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Did Reform Of Prudent Trust Investment Laws Change Trust Portfolio Allocation?, Max M. Schanzenbach, Robert H. Sitkoff

Law and Economics Papers

This paper investigates the effect of changes in state prudent trust investment laws on asset allocation in noncommercial trusts. The old prudent man rule favored “safe” investments

such as government bonds and disfavored “speculation” in stock. The new prudent investor rule, now widely adopted, relies on modern portfolio theory, freeing the trustee to invest based on risk and return objectives reasonably suited to the trust and in light of the composition of the trust portfolio as a whole. Using state- and institution-level panel data from 1986-1997, we find that after a state’s adoption of the new prudent investor rule, trust …

The Lurking Rule Against Accumulations Of Income, Robert H. Sitkoff

Law and Economics Papers

The Rule Against Perpetuities is dying an ignoble death. To attract trust business and the lawyers' fees and trustees' commissions that come with it, twenty states have abolished the Rule as applied to interests in trust. But the Rule Against Perpetuities is not the only rule of property law that bears on trust duration. Another is the rule against accumulations of income, which limits the timeframe during which a settlor may direct the trustee to accumulate and retain income in trust. For 200 years, the rule against accumulations of income has lurked in the shadow of its older and more …

Handcuffing Justice: The Shaky Empirical Foundations Of The Feeney Amendment, Max Matthew Schanzenbach

Law and Economics Papers

The United States Sentencing Guidelines greatly restrict the sentencing discretion traditionally vested in district court judges. Since their adoption in 1987, federal judges have criticized the Guidelines more sharply than any other federal law. In 2003, Congress overwhelmingly passed the PROTECT Act. The Feeney Amendment to the Act, added late in the process, imposed further restrictions on judicial discretion in sentencing. Supporters of the Amendment argued that federal district court judges were increasingly departing below the ranges specified in the Sentencing Guidelines. Using data on all federal criminal sentences between 1993 and 2001, this essay argues that the empirical evidence …

Jurisdictional Competition For Trust Funds: An Empirical Analysis Of Perpetuities And Taxes, Robert H. Sitkoff, Max Matthew Schanzenbach

Law and Economics Papers

This paper presents the results of the first empirical study of the domestic jurisdictional competition for trust funds. In order to open a loophole in the federal estate tax, a rash of states have abolished the Rule Against Perpetuities. Based on reports to federal banking authorities, we find that through 2003 a state's abolition of the Rule increased its trust assets by $6 billion (a 20 percent increase on average) and increased its average trust account size by $200,000. These estimates imply that roughly $100 billion in trust funds have moved to take advantage of the abolition of the Rule. …

What'd I Say?: Coase, Demsetz And The Unending Externality Debate, Fred S. Mcchesney

Law and Economics Papers

Economists study various problems referred to as "market failure" - situations that, at least potentially, justify government intervention to solve them. Externalities (or "social costs") are viewed as perhaps the greatest market failure problems. The externality issue has also occasioned much re-thinking of fundamental economic principles, particularly in the context of Ronald Coase's article on "The Problem of Social Cost." Coase explained that externalities manifested a more fundamental issue in economics, the costs of transacting over rights to affect other's welfare. Following Coase's work, economists almost reflexively consider social costs problematic only when transaction costs are relatively high. Yet, Coase's …