Law Commons^™

The Trade-Off Between Tax Administration And Tax Compliance, David A. Weisbach

Coase-Sandor Working Paper Series in Law and Economics

This paper revisits optimal tax enforcement policy, focusing on two elements of that policy: (1) the optimal mix of government-level tax administration and individual-level tax compliance; and (2) the optimal mix of this combination (together, tax enforcement) and tax rates. The standard view is that we should weight tax administration but not tax compliance by the government’s cost of funds because we must pay for tax administration, but not compliance, through disorting taxes. As a result, we might want to rely on tax compliance measures even when using tax administration would otherwise be less expensive. Using a flexible model that …

The Legal Envelope Theorem, Daniel A. Weisbach, Daniel J. Hemel

Coase-Sandor Working Paper Series in Law and Economics

Non-tax legal rules regulating the workplace, the 6inancial sector, real property, and many other areas affect the ability of governments to collect revenues and provide public goods. Yet tax-collection considerations rarely enter into economic analyses of non-tax legal rules. Usually, tax-collection concerns are shunted aside to separate studies (and separate law-school courses) rather than being integrated into debates in non-tax spheres. This separation between non-tax legal rules and tax- collection considerations bears signi6icant negative consequences for the ability of law and economics to generate descriptively accurate and normatively attractive accounts of important non-tax legal questions.

This Article takes a step …

Employer Neighborhoods And Racial Discrimination, Amanda Y. Agan, Sonja B. Starr

Coase-Sandor Working Paper Series in Law and Economics

Using a large field experiment, we show that racial composition of employer neighborhoods predicts employment discrimination patterns in a direction suggesting in-group bias. Our data also show racial disparities in the geographic distribution of job postings. Simulations illustrate how these patterns combine to shape disparities. When jobs are located far from Black neighborhoods, Black applicants are doubly disadvantaged: discrimination patterns disfavor them, and they have fewer nearby opportunities. Finally, building on prior work on Ban-the-Box laws, we show that employers in less Black neighborhoods appear much likelier to stereotype Black applicants as potentially criminal when they lack criminal record information.

Remixing Resources, Lee Anne Fennell

Coase-Sandor Working Paper Series in Law and Economics

This essay argues for an approach to resource access that connects rather than separates questions of efficiency and distribution. It proceeds from the premise that putting together the most valuable combinations of resources—including human capital—is of central and increasing normative importance. Structuring law to facilitate these combinations should be a primary task for property scholars working in the law and economics tradition. Doing so requires engaging with the processes through which complementary resources produce value in a modern society, recognizing how property doctrines work to put together and keep together complementary resource sets, and confronting the ways in which material …

The Boundaries Of Normative Law And Economics, Eric A. Posner

Coase-Sandor Working Paper Series in Law and Economics

Normative law and economics remains controversial decades after its emergence despite its successes in legal scholarship and its similarity to influential approaches in economics. The reason is that many of its proponents have exaggerated its value for policy while discounting other methods, tainting the enterprise. Normative law and economics as a method of policy analysis properly operates within narrow boundaries defined by its four main premises: (1) welfarism based on unrestricted preferences; (2) unimportance of distributional effects; (3) unimportance of impacts on non-welfare values; and (4) rational instrumental behavior of affected persons. Scholars have made progress in normative law and …

Mopr Madness, Joshua Macey, Robert Ward

Coase-Sandor Working Paper Series in Law and Economics

Synopsis: Five years ago, in his piece on capacity markets, Jay Morrison dis-cussed what he then viewed as the anticompetitive and arbitrary aspects of FERC’s shifting Minimum Offer Price Rules (MOPR) and their interference with private ordering and state policy making. MOPRs allow administrative bodies, rather than market participants, to determine the minimum price per kilowatt that generators can submit as capacity market bids. Since then, energy regulators have extended MOPRs to an increasing number of market participants, and critiques of these rules have reached a fever pitch. To say that the latest permutation of price mitigation promotes a cure …

The Tax Elasticity Of Financial Statement Income: Implications For Current Reform Proposals, Dhammika Dharmapala

Coase-Sandor Working Paper Series in Law and Economics

Current reform proposals in international and corporate tax (most notably the OECD’s GloBE proposal) envisage taxing financial statement income. This paper develops a conceptual framework – based on the literature on the elasticity of taxable income – for the welfare analysis of such proposals, and discusses the available evidence on the tax elasticity of financial statement income. The central conclusion is that the most relevant evidence suggests a large responsiveness of financial statement income to taxes (and hence, albeit with significant limitations and caveats, arguably a large deadweight loss). The paper also highlights the need for more evidence on this …

Trademark Law Pluralism, Daniel J. Hemel, Lisa Larrimore Ouellette

Coase-Sandor Working Paper Series in Law and Economics

In recent years, trademark scholars have come to recognize that the supply of words, sounds, and symbols available to designate new goods and services is an exhaustible resource. In certain sectors, the most common English words and syllables and the most common U.S. surnames are almost all claimed as marks. Some firms have responded by resorting to ever-more-unusual brand names so as to avoid trademark disputes. Scholars have proposed solutions ranging from raising registration fees to narrowing the scope of trademark rights.

In this Article, we frame trademark law’s governance of “linguistic space” as a balancing act between what we …

Productivity, Prices And Productivity In Manufacturing: A Demsetzian Perspective, Sam Peltzman

Coase-Sandor Working Paper Series in Law and Economics

Concentration has increased since the 1980s in a variety of industries. Price-cost margins have also increased over this period. These developments have raised concern about weakened competition and resulting harm to consumers. Calls for tougher antitrust enforcement have become louder. Many years ago Harold Demsetz (1973) cautioned against inferring weakened competition from a confluence of rising margins and concentration. He argued that productivity differences across firms were a potential “omitted variable.” This paper provides evidence on the interplay between concentration, prices and productivity across several hundred US manufacturing industries over two 15 year periods from 1982-2012. The consistent pattern is …

Rethinking Nudge: An Information-Costs Theory Of Default Rules, Oren Bar-Gill, Omri Ben-Shahar

Coase-Sandor Working Paper Series in Law and Economics

Policymakers and scholars – both lawyers and economists – have long been pondering the optimal design of default rules. From the classic works on “mimicking” defaults for contracts and corporations to the modern rush to set “sticky” default rules to promote policies as diverse as organ donations, retirement savings, consumer protection, and data privacy, the optimal design of default rules has featured as a central regulatory challenge. The key element driving the design is opt-out costs—how to minimize them, or alternatively how to raise them to make the default sticky. Much of the literature has focused on “mechanical” opt-out costs—the …

Property As The Law Of Complements, Lee Anne Fennell

Coase-Sandor Working Paper Series in Law and Economics

Resources often produce more value in combination than they do separately: think of segments of a highway or parts of a machine. I argue that property’s defining purpose is to group together complements, and that property law and theory should focus on identifying and realizing valuable bundles of resources. While some complementarities align with traditional asset boundaries and can be protected by exclusion rights, realizing others requires crossing or eschewing boundaries to recombine resources in ways that further larger social, economic, or ecological objectives. The gains associated with the entrenching and excluding functions of property thus vie with the gains …

Indexing, Unchained, Daniel J. Hemel

Coase-Sandor Working Paper Series in Law and Economics

Inflation indexing is an important and controversial issue in the design of tax systems and transfer programs. The choice of whether—and how—to adjust policy parameters for inflation carries significant political, distributional, and macroeconomic implications. In recent years, indexing has gained particular attention in three policy contexts: (1) whether to switch from an “unchained” to “chained” inflation index when calculating Social Security benefits; (2) whether to make a similar unchained-to-chained shift when setting federal income tax parameters such as bracket thresholds and deduction amounts; and (3) whether to index basis for inflation when calculating capital gains. Hundreds of billions of dollars …

State Politics And Mortgage Markets, Brian D. Feinstein, Chen Meng, Manisha Padi

Coase-Sandor Working Paper Series in Law and Economics

This article examines whether elections for state offices that regulate mortgage lenders affect mortgage markets. Some scholars assert that election-related political uncertainty depresses economic activity; others contend that incumbents pursue policies to boost short-term growth prior to elections; and a third group claims that market activity fluctuates around partisan transitions. We test these theories using national data on mortgage characteristics and election data for two important state regulators. We first conduct event studies comparing mortgage market outcomes before and after elections. We then utilize difference-in-difference models to compare states in which partisan control of key offices switched following an election. …

The Economic Basis Of The Independent Contractor/Employee Distinction, Eric A. Posner

Coase-Sandor Working Paper Series in Law and Economics

In recent years, a controversy has erupted over the distinction between employees and independent contractors. Commentators have argued that in the modern “gig economy,” many people traditionally classified as independent contractors are as vulnerable as employees and should be granted the legal protections that employees alone normally enjoy. However, the distinction between the two categories remains inescapable, and the theoretical basis for it has not been identified. I argue that the distinction is derived from market structure. Employees are workers who, because they must make relationship-specific investments in a single firm, are subject to labor monopsony. Independent contractors do not …

Immunity Passports And Moral Hazard, Daniel J. Hemel, Anup Malani

Coase-Sandor Working Paper Series in Law and Economics

The idea of using “immunity passports” to restart the economy before the arrival of a SARS-CoV-2 vaccine has attracted increasing attention as the Covid-19 crisis has escalated. Under an “immunity passport” regime, individuals who test positive for SARS-CoV-2 antibodies would receive certificates allowing them to return to work and potentially to participate in a broader range of activities without social distancing. One concern raised by the “immunity passport” proposal is that not-yet-infected individuals would have an incentive to expose themselves to the virus intentionally so that they can develop antibodies and obtain passports. This paper evaluates the moral-hazard risk that …

Political Ideology And The Law Review Selection Process, Adam Chilton, Jonathan S. Masur, Kyle Rozema

Coase-Sandor Working Paper Series in Law and Economics

We investigate the role that political ideology plays in the selection process for articles in law reviews. To do so, we match data on the political ideology of student editors from 15 top law reviews from 1990 to 2005 to data on the political ideology of the authors of accepted articles. We find that law review with a higher share of conservative editors accept a higher share of articles written by conservative authors. We then investigate potential explanations for this pattern. One possibility is that editors have a preference for publishing articles written by authors that share their ideology. Another …

Changing Places, Changing Taxes: Exploiting Tax Discontinuities, Julie Roin

Coase-Sandor Working Paper Series in Law and Economics

President Trump’s decision to move his official state of residence from high-tax New York to no (income)-tax Florida has brought public attention to an issue that has long troubled scholars, designers and administrators of income tax systems: how the interaction of tax rules deferring the taxation of income and tax rules based on residency allows taxpayers to reduce and even avoid taxation of their deferred income. These discontinuities in tax treatment may lead to excessive migration, as well as reductions in state income tax revenues. This article explains what states would have to do to eliminate these avoidance opportunities. However, …

Outside Advisers Inside Agencies, Brian D. Feinstein, Daniel J. Hemel

Coase-Sandor Working Paper Series in Law and Economics

Advisory committees are a ubiquitous, yet understudied feature of the administrative state. More than seventy-five thousand experts from out-side the federal government serve on over one thousand committees across the Executive Branch, providing agencies with informed “second opinions” to complement their in-house experts in the civil service. By law, these committees must be “fairly balanced in terms of the points of view represented.” Yet little is known about whether advisory committees live up to this standard, under what circumstances agencies utilize these panels, and how advisory committees influence agency decision-making.

This Article sheds light on the composition and operation of …

Sizing Up Categories, Lee Anne Fennell

Coase-Sandor Working Paper Series in Law and Economics

Categories intentionally create discontinuities. By breaking the world up into cognizable chunks, they simplify the information environment. But the signals they provide may be inaccurate or scrambled by strategic behavior. This Article considers how law might approach the problem of optimal categorization, given the role of categories in managing and transmitting information. It proceeds from the observation that high categorization costs can be addressed through two opposite strategies—making classifications more fine-grained (splitting), and making classifications more encompassing (lumping). Although continuizing and other forms of splitting offer intuitive answers to inaccurate classification and gaming along category lines, lumping is sometimes a …

Policy Implications Of The Common Ownership Debate, Eric A. Posner

Coase-Sandor Working Paper Series in Law and Economics

The debate over common ownership initiated by Azar, Schmalz, and Tecu’s paper on airlines has raised questions about what, if any, policy responses are appropriate when common owners reduce competition in product markets. This paper, a response to a symposium for Antitrust Bulletin, reviews the literature on policy responses and evaluates various reform proposals in light of recent empirical and theoretical developments.

The Economic Basis Of The Independent Contractor/Employee Distinction, Eric Posner

Coase-Sandor Working Paper Series in Law and Economics

In recent years, a controversy has erupted over the distinction between employees and independent contractors. Commentators have argued that in the modern “gig economy,” many people traditionally classified as independent contractors are as vulnerable as employees and should be granted the legal protections that employees alone normally enjoy. However, the distinction between the two categories remains inescapable, and the theoretical basis for it has not been identified. I argue that the distinction is derived from market structure. Employees are workers who, because they must make relationship-specific investments in a single firm, are subject to labor monopsony. Independent contractors do not …

Drugs, Patents, And Well-Being, Christopher Buccafusco, Jonathan S. Masur

Coase-Sandor Working Paper Series in Law and Economics

The ultimate end of patent law must be to spur innovations that improve human welfare—innovations that make people better off. But firms will only invest resources in developing patentable inventions that will allow them to make money—that is, inventions that people will want to use and buy. This can gravely distort the types of incentives that firms face and the types of inventions they pursue. Nowhere is this truer than in the pharmaceutical field. There is by now substantial evidence that treatments for diseases that primarily afflict poorer people—including the citizens of developing nations—are dramatically under-produced, compared with drugs that …

Innovation Institutions And The Opioid Crisis, Daniel J. Hemel, Lisa Larrimore Ouellette

Coase-Sandor Working Paper Series in Law and Economics

The United States has recently—and belatedly—come to recognize opioid addiction as a public health crisis. What has gone mostly unrecognized is the degree to which this crisis is intertwined with U.S. intellectual property law and related elements of U.S. innovation policy. Innovation institutions—the legal arrangements that structure incentives for production and allocation of knowledge goods—encouraged the development and commercialization of addictive painkillers, restricted access to opioid antidotes, and (perhaps most importantly) failed to facilitate investments in alternative, non-addictive treatments for chronic pain. Although innovation policy does not bear all the blame for the opioid wave that has washed over communities …

Chevronizing Around Cost-Benefit Analysis, Jonathan S. Masur, Eric A. Posner

Coase-Sandor Working Paper Series in Law and Economics

The Trump administration’s efforts to weaken regulations are in tension with cost-benefit analysis, which in many cases supports those regulations or otherwise fails to support the administration’s deregulatory objectives. Rather than attempting to justify its actions as a matter of policy preferences, the administration has responded on multiple occasions by using Chevron to interpret statutes so as to evade cost-benefit analysis. The statutory interpretation route, which we call “Chevronizing” around cost-benefit analysis, creates novel challenges for courts, as it pits traditional Chevron deference against a trend in favor of requiring agencies to regulate based on cost-benefit analysis as a matter …