Law Commons^™

Modular Bankruptcy: Toward A Consumer Scheme Of Arrangement, John A. E. Pottow

Law & Economics Working Papers

The world of international bankruptcy has seen increasing use of the versatile scheme of arrangement, a form of corporate reorganization available under English law. A key feature of the scheme is its modularity, whereby a debtor can restructure only a single class of debt, such as bond indentures, without affecting other debt, such as trade. This is the opposite of chapter 11 of the U.S. Bankruptcy Code’s comprehensive reckoning of all financial stakeholders. This article considers a novel idea: could the scheme be transplanted into the consumer realm? It argues that it could and should. Substantial benefits of more individually …

Liability For Non-Disclosure In Equity Financing, Albert H. Choi, Kathryn E. Spier

Law & Economics Working Papers

The paper analyzes the effects of holding firms liable for non-disclosure of material information when raising capital. We develop a model in which a privately-informed entrepreneur can choose to withhold information from prospective investors when issuing and selling stock and the investors can bring suit against the firm ex post for (alleged) non-disclosure. The damage payment received by the investors is partially offset by the reduced value of their equity stake. The analysis shows that the equilibrium depends on, among others, (1) the amount of personal capital the entrepreneur has to commit, (2) the frequency with which the entrepreneur is …

Why Can't I Get Pliny The Elder? Beer Distribution Law In Michigan, Kincaid C. Brown

Law Librarian Scholarship

If you are a craft beer drinker, you have noticed that there are many beers brewed in the United States that you cannot buy in Michigan, like California-based Pliny the Elder. You will have also noticed that there are many craft beers brewed in Michigan that you cannot buy at your local grocery store or bottle shop. Why is that the case? The short answer is because Michigan law mandates that beer pass through what’s known as a three-tier distribution system. This article outlines what a three-tier distribution is, what it means for Michigan brewers and beer drinkers,

Contract Design When Relationship-Specific Investment Produces Asymmetric Information, Albert H. Choi, George Triantis

Articles

Under conventional contract theory, contracts may be efficient by protecting relationship specific investment from holdup in subsequent (re)negotiation over terms of trade. This paper demonstrates a different problem when specific investment also provides significant private information to the investing party. This is fairly common: for example, a manufacturer invests to learn about its buyer's idiosyncratic needs or a collaborator invests to learn about a joint venture. We show how such private information can lead to subsequent bargaining failure and suboptimal ex ante relationship-specific investment. We also show that this inefficiency is worse if the parties enter into a binding and …

Class Actions And Private Antitrust Litigation, Albert H. Choi, Kathryn E. Sprier

Law & Economics Working Papers

When firms collude and charge supra-competitive prices, consumers can bring antitrust lawsuits against the firms. When the litigation cost is low, firms accept the cost as just another cost of doing business, whereas when the cost is high, the firms lower the price to deter litigation. Class action is modeled as a mechanism that allows plaintiffs and attorneys to obtain economies of scale. We show that class actions, and the firms' incentive to block them, may or may not be socially desirable. Agency problems, settlement, fee-shifting, treble damages, public enforcement, and sustaining collusion through repeat play are also considered.

Ecosystem Competition And The Antitrust Laws, Daniel A. Crane

Articles

Conventional antitrust norms analyze market power—as a stepping stone to anticompetitive effects and, hence, prohibited conduct—from the perspective of product substitutability. Two goods or services are said to compete with one another when they are reasonably interchangeable from the perspective of consumers, or to put it in more formal economic terms, when there is cross-elasticity of demand between them. Conversely, when two goods or services are not reasonably interchangeable, they are not horizontally related and are said not to compete with one another. Since a concern over horizontal agreements and horizontal effects dominate antitrust—courts even analyze vertical agreement or merger …

Tesla, Dealer Franchise Laws, And The Politics Of Crony Capitalism, Daniel A. Crane

Articles

Public choice theory has long proclaimed that business interests can capture regulatory processes to generate economic rents at the expense of consumers. Such political exploitation may go unnoticed and unchallenged for long time periods because, though the rents are captured by a relatively small number of individuals or firms, the costs are widely diffused over a large number of consumers. The triggering event to expose and mobilize opposition to the regulatory capture may not arise until a new technology seeks to challenge the incumbent technology, thus creating a motivated champion to expose and oppose the regulatory capture and advocate for …

Michigan Craft Beer Legislation, Kincaid C. Brown

Law Librarian Scholarship

Michigan is currently in the midst of a craft beer boom. The Michigan Brewers Guild’s member list includes more than 150 breweries and brewpubs brewing craft beer. Michigan’s craft beer industry is boosting the state’s economy. According to an analysis by the Brewers Association customized by the Michigan Brewers Guild, the craft beer industry is directly responsible for more than 5,000 Michigan jobs and contributes more than $277 million to the state’s economy and more than $144 million in wages.

Tesla And The Car Dealers' Lobby, Daniel A. Crane

Articles

Tesla Motors, the offspring of entrepreneur Elon Musk (who brought us Pay-Pal and SpaceX), is the most exciting automotive development in many decades and a marquee story of American technological dynamism and innovation. The company’s luxury electric cars have caused a sensation in the auto industry, including a review by Consumer Reports calling Tesla’s Model S the best car it ever tested. Despite the acclaim, Tesla faces enormous challenges Despite the acclaim, Tesla faces enormous challenges in penetrating an automotive market that has been dominated for a century by internal combustion engines. Not only must it build cars that customers …

Tesla And The Car Dealers’ Lobby, Daniel A. Crane

Law & Economics Working Papers

Tesla Motors, the offspring of the South African-American entrepreneur Elon Musk who also brought us Pay-Pal and SpaceX, is the most exciting automotive development in many decades and a marquee story of American technological dynamism and innovation. The company’s luxury electric cars have caused a sensation in the auto industry, including a review by Consumer Reports calling Tesla’s Model S the best car it ever tested.

Tesla faces enormous challenges in penetrating an automotive market that has been dominated for a century by internal combustion engines. Not only must it build cars that customers want to drive (and, ultimately, produce …

The Unrelenting Libertarian Challenge To Public Accommodations Law, Samuel R. Bagenstos

Articles

There seems to be a broad consensus that Title II of the Civil Rights Act of 1964, which prohibits race discrimination in “place[s] of public accommodation,” was a remarkable success. But the consensus is illusory. Laws prohibiting discrimination by public accommodations currently exist under a significant legal threat. And this threat is merely the latest iteration in the controversy over public accommodations laws that began as early as Reconstruction. This Article begins by discussing the controversy in the Reconstruction and Civil Rights Eras over the penetration of antidiscrimination principles into the realm of private businesses’ choice of customers. Although the …

Can Consumers Control Health-Care Costs?, Mark A. Hall, Carl E. Schneider

Articles

The ultimate aim of health care policy is good care at good prices. Managed care failed to achieve this goal through influencing providers, so health policy has turned to the only market-based option left: treating patients like consumers. Health insurance and tax policy now pressure patients to spend their own money when they select health plans, providers, and treatments. Expecting patients to choose what they need at the price they want, consumerists believe that market competition will constrain costs while optimizing quality. This classic form of consumerism is today’s health policy watchword. This article evaluates consumerism and the regulatory mechanism …

Pathway To Minority Shareholder Protection: Derivative Actions In The People's Republic Of China, Donald C. Clarke, Nicholas C. Howson

Book Chapters

Using a dataset of Chinese judicial opinions arising in over fifty cases, this paper analyses the development and current implementation of shareholder derivative actions in the courts of the People’s Republic of China (“PRC”), both before and after the derivative lawsuit was explicitly authorized in the PRC’s 2006 Company Law effective January 1, 2006. In addition, we describe the very unique ecology of enterprise organization and corporate governance in modern China, and critique the formal design of the derivative action and offer reform suggestions. We find the design of the Chinese derivative lawsuit to be, in some respects, innovative and …

Doing Good While Doing Deals: Early Lesson In Launching An International Transactions Clinic, Deborah Burand

Articles

That is not to say that the launch of this clinic was easy. Four of the most challenging issues the ITC faced in its first year of operation were: 1) developing a client pool, 2) defining client projects so as to be appropriate to student clinicians’ skill levels and capacity, 3) making use of efficient and inexpensive technology to foster international communication with clients and transaction management, and 4) tapping supervisory attorney talent capable of supporting student clinicians in their international transactional work. The first two issues were the biggest challenges that we faced in launching the ITC and so …

Implementing The Standby Letter For Credit Convention With The Law Of Wyoming, James J. White

Articles

For the first time in American practice, we propose to implement a convention by a federal adoption of law previously enacted by the states – from Wyoming to New York – to implement the Convention on Independent Guarantees and Standby Letters of Credit (“Convention”).1

Microfranchising: A Business Approach To Fighting Poverty, Deborah Burand, David W. Koch

Articles

Imagine a franchise network that trains, guides, and supports hundreds of poor women with little or no business experience to become successful business owners. Such "microfranchise" efforts, though relatively small in number, have been gathering steam in the development community and, recently, attracting the attention of the mainstream franchising indus- Deborah Burand try. Advocates have seized on microfranchising as a natural complement or follow-on to the widely acclaimed successes of the "microfinance" sector, which provides small-scale finance services to over 150 million of the world's poor. Microfranchising today is where microfinance was a decade or more ago. It is appropriate …

Microfinance Managers Consider Online Funding: Is It Finance, Marketing, Or Something Else?, Deborah Burand

Articles

Online platforms are changing the way we engage with the world. Facebook links, eBay auctions, ePal chats, even Second Life avatars—these are all online platforms that connect people, ideas, products, and markets. These platforms shape who we connect with as well as how we connect. This concept extends to philanthropy: Online philanthropy is changing the nature of how and where people give.1 An outgrowth of online philanthropy is online social investing. Kiva.org is one of the best known online lending and investment platforms. Since its launch in 2005, Kiva has grabbed the attention (and wallets) of over 350,000 online lenders, …

China's Restructured Commercial Banks: Nomenklatura, Nicholas C. Howson

Book Chapters

In the wake of the Asian Financial Crisis of 1997-98, and accelerating after 2003 the People's Republic of China (PRC or China) has implemented an ambitious reform program directed at the commanding heights of what once pa ed for China ' financial system-the large state-owned and state-managed commercial banks. Contrary to a good deal of advice offered by policy and finance specialists, China did not liquidate or fully privatize these institutions. Instead, the PRC sought to avoid the significant social (and no doubt political) cost associated with liquidation, or real privatization, by instead changing (1) the internal dynamics of, and …

Warranties In The Box, James J. White

Articles

Thousands of times each day, a buyer opens a box that contains a new computer or other electronic device. There he finds written material including an express "Limited Warranty." Sometimes the box has come by FedEx directly from the manufacturer; other times the buyer has carried it home from a retail merchant. Despite the fact that it is standard practice for the manufacturer to include a limited written express warranty on the sale of such products,' and despite the fact that both the manufacturer and the buyer believe that warranty to be legally enforceable, the law on its enforceability is …

The Cash Nexus, Carl E. Schneider

Articles

Courts and legislatures have labored for decades to protect patients' choice of medical treatments, even though patients seize that gift less eagerly than lawmakers expect. Yet while courts have rushed to build the whited sepulchre of informed consent, they have fled from a related problem that patients actually yearn to solve and that actually can be ameliorated the plight of patients who perforce agree to a treatment before they know its costs and who receive a bill both unrelated to the treatment's value and several times what an insured patient would pay. Increasingly, patients must be consumers in the medical …

Boilerplate And Economic Power In Auto-Manufacturing Contracts, Omri Ben-Shahar, James J. White

Book Chapters

This chapter examines the boilerplate contracts used by auto makers to procure parts from suppliers. It identifies drafting and negotiation techniques that are used to secure advantageous terms. It also explores some prominent specific arrangements as evidence that firms with bargaining power are exploiting their position to dictate self-serving but inefficient terms. Finally, it shows how standard contractual clauses solve the problem of ex-post hold-up by suppliers.

Boilerplate And Economic Power In Auto Manufacturing Contracts, Omri Ben-Shahar, James J. White

Articles

This Article is structured as follows. Part I compares the terms and conditions in the purchase orders of the Original Equipment Manufacturers (OEMs) and highlights important differences in the substance of these boilerplate provisions. It argues that these differences cannot be easily reconciled with the prediction that sophisticated parties draft the most efficient boilerplate terms. Part II examines how these forms are drafted, how their terms are negotiated, and how the OEMs guard their terms from erosion. It provides some insight on how tailoring occurs and how the internal organization of a party to a deal affects the terms that …

The Deregulation Of International Trucking In The European Union: Form And Effect, Francine Lafontaine, Laura M. Valeri

Law & Economics Working Papers Archive: 2003-2009

This paper examines how the deregulation of the international road transport industry in Western Europe has affected 1- the total quantity of cross-border road transport in the region; 2- the degree to which shippers outsource rather than integrate vertically their cross-border transport needs; and 3- the extent to which different countries participate in international road freight transport in Western Europe. Not surprisingly, we find that deregulation has had a large positive effect on the amount of international road transport net of the effect of the trade ties that grew over time among European Union countries. Moreover, consistent with the fact …

Chuck And Steve's Peccadillo (Symposium: Threats To Secured Lending And Asset Securitization), James J. White

Articles

Are investors in securitized receivables to be treated as the owners of an asset whose sale has taken it beyond the reach of the trustee in bankruptcy of their sellers? O are they to be treated as holders of a security interest in the transferred asset who have left behind an interest in the sellers' hands that would cause the asset to be subject to claims and interference by the sellers' grasping trustee? By adopting contrasting-arguably conflicting-statements in two subsections of a single section, the drafters of 1999 Article 9 have thrust this issue in the faces of courts and …

Contracting Under Amended 2-207 (Freedom From Contract Symposium), James J. White

Articles

Amended Section 2-207 of the Uniform Commercial Code1 (the Code) states new contract rules. I call these "contract rules" to avoid the labels of contract formation and contract interpretation. These new rules cure many of the problems presented by current Section 2-2072 and remind courts that the purpose of Section 2-207 is to interpret a contract that has been made, not to see if a contract exists. One is tempted to label current Section 2-207 as a contract formation provision-and to some extent that would be right-but most of this Section's work has been in contract interpretation, not in contract …

Default Rules In Sales And The Myth Of Contracting Out, James J. White

Articles

In this article, I trace the dispute in the courts and before the ALI and NCCUSL over the proper contract formation and interpretation default rules. In Part II, I consider the Gateway litigation. In Part III, I deal with UCITA and the revision to Article 2. In Part IV, I consider the merits of the competing default rules.

Reverberations From The Collision Of Tort And Warranty (Products Liability Law Symposium In Memory Of Professor Gary T. Schwartz), James J. White

Articles

In his famous Stanford Law Review article, When Worlds Collide,' Professor Marc Franklin foretold the troubles for American law in the impending collision of the tort of strict liability with the warranty of merchantability.2 We daily suffer the reverberations from that collision as courts struggle with the proper application of strict tort liability and breach of warranty in products liability cases. Lawyers who have not studied Article 2 of the Uniform Commercial Code (U.C.C.) are surprised to learn that virtually every buyer who has a strict tort claim for an injury caused by a defective product also has a potential …

Good Faith And The Cooperative Antagonist (Symposium On Revised Article 1 And Proposed Revised Article 2 Of The Uniform Commercial Code), James J. White

Articles

One of Karl Llewellyn's most noted achievements in the Uniform Commercial Code was to impose the duty of good faith on every obligation under the Uniform Commercial Code.1 Some (I am one) have privately thought that imposition of this unmeasurable, undefinable duty was Llewellyn's cruelest trick, but no court, nor any academic writer, has ever been so bold or so gauche as to suggest that good faith should not attend the obligations of parties under the UCC. Notwithstanding this silent indorsement of the duty of good faith, the courts2 and commentators3 have had difficulty in determining what is and what …

Autistic Contracts (Symposium), James J. White

Articles

In this paper I address the question whether the law should affirm the offeror's inference and should bind the offeree to the terms proposed by the offeror even in circumstances where the offeree may not intend to accept those terms and where an objective observer might not draw the inference of agreement from the offeree's act. Modem practice and current proposals concerning contract formation in Revised Article 2 and in the Uniform Computer Information Transactions Act (nee Article 2B) press these issues on us more forcefully than old practices and different law did. 1 But contractual autism is not new; …

Freeing The Tortious Soul Of Express Warranty Law, James J. White

Articles

I suspect that most American lawyers and law students regard express warranty as neither more nor less than a term in a contract, a term that is subject to conventional contract rules on formation, interpretation, and remedy. Assume, for example, that a buyer sends a purchase order to a seller and the purchase order specifies the delivery of 300 tons of "prime Thomas cold rolled steel." The acknowledgment also describes the goods to be sold as "prime Thomas cold rolled steel." Every American lawyer would agree that there is a contract to deliver such steel and furthermore would conclude that …