priority contest similar to the first, but with a novel intangible asset – a bitcoin account.

First, this chapter shows the possible results of such a priority contest, highlighting the consumer protection benefits of applying control to the novel asset-class. Second, the asset-class is normatively and technically analysed, proving that the secured party in this novel asset-class holds equal or greater “actual” control than secured parties in established, controllable asset-classes.

Then, the current asset-class-specific control provisions are applied to the priority contest, and it is shown that the current provisions do not allow such an interest to be perfected by control.

Using the second case study as an analytic fulcrum, this thesis posits that the current, asset-class-based tests are too narrow, artificially constricting perfection by control. After an analysis of the central similarities of the control provisions, this thesis presents an alternate, universal test for control.


I am also proud to publish here my acknowledgements. Without the people I mention below, I would not have been able to write what I did.

I would like to acknowledge and thank my supervisor, Jason Harris, for his counsel, guidance and support. I would like to thank Nicholas Mirzai, Amor Sexton and Bianca Balzer for being sounding boards for my ideas.

I would like to acknowledge my father, Avner Ottensooser, for explaining to me the technically correct manner of expressing the mechanisms of bitcoin graphically, and for auditing my technical ideas. I also wish him a speedy recovery.

I would like to thank the Australian Digital Currency and Commerce Association, especially board members Jason Williams of BitPos and Ronald M. Tucker of Bit Trade Australia for technical assistance. I would also like to thank the Banking and Financial Services Law Association for hosting a talk on Bitcoin at exactly the right time, giving me a few new ideas to ponder.

Finally, I would like to thank all of my friends who I burdened with proofreading this thesis, especially Daniel Rod, Stephanie Kam, and, Bianca Balzer, for their help.


C.f. the 8th Amendment of the United States Constitution with “Botched lethal injection takes nearly two hours to kill Arizona inmate.” Horrifying.

Text of 8th Amendment:

Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.

See also:


Bitcoin is Property

oatsandsugar —  July 22, 2014 — 2 Comments

Nicholas Mirzai and I recently wrote an article for the Australian Property Law Bulletin:

“The Bitcoin is Property” N Mirzai and J Ottensooser (2014) 29(5) APLB 94

The article discusses whether bitcoin is property, in both common law and following the economic indicia. Further, this article discussed the definition of bitcoin, a bit of international context and some policy ramifications of bitcoin being classified as property.

Bitcoin, bitcoin coin, physical bitcoin, bitcoin photo

Photo by Antana CC-By-NC-SA

Here’s a sneak peek:

Continue Reading…

This summer (in the northern hemisphere), the New Yorker has taken down its paywall! The archive is now free to read. This magazine has some of the best long-form writing I have ever had the pleasure to read.
Don’t squander this opportunity to read some amazing articles!
New Yorker New Website

Credit Illustration by Barry Blitt.

Some articles I recommend:

“Nature has very conveniently cast the action of our sight outwards.  […] Everyone says: ‘Look at the motions of the heavens, look at society, at this man’s quarrel, that man’s pulse, this other man’s will and testament’—in other words always look upwards or downwards or sideways, or before or behind you. Thus, the commandment given us in ancient times by the god at Delphi was contrary to all expectations: ‘Look back into your self; get to know your self; hold on to your self.’ . . . Can you not see that this world of ours keeps its gaze bent ever inwards and its eyes ever open to contemplate itself? It is always vanity in your case, within and without, but a vanity which is less, the less it extends. Except you alone, O Man, said that god, each creature first studies its own self, and, according to its needs, has limits to his labors and desires. Not one is as empty and needy as you, who embrace the universe: you are the seeker with no knowledge, the judge with no jurisdiction and, when all is done, the jester of the farce.”

Continue Reading…

Enjoy and good luck for the test!

  1. Intermediate Microeconomics (Consumer Model)
  2. Intermediate Microeconomics (Producer Model)
  3. Intermediate Microeconomics (Insurance and Monopolies)
  4. Intermediate Microeconomics (Equilibrium, general equilibrium and trade)


UTS: BUiLD Profile

This essay was written as a take-home exam for States of Emergency, Emergency Powers and Liberal Democracy at Copenhagen University, under Professor Ebrahim Afsah, which received a perfect score (12/12).  The essay was in response to the following question:

Contrast the emergency provisions in the German, Japanese, and United States constitutional order. How would you classify their respective approaches, what would you consider to be the main functional and normative needs answered by the particular instruments, and how would you assess their relative strengths and weaknesses? 

German, Japanese and United States emergency provisions

In response to exceptional circumstances, there are, at the most basic level, two different types of response: reacting outside of the usual legal system or acting within the existing legal system – using Ramraj’s terminology, an “accommodative” or “business as usual” (“BAU” approach).[1]  This essay will attempt to classify the German, Japanese and US approaches through the aforementioned frame, hypothesise on the normative and functional needs which these systems service and compare the strengths and weaknesses of each system both theoretically and within its own context.

World War I Army Biplane

Different emergencies require different responses within different contexts


A classic model of constitutional accommodation of emergency powers

The German system of emergency powers would be classified as an accommodative constitutional model.  It consists of four emergency states: the Verteidigungsfall[2], Spannungsfall[3], internal emergencies[4] and legislative emergencies.[5]  Each of these emergencies was associated with different powers.  This system, further, allows for the combatting of opponents to the liberal democratic order through the idea of “Wehrhafte Demokratie[6]

To understand the normative role played by the emergency provisions in the German Basic Law, an analysis must include a reflection on the history that shaped it.  Following a crushing defeat in the First World War, the Weimar Constitution[7] was enacted in 1919, with strong emergency provisions in obvious response to the security threats of the time.  Notably, the Weimar Constitution provided sweeping powers to the Reich President in an emergency, coupled with an extremely broad definition of an emergency sufficient to trigger such powers.[8]  This provision was abused by the Weimar republic, and eventually allowed republic to become an authoritarian regime.[9]  It is the spectre of such an abuse and domestic and international pressure following defeat in the Second World War that the current constitution was written.[10]  The Basic Law’s reflection on horrors of the Second World War are apparent, with the first thing mentioned being an affirmation of human dignity,[11] and the first Part creating rights inviolable even when an emergency has been declared.[12]  In 1968, amongst a backdrop of growing student unrest, the Bundestag amended the constitution and created a system for emergency powers.[13]  However, this system had learned from the flaws of the Weimar emergency provisions, there were sufficient checks and balances so that it could not, easily, be abused.  Thus, there are two central normative roles played by the German Basic Law.  Firstly, the strong constitutional rights that are non-derogable even in times of emergency serve to reassure the German people, and the international community, that the horrors of the Second World War could not be repeated.  Secondly, the allowance for emergency powers, even powers as controlled and pre-planned as those in the Basic Law, increase Germany’s sovereignty that was denied to the nation in its inception.[14]

The specific powers, and checks on such powers can also be seen as having a functional role in protecting the German constitutional order.  Much like the ancient roman dictatorship model,[15] there were checks on the timeframe allowable for an emergency,[16] limits to the laws that could be made during an emergency (the Basic Law could not be changed or abrogated)[17] and the usual constitutional order must remain intact.[18]  These checks serve the functional role of restricting the possibility of abuse of the emergency system.  Further, during a state of defence, if the legislature is unable to meet, they are replaced by a “Joint Committee” – a group of ministers chosen ahead of time – to take on the duties of the Bundestag and Bundesrat.  Here, there is a functional threat: the inability to pass law because the legislature cannot assemble, and this is solved with a system more liberal than the Roman model: instead of the executive taking over, a smaller legislature takes on the role.  Finally, the German system does allow for the use of the military and the border police internally during internal emergencies,[19] serving the obvious functional role of a physical response to a threat.   Thus, we can see that the German system has an ex ante approach to functional challenges: predicting and defining the scope of such challenges and responding with appropriately limited emergency measures.

The strength of such an ex ante approach would be threefold.  Firstly, the emergency requirements may be discussed ahead of time, during peace: thus, they can be discussed in full, and prove to be more comprehensive and well debated than ex post approaches.  Secondly, the explicit and controlled nature of the emergency provisions lends legitimacy to the constitution, and to the provisions.  Finally, the multi-level system employed by Germany seeks to balance rights with emergency provisions, allows the populace the final say (it allows the right to resist unconstitutional practices) and minimises the extraordinary powers allowed to the different governmental organs.  The weakness of the German approach comes through its rigidity: whilst it has served well so far, there may be a situation which was unaccounted for in the drafting process whereby the current system would limit the government’s ability to respond legally.

Japan and the United States

Two different approaches to the “BAU” emergency response

Both the Japanese and the United States Constitutional systems can roughly be classified as BAU approaches – neither has an explicit system of constitutional emergency powers.  However, both of these systems have found their own way of dealing with emergencies.  The Japanese system uses administrative guidance – “extra legal” orders given to large players in the economy.  The US system uses a mix of constitutional interpretation, legislative and administrative action to allow greater flexibility during an emergency.

The BAU system satisfies an important normative goal: it expresses a commitment to legality and to the rule of law where emergency provisions could potentially jeopardise them.  The Japanese constitution was written by the US after the Second World War, limiting Japan’s sovereignty by disallowing the creation of a military and by not providing for emergency powers.  Unlike Germany, however, Japan made a normative decision not to try and increase sovereignty, but to wholeheartedly adopt the western constitutional system imposed on it.[20]  Thus, the decision not to amend the constitution to allow for such powers serves to underline this commitment.  The US constitution was created at a time of emergency – thus, the ordinary system foreseen in the constitution is deemed to allow for appropriate responses to extraordinary threats within the constitutional system.  However, some flexibility is afforded through the “War Powers” afforded to the executive.[21]  The US commitment to reacting to emergencies within the law is highlighted by the case law on the matter, with the judiciary disallowing the exercise of power outside the areas usually afforded to each organ of government.[22]  This commitment to the constitutional limitation on government power reflects a normative commitment to rights and liberties.  Thus, the Japanese and US system of emergency powers highlight the importance of the rule of law within both countries.

Whilst the Japan and the US do not have constitutional systems for managing emergencies, they are both still subject to extraordinary circumstances.

In Japan, responding to the “oil shock” of the early 1970’s, the government had no constitutionally sound instrument to guarantee oil prices to maintain economic stability.  Thus, the Ministry of Trade and Industry, on behalf of the government, instructed the major oil companies in Japan to ignore the relevant competition law and fix prices at an acceptable rate.[23]  The companies were protected from litigation as long as they disobeyed the competition policy under the advice of the ministry, and without looking to personal profit – the illegality of their action was precluded by the instruction.[24]  Thus, the instructions take on an extra-constitutional quasi-legal role.  This instruction takes the functional role of responding to the crisis despite the normative choice of Japan to be bound strictly by its constitution’s limitations.

In the US, unlike Japan, the executive did attempt to access the limited doctrine of “war powers” in response to the economic crisis of the Great Depression, by analogising the crisis to a war. The Supreme Court stated that the organs of government, even in a time of war, could not exceed their constitutional powers, although the powers could be construed more broadly then in usual circumstances.[25]  Thus, the first of the US’s deviations from a strict BAU approach is revealed: whilst the US’s normative commitment to constitutional integrity forbid exceptional powers, they do allow increased depth of power within existing categories as a functional response to emergencies.  The second deviation is through legislation: there are currently more than 250 emergency laws enacted by different legislative bodies in the US.[26] Finally, administrative and procedural changes, alongside changing common-law requirements regarding criminal offences relating to Terrorism, highlight the third, informal and extra-constitutional response in the US to an emergency.  These three techniques highlight a functional need for exceptional powers in extraordinary circumstances.

The functional need for responses to extraordinary circumstances is met within the Japanese and US iterations of the BAU system – accommodation outside of the text of the constitution.

The Japanese and US systems show their normative commitment to the supremacy and universality of their constitutions.

The Japanese system, further, works extremely well within the cultural and socioeconomic frame of Japan.  Where administrative guidance can work in Japan, where the legal system and its participants look to the purpose, rather than the strict wording of government enactments, it would not work in the US or Germany, where strict formalism is the legal norm.[27]  In the Japanese context, the administrative guidance system allows a low-friction, responsive government power to respond to emergencies.  However, its weakness comes from its ad hoc nature, which reduced the legitimacy of the use of exceptional power.

The strength of the US system comes from the strength of its judiciary.  Whilst vague extraordinary powers would lead to an imbalance of power in many countries, the US judiciary is strong enough to enforce its limitations.  Although there were a few Presidents who believed that their power extended further than they did (e.g. Nixon’s famous statement from his interview by Frost: “Well, when the president does it, that means that it is not illegal”), the judiciary has been quick to limit the actual use of such powers.  Further, the flexibility has allowed a functional response to some threats, although the administrative and procedural approach applied in response to terrorism may have done more harm than good.  This highlights, in effect, the limitations of the US system: the vagueness of the boundaries of legality in states of exception allow for misuse and misunderstanding of the scope of the government.


The German system of emergency provisions is a strictly constitutional system of accomodation.  The Japanese and US systems are different varieties of extra-constitutionally flexible BAU systems.  Whilst the German system might provide more functional certainty, and the Japanese and the US systems might provide more normative currency, each system responds well to its own environment.  The German Basic Law was written under intense international pressure, but grew, with the nation, into a system which allows for emergencies, but in a strictly legalistic way.  The Japanese constitution was imposed on it, and has been largely unmodified, however, the method of its application is uniquely Japanese, with “guidance” being issued formally, and, usually, being followed in a manner that benefits the nation.  The US constitution was created in a time of conflict, and incorporates many powers which would allow a constitutional response to emergencies.  Where the US has been faced by an emegencies, it has responded by an organ of government taking leadership and responding to the situation: usually the executive as checked by the judiciary, but, with the modern threat of terrorism, the response has been within the executive, legislature and judiciary.  It is impossible to assess the strength of these systems outside of their national and historic contexts, but it seems that each system is uniquely adapted, and quite effective, within its own context.

After the jump: Footnotes and Bibliography 

Continue Reading…

This essay was written as a take-home exam for States of Emergency, Emergency Powers and Liberal Democracy at Copenhagen University, under Professor Ebrahim Afsah, which received a perfect score (12/12).  The essay was in response to the following question:

The discourse on emergency provisions is often framed as a trade-off between liberty and security. Do you believe this presumed dichotomy is always accurate? How does the socio- economic condition of a given state and society affect your assessment?

Emergency provisions are the departure from the ordinary constitutional or legal order in response to extraordinary circumstances.[1] A structured system managing emergency powers (constitutional, legislative, judicial, or even merely cultural[2]) allows for flexibility in response to a crisis.  Traditionally, such a system would increase the power of one organ of government,[3] expedite the decision-making system,[4]or reduce civil protections[5] to allow for an effective preventative policing system.  As Ramraj points out: creating a system that allows for States of Emergency not only provides a source of legality for the extraordinary empowerment of states, but also restrains the state by limiting the application and scope of such powers.[6]  However, there has been increasing academic focus on the potential misuse of states of emergency by governments.  As such, there has been a shift in analysis from Emergency powers as a tool to restore constitutional order to a dichotomy: a balancing act between liberty and security.

This essay will analyse this hypothesised dichotomy doubly.  First, this essay will discuss where the idea may hold: liberal democracies, focussing on the US experience with terrorism.  Secondly, this essay will discuss where the idea fails: where non-liberal polities and developing nations implement states of emergency – focussing on the Chinese and East Timorese experiences.

[Assemblage of the Statue of Liberty in Paris.]

Liberty and Security are not always dichotomous, especially in non-liberal polities

Liberal Polities

The United States, terrorism and the trade-off between liberty and security

Since the status quo of liberal democracy is a peaceful society where the rule of law is respected and rights are protected, a focus on preserving these rights is natural.[7]  This essay will discuss the US system, as an example, to show how rights may be infringed by states of emergency, and whether there is a direct relationship between liberty and security.

The US system of emergency provisions is quite complex.  On its face, it seems that there is little scope for emergency powers in the US constitution.[8]  However, in practice, the US judiciary[9] and legislature[10] has allowed emergency provisions in quite a few circumstances.  The cases outlined in the Chesney article[11] outline the convergence of criminal and military legal practice.  On the one hand, pressure has been used successfully to require increasing standards for military detention – arguably an increase in liberty for the captured with a potential decrease in security for the nation.[12]  On the other hand, procedural requirements for civilian, criminal prosecution have decreased.[13]  These decreases include allowing guilt by association[14] as well as increasingly accommodating government requests for secrecy, even to the detriment of the accused.[15]  In the spirit of the American liberal ideology, it began to extend rights to military trials (that more often than not, involve non-nationals). However, in the name of security it reduces protection in the criminal system (which targets domestic crimes, usually involving nationals).  Thus, here, a Liberty-Security analysis highlights an absurd result: liberty is becoming the focus of external efforts, and security the focus of internal efforts, quite the opposite of that which is expected.

Thus, the US system shows that a Liberty-Security analysis can be interesting.  However, whether the two are dichotomous is not clear, since there is merely a correlation shown.  More importantly, there has been no proof that the decrease in liberty allowed for in the emergency provisions has had any effect on increasing security: in reality, the decrease in legitimacy caused by the provisions outweigh the small gains in possible prosecutions caused by these provisions.

Non-Liberal Polities and Developing Democracies

China and East Timor: assumptions in the liberty-security model

This section will analyse the dichotomy hypothesis from two angles: where there is no government aspiration towards liberalism (China) and where the rule of law is still to be established (East Timor). In both situations, the dichotomy between security and liberty is not central to the population, and the relationship between the two is even more tenuous than in the US.

China has developed a different social contract to that which is standard in liberal polities.  In China, under Mao, China’s fear of resorting back to the lawlessness of the early 1900’s (colonisation by Japan, civil war), the Party ruled with an iron fist, and the populace accepted that.  Even where it wasn’t, any dissent was briskly dealt with, often without any resort to legal authority for such actions.[16] Since the Cultural Revolution, and, especially in the past 30 years, a new social contract has taken the forefront.  Whilst fear in the populace was the motivator before, now, economic growth has allowed the government its power.[17]  Thus, the goal of the government, with the implicit consent of the populace, is maintaining economic growth.  One way it has managed to do this is by instituting rule by law.[18] Whilst, at times, groups of people in China have shown that they value liberty, it seems that it is not the central focus of the populace, or at least of their pragmatic relationship with the current political system.  Thus, if liberty is a secondary goal to economic growth,[19] this essay argues that a Liberty-Security analysis is not the most appropriate measure for China’s use of emergency powers.

In China, a constitutional legalism was put in place primarily for the sake of legitimacy.  However, this essay will argue that the system of emergency powers allowed Chinese constituents their current legal liberties – a situation whereby security and liberty were not dichotomous, but, rather, complementary.  In 1976, the Chinese government uses the army, without legal basis, to establish order.  In 1982, a new constitution was put forth with Emergency Provisions.  Deng Xiaoping used these provisions as opposed to arbitrary rule, as part of a commitment to law.  Thus, whilst during the application of the emergency provisions (such as in the response to the 1989 student protests) liberties may have been sacrificed for the good of the state – but these liberties would not exist if the government did not have the flexibility of emergency provisions to tempt it to rule by law, rather than rule arbitrarily.   Even though China’s aims are not the rule of law, or liberality, there has been further reform to the Emergency Provisions system, with the “Law on Martial Law,” “Emergency Response Law”[20] and the 2004 constitutional amendment increasing the controls on the government. [21] Thus, in the Chinese case, the population was only granted liberties in peace-time, as well as in emergency, because the government felt comfortable granting them because of the availability of emergency provisions.

East Timor was born in conflict,[22] in the shadow of a hostile Indonesia and a long history of colonisation.  The nation, however, had aspirations of constitutionality.[23]  The two times where a state of emergency was declared were in response to existential threats.[24]  The state declared emergency legally.  However, these provisions were also created to minimise the impacts on the liberty of the populace – e.g. a curfew was put in place instead of other more draconian measures to restrict movement.[25] Further, the emergency powers allowed constitutionally were extremely strictly controlled, in order to prevent abuse: time limitations were in place, the Human Rights Ombudsmen could not be closed and other controls were still in place.[26]  Thus, the damage to liberty in the name of security in emergency laws was to be controlled.  In the US, the threats countered by emergency provisions exchange security for liberty within the state system, in a country like East Timor, the threats to the nation are existential.  If the emergency provision fails, the state may fail, and any liberties or aspirations to the rule of law would be jeopardized.

China and East Timor differ significantly from the US, and any analysis of emergency provisions should reflect these differences.  A simple Liberty-Security analysis would fail to reveal the complexity in China’s “legal experiment” or East Timor’s this nascent democracy. In the US, we can judge the Liberty-Security dichotomy in a simple binary system: where the emergency provisions are in force and where they aren’t.  In the case of China, the analysis must be more nuanced:  one must judge the balance between liberty and security on a different binary system, where the emergency powers are in force, or where the government ceases to experiment in legality and returns to a Mao-like arbitrary rule.  Similarly, in East Timor, the analysis must take into the account that without the use of emergency provisions, the state may cease to exist, with any aspirations to liberal democracy, any rights gained so far and any semblance of rule of law going with it.   Without the emergency provisions, rights and protections tangential to the legal order protected by the provisions would disappear: thus, the hypothesis of dichotomy fails in the case of China and East Timor.


The hypothesis of dichotomy is not universal, but may have a limited application

This essay has shown that in liberal democracies such as the US, the hypothesis of dichotomy may hold: emergency provisions do tend to increase security and, at the same time, reduce liberties.  However, even in the case of the US, this analysis proved simplistic – in sacrificing liberties in the name of security, the US may have increased its security threats by losing legitimacy.  Further, in the face of non-liberal polities and aspiring democracies, this dichotomy does not hold except for in the simplest of analyses.  In China, without access to emergency provisions, the government may not have even aspired towards rule by law.  In East Timor, the rule of law may have fallen apart were it not for emergency provisions.  In each case, the liberty and security increase hand in hand, not in the inverse manner proposed by this hypothesis.  This result may be explained by the normative goals of the government and the socioeconomic zeitgeist of the nation applying emergency laws, as well as the magnitude of the threat.  In the US, with a normative underpinning in the rule of law, and a country rich and developed enough to be resilient, the analysis may prove an effective tool for the populace and academia to judge proposed emergency provisions – is the citizen willing to give up this liberty to protect against that security threat?  In China, which lacks such a normative underpinning (instead being focussed on real and tangible increases in output) such an analysis fails to account for the fragility of the government’s attachment to law.  In East Timor, a nation in a fragile socio-economic state – where there is little resilience in the rule of law, such an analysis fails to account for the loss of liberty associated with the loss of the rule of law.

The dichotomy hypothesis may be an important tool, but it is a tool with a scope limited to established liberal democracies with the rule of law and socioeconomic sophistication.  The inverse relationship between liberty and security in emergency provisions may be helpful, but it is by no means universal.

After the jump: Footnotes, Bibliography and Related Articles

Since the beginning of  February, after spending the summer in Sri Lanka and India, I have been living in Copenhagen, and studying at the University of Copehnagen, Denmark, on exchange.

Finding home

When I arrived, in clothes more appropriate to Goa than to Scandinavia, I immediately caught a train to the city and wandered around, somewhat uselessly, trying to find my Kollegium (residential college).  I found the cool new modern one – Tietgen – I found the university’s main campus, I seemed to find anything but my place.  Finally, giving up, I jumped into a cab, who could at least  ask strangers in Danish where we were going.

So, the sun was beginning to set on this beautifully Baltic day and I arrived at my college … only to find that my residential contract didn’t start for a few days yet!  I dropped my bags off at the rooms of some random, but awesome, American mates I made on my way to the College, and, in a panic, I called Sarah, my awesome friend from Australia, who would also be my roommate in college.

She told me of a “Generator Hostel” in town which had a few rooms to spare, and off I was!  A bit of negotiation with the lady at the front desk and I was put in a 6 bed dorm that was empty, a private room for a fraction of the price!

A few days later, after the contract started, after a tour around the college by this massive creeper of an Argus Filch type character – our college’s caretaker, I got to see my room.

When you walk in the door, there is an awesome modern kitchen/living area filled with top class appliances and wonderful things.  Everything built-in seems to be great quality.  Everything that is replaceable seems to be Ikea.  There is lots of light, and the place looks really promising!

My room is a little spartan, a snug single bed, a small desk and a dresser, that is it.  No ceiling lights, just a lamp – quite dark, but quite big.  Good enough for me, especially after my time in the subcontinent.  One thing though, the lack of light has me studying much more in the common areas than in my room.

My roommates are spectacular:

  • Sarah – my awesome friend from Australia
  • Paul – a tank American both from New Jersey and Texas
  • Nanna – a Signalhuset veteran who is Danish

We cook and eat and party together, and we are a really great bunch!

The University

University of Copenhagen

Image via Wikipedia

I am a student at Copenhagen University, an old university built right into the centre of the city.  Where UTS has it’s ’70’s brutalist tower, CPH U has its more than 100 year old buildings, and annexes where we study.

This semester I am studying three subjects, each taught in a seminar style (do lots of readings before class, discuss and apply them in class – no “lecture” to give you all the info if you are lazy).

The first is World Trade Organisation, easily my favorite class so far.  The professor has practical experience in the WTO, and is extremely dynamic and inspiring.  WTO law is different to most international law – its cases make it exciting! And, the cherry on top, each week we moot the case we read, giving us an even greater insight into the reasoning and judgments.

The second class is States of Emergency, Emergency Powers and Liberal Democracy.  This class is intense – three hour lectures after reading approximately 150 pages a week, each week dealing with many models and at least a few examples of the application of these models.  Although it is quite a hectic subject, it is also extremely fascinating.

Finally, I also study Rights of the Child in International Law.  This class, like most basic international law classes, is quite obtuse.  It teaches us why we have the conventions we do, how people are still breaching them, and why we can’t do anything about it.  It is a little depressing and filled with cultural relativism, but I hope that once we got onto the topics that have been litigated – namely Child Soldiers, that the subject will improve.

I’ll keep you all posted!

This series, in three parts, will seek to show how trade may be modelled using two production possibility frontiers derived from the specific factors model, explaining relative advantage based on factor endowments in the process.

In international economics, we were introduced to the Specific Factors Model (“SFM”), to allow us to model the differences between two simplified economy’s Production Possibility Frontiers.  This article will seek to explain this model, as it is quite powerful, simple, and useful.

Article 1 – the PPF:

Section 1 will discuss the SFM;

Section 2 will discuss Cobb-Douglas Production Functions;

Section 3 will construct a PPF for a single economy;

Article 2 – trade

Section 4 will introduce another economy into the mix;

Section5 will explore the effects of different factor endowments on trade; and,

Article 3 – Rybczynski’s Theorem

Section 6 will explore the effects of changing the factor endowments of an economy.

Section 1: The Specific Factors Model

In order to construct a PPF, we must first explore the SFM, most importantly, discussing its assumptions and limitations.  Modelling an economy using the specific factors model is quite simple, since there are only three (in this version of the model, at least) resources in the production process and there are only two sectors in the economy.

Labor is the first resource, and has a few assumptions attached to it.  Firstly, labor is considered homogenous.  Every unit of labor is considered to be identical to every other, and, thus, equally suitable for utilization in either sector of the economy.  Further, labor is perfectly substitutable: that is, a unit of labor can more frictionless, and without loss of productivity, to either sector of the economy.  This is shown below, in Figure 1 and Equation 1.

Specific Factors Model - 1 - Labour is perfectly substitutable

Figure 1: perfectly substitutable labor - when a unit of labor is removed from food production, this model states that exactly the same amount will be added to manufactures production. That is, the amount of labor allocated to manufactures is directly inversely proportional to the amount of labor allocated to food.

Equation 1: Thus, an increase in Labor(Food) necessarily requires a decrease in Labor(Manufactures) since the total amount is constant and they are directly inversely proportional.

For the sake of simplicity, we will call the two sectors of the economy “food” and “manufactures”.  The second and third resources are tied to these sectors, that is, they are the specific factors of production only suitable for use in that specific sector.  Again, for the sake of simplicity, we will call the specific factor for food “Land” and the specific factor for manufactures “Capital”.  These are not substitutable, that is, in this model, you cannot sell Capital to buy Land, and vice-versa.  Furthermore, until we relax the assumption later in the article, the levels of these factors will be considered fixed.

In the production of Food, our relevant inputs are the labor allocated to food production – “Labor(Food)” – and Land; in the production of Manufactures, the relevant inputs are the labor allocated to the production of manufactures – “Labor(Manufactures)” – and Capital.    Since Land and Capital are considered fixed, the only factor that can change is the allocation of labor, and, as discussed above, these are intrinsically linked.

In order to continue, we must now model the effect of a change in labor on the production of each resource: we must model the Production Function for Manufactures, which brings us to our second section.

Section 2: The production function

There are many methods for constructing production functions, which most of you would have learned in introductory economics.  The SFM uses a Cobb-Douglas Production Function, since it displays many attributes which help to make this model more accurate.  Further, since there are two sectors in this economy, it is easiest to model each sector’s production function separately.

2.1 – The Production Function of Food

The production function for Food is described by the following equation, Equation 2.  The Cobb-Douglas production function allows us to create a set of production functions, one for Food and one for Manufactures, which will help us synthesize our PPF.

Equation 2: the Cobb-Douglas Production Function for Food Production. The Cobb-Douglas production function allows us to create a set of production functions, one for Food and one for Manufactures, which will help us synthesize our PPF

Equation 2: the Cobb-Douglas Production Function for Food Production.

First, as always, it is easiest to understand this equation if its elements are explained.

  • Output, here  is the amount of food produced at each input coördinate (each selection of labor and land).
  • Labor, here is Labor(Food).
  • Alpha is the weight of labor in food production, which is directly and inversely proportionate to the weight of Land in food production.  If Alpha is higher, food output is more influenced by Labor than by Land.
  • K represents the specific factor, here, land is the specific factor of production connected to food.
  • 1-Alpha is the weight of land in food production.

2.2 – Marginal Product of Labor in Food production

In this model, Land is fixed, thus, we must model what happens to food output as the only dynamic factor, labor, changes.  Whilst this may be done by inputting different values for labor into Equation 2 (which will give a certain curve for given values of land and alpha), this method is clumsy, since it only describes one production function.  By deriving the production function with respect to labor (Equation 3) we get the Marginal Product of Labor (“MPL”), which allows us to prove certain traits about any production function.

The Marginal Product of Labor

The MPL is reached by deriving the production function with respect to labor, and describes the increase in food output for each unit increase in labor.

Equation 3: The MPL is reached by deriving the production function with respect to labor, and describes the increase in food output for each unit increase in labor.

This equation allows us to ascertain the following:

  • Firstly, the marginal product of labor is always positive (since MPL>0), that is, for each unit increase of labor, there will always be some increase in food output.
  • Secondly, the marginal product of labor is always decreasing (for any positive value of K and L, MPL is positive), that is, each unit of labor has a subsequently decreasing effect on Food output.
  • Finally, that the MPL is directly related to the ratio of the specific factor (K, which here represents Land) to labour.

This allows us to sketch the production function for food: Figure 2.

Specific Factors Model - 2 - Food Production

Figure 2: The Production Function of Food

Why the decreasing marginal product?  Basically, this can be explained by Equation 3: we see that the marginal product of labor is specifically determined by the ratio of labor to land.  Where there is no labor, a single unit increase will be very effective in increasing food production.  This worker will have lots of land to till, and will not be limited by land.  However, where there are more and more workers, the Land will become saturated, and each unit increase of labor will have decreasing additional productivity.

Whilst some models allow for a negative marginal product to reflect the extreme of inefficiency which can occur when a factor is saturated, in using Cobb-Douglas Production Functions, this is not possible.

2.3 The marginal product of land in Food

This model assumes that land is fixed.  However, if it were to be modified, its marginal product would be expressed by deriving the production function with respect to land (equation 4).

Equation 4.2 the Marginal Product of the Specific Factor

Equation 4.2 the Marginal Product of the Specific Factor, here "K" represents land

2.4 The production function for manufactures

In expressing the production function of manufactures with a Cobb-Douglas function (equation 5), the function (Figure 3) and the marginal products (Equation 6, 7) will be almost identical to the functions discussed in sub-s 2.1-2.3, above, substituting what we define K as (above, it represented Land, here, it represents Capital).

Figure 3: the production function of Manufactures

Figure 3: the production function of Manufactures

Part 3: Constructing a PPF for a single economy

Thus, we now have the labor function (derived in s 1), and the production functions of manufactures and food (derived in s 2) with respect to changes in labor.  These three diagrams allow us to construct a production function for this economy: that is, what are the maximum production points available in the economy for food and manufacture outputs, and what are the points in between which utilize all resources.

So, first, lets sketch out what the final axes will look like:

Axes of the SFM

Figure 4: Axes of the Specific Factors Model

So, if you look closely at the axis above, and at the figures we have created in the sections above, you can see that we can already fill in three quadrants from what we have derived above, with some flipping of course:

  • Figure 1 (Labour is Substitutable) fits into the bottom left quadrant;
  • Figure 2 (Production function of Food) fits into the bottom right quadrant; and,
  • Figure 3 (Production function of Manufactures) fits into the top left quadrant.

Thus, only by flipping what we have above, we can create the following:

Figure 5: What we have already

Figure 5: What we have already

But we need to populate the top right quadrant: the production of food v the production of manufactures in the particular economy, since this graph internalises the use of all specific factors,and represents the PPF of the economy.  But how do we do this?  Well, in the same method that we are used to from creating the IS/LM curve in macro-economics (if you haven’t, try follow along anyway, it is quite intuitive).

So, the first thing we do is choose a point on the the labor spectrum, and we trace it to both production functions, and see where they intersect in the PPF’s plane (basically, we create the dotted line squares you see below).

Figure 6: Creating the PPF

Figure 6: Creating the PPF

Thus, now we have a Production Possibility Frontier that is not invented, but, rather, constructed based on an economy’s access to labor, capital and land.  This article has shown you how to build a PPF from information about factors of production in the Specific Factors Model.  The next article will introduce a second economy and show the effects on trade of different factor endowments.