It Should Pay to be Super

I’ve had a difficult time watching superhero movies the past few years. Not because they lack quality (though perhaps true), but because they rely on bad economics. To justify this claim, I propose an answer to the eponymous question: why wouldn’t there be superheroes?

The Gotham Problem

Imagine you live in Gotham City, where there is rampant crime. This ceaseless villainy is not only normatively bad, but also drives real estate prices down. Then Batman shows up, reducing said crime. Do the people of Gotham celebrate? Probably! After all, Batman made the city safer (and raised the value of their homes). We may infer that the Gotham police tried their best, but the marginal police officer’s salary can’t increase property values enough to warrant their hiring.

The introduction of the Caped Crusader has changed the “optimal” level of crime from “mafia boss running every street” to “avoid committing premeditated crimes at night.” If Batman can achieve these higher real estate prices at a cost lower than the benefit he’s bequeathed upon the city, then we’re left to conclude that Batman is GCPD’s most desired hire, but that he simply refuses the salary. Though Batman’s actions have created value, citizens don’t proportionately respond to the effort Batman put into crime-fighting. That is, property values are discounted by the uncertainty everybody faces with Batman staying anonymous and with unclear incentives.

In a sense, there is a market failure: the people of Gotham would gladly pay Batman to perform his services, but because he rejects their payment, he is artificially reducing the value of the services provided, even if he would perform the same services upon payment rendered.

Benjamin Klein and Keith Leffler’s wonderful paper “The Role of Market Forces in Assuring Contractual Performance” implicitly claims that any introduction of transaction costs requires an investment in hostage capital by the producer and the payment of a price premium by the consumer (assuming neither supply nor demand is perfectly elastic/inelastic). For example, Gucci sells a “high-quality” shirt, and you want it. But for the prices they charge, you want to know you’re getting something of truly high quality. An element of mistrust might act as a transaction cost that prevents the sale. To solve this problem, Gucci invests in capital (their brand name), which only holds value if their shirts are up to snuff. The expense of establishing the brand only pays off if the product actually is what it’s claimed to be. We call this “hostage capital” because Gucci is giving you a hostage: their brand name.

But producers and consumers bear costs (here’s a refresher, treating tax as a cost). Consumers “absorb” the cost of mistrusting the transaction by raising the price they pay to incentivize the producer towards providing the correct service. If consumers can’t rely on providers’ goodwill (hostage capital), paying higher prices is necessary to maximize gains from trade.

With Great Power, Comes Great… Fiduciary Responsibility?

Back to superheroes: that Spider-Man isn’t paid should result in an extremely sub-par outcome where home values in New York don’t consequently rise in value because nobody can really trust that Spider-Man will fight crime in perpetuity, and to the same level. We often envision heroes as not taking payment—perhaps a good person wouldn’t “do it for the money.” But payment is nonetheless required for people to maximize the value of Spider-Man’s crime-fighting. The only way consumers could maximize the value of Spider-Man’s gift is if Spider-Man loved crime-fighting so much that he covered the entire transaction cost by investment in hostage capital (in other words, he has a perfectly inelastic supply curve).

This is why we shouldn’t assume superheroes would exist, even if super-powered people did: because neither bystanders nor superheroes are maximizing on superpowers by donning a mask and fighting crime for free.

Uncle Ben’s famous words of wisdom to Spider-Man, that “with great power comes great responsibility,” may be normatively true. Still, innocent bystanders (you and I) should want Spider-Man to have a fiduciary responsibility, not only a moral one. There is no physical cost felt by Spider-Man when he neglects his duties, but his neglecting them inflicts a high cost on his constituents! Unless bystanders can be utterly convinced that Spider-Man will never neglect his duties (which he does on several occasions), we should always want Spider-Man to make money.

But my answer here is a bit facetious. I said superheroes don’t exist because the value of their labor isn’t maximized by fighting for free. Though many superpowers plainly don’t exist (thus rendering the likes of Spider-Man impossible by default), there are people with extraordinary mental and pecuniary capabilities. But in a world that doesn’t pay superheroes, why would we expect them? To be blunt, I would only let a radioactive spider bite me if (and only if) a clear financial gain were in order.

Superpowers aside, why doesn’t Elon Musk become Batman? Put simply, in the real world, that’s not his “superpower.” The value he can provide the world is maximized not by crime-fighting, even if he can afford a Batcave. Rather, he provides value from other industrial pursuits. What this should suggest is that the marginal benefit of reducing crime is not actually very high, and that if Bruce Wayne existed in real life, he might consider running Amazon as his contribution to the world. Maybe Elon Musk doesn’t care about making money, but we nonetheless pay him to impose a fiduciary responsibility to properly maximize the value of his contributions.

In conclusion, perhaps my eponymous question was a trick. “Superheroes” do exist, but they’re (1) paid and (2) not reducing crime, because the market signals to them that the marginal benefit in doing so is extremely low.

Not only do powerless superheroes already exist, but powered superheroes as comics present them necessarily create a state of the world where nobody has any incentive to even have superpowers (or at least, use them for “good”). Thus, every superhero movie implicitly assumes that markets don’t clear. If superheroes actually made no money, it would more likely suggest they aren’t performing any service worth paying for!