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Private Information, Self-Serving Biases, And Optimal Settlement Mechanisms: Theory And Evidence, Seth A. Seabury, Eric L. Talley Jan 2003

Private Information, Self-Serving Biases, And Optimal Settlement Mechanisms: Theory And Evidence, Seth A. Seabury, Eric L. Talley

Faculty Scholarship

The law and economics literature on suit and settlement has tended to focus on two alternative conceptual models. On the one hand, the "optimism" model of pre-trial negotiation attempts to explain settlement failure as an artifact of unfounded optimism by one or both parties. The idea that bargaining agents can adopt such non-rational biases receives support from experimental evidence. On the other hand, the "private information" model of pre-trial bargaining portrays settlement failures as an artifact of strategic information rent extraction. It finds support in some experimental evidence as well. This paper presents (for the first time) a mechanism-design approach ...


Contract Theory And The Limits Of Contract Law, Alan Schwartz, Robert E. Scott Jan 2003

Contract Theory And The Limits Of Contract Law, Alan Schwartz, Robert E. Scott

Faculty Scholarship

This article sets out a normative theory to guide decisionmakers in the regulation of contracts between firms. Commercial law for centuries has drawn a distinction between mercantile contracts and others, but modern scholars have not systematically pursued the normative implications of this distinction. We attempt to cure this neglect by setting out the theoretical foundations of a law merchant for our time. Firms contract to maximize expected surplus and the state permits markets to function because markets maximize social welfare. Thus, there is a correspondence of interest between firms and the state, which implies that, when externalities are absent, the ...


Problem-Solving Courts: From Innovation To Institutionalization – Foreword, Michael C. Dorf, Jeffrey Fagan Jan 2003

Problem-Solving Courts: From Innovation To Institutionalization – Foreword, Michael C. Dorf, Jeffrey Fagan

Faculty Scholarship

The phenomenal growth of drug courts and other forms of 'problem-solving' courts has followed a pattern that is characteristic of many successful innovations: An individual or small group has or stumbles upon a new idea; the idea is put into practice and appears to work; a small number of other actors adopt the innovation and have similar experiences; if there is great demand for the innovation-for example, because it responds to a widely-perceived crisis or satisfies an institutional need and resolves tensions within organizations that adopt it-the innovation rapidly diffuses through the networks in which the early adopters interact. Eventually ...


About Morality And The Nature Of Law, Joseph Raz Jan 2003

About Morality And The Nature Of Law, Joseph Raz

Faculty Scholarship

In support of my longstanding claim that the traditional divide between natural law and legal positivist theories of law, the present paper explores a variety of necessary connections between law and morality which are consistent with theories of law traditionally identified as positivist.


The Concept Of Authorship In Comparative Copyright Law, Jane C. Ginsburg Jan 2003

The Concept Of Authorship In Comparative Copyright Law, Jane C. Ginsburg

Faculty Scholarship

In contemporary debates over copyright, the figure of the author is too-often absent. As a result, these discussions tend to lose sight of copyright's role in fostering creativity. I believe that refocusing discussion on authors – the constitutional subjects of copyright – should restore a proper perspective on copyright law, as a system designed to advance the public goal of expanding knowledge, by means of stimulating the efforts and imaginations of private creative actors. Copyright cannot be understood merely as a grudgingly tolerated way-station on the road to the public domain. Nor does a view of copyright as a necessary incentive ...


When Code Isn't Law, Tim Wu Jan 2003

When Code Isn't Law, Tim Wu

Faculty Scholarship

The prominent effects of computer code have made it difficult to ignore the fact that code can be used to produce regulatory effects similar to laws. Hence, the popularity of the idea that (for computer users at least) "code is law."

But the idea remains extremely vague. Most problematically, none of these understandings of code and law explains the central issue of compliance. Specifically, they do not explain the shifting patterns of legal compliance in the 2000s. Explosions of non-compliance in areas such as copyright, pornography, financial fraud, and prescription drugs fuel the sense of a legal breakdown, yet the ...


Assessing Theories Of Global Governance: A Case Study Of International Antitrust Regulation, Anu Bradford Jan 2003

Assessing Theories Of Global Governance: A Case Study Of International Antitrust Regulation, Anu Bradford

Faculty Scholarship

An effective, legitimate model of global governance must strike a delicate balance between national sovereignty and international cooperation. As such, governance on an international level is a constantly evolving discourse among multiple actors whose respective roles and influence vary across time and policy realms. The participation of multiple actors in global governance is widely recognized, but there is considerable disagreement as to the appropriate distribution of power among these participants and the optimal pattern for their interaction. We may never be able to construct an ideal global governance model. But the attempt to create such a model by examining the ...


Frictions And Tax-Motivated Hedging: An Empirical Exploration Of Publicly-Traded Exchangeable Securities, William M. Gentry, David M. Schizer Jan 2003

Frictions And Tax-Motivated Hedging: An Empirical Exploration Of Publicly-Traded Exchangeable Securities, William M. Gentry, David M. Schizer

Faculty Scholarship

As financial engineering becomes more sophisticated, taxing income from capital becomes increasingly difficult. We offer the first empirical study of a high profile strategy known as "tax-free hedging," which offers economic benefits of a sale without triggering tax. We explore nontax costs that taxpayers face when hedging by issuing so-called "DECS," "PHONES," and other publicly-traded exchangeable securities. Focusing on 61 transactions between 1993 and 2001, we shed light on why taxpayers might prefer to hedge through private "over-the-counter" transactions: An offering of exchangeable securities is announced in advance and implemented all at once, triggering an almost 5 percent decline in ...


The Mechanisms Of Market Efficiency Twenty Years Later: The Hindsight Bias, Ronald J. Gilson, Reinier Kraakman Jan 2003

The Mechanisms Of Market Efficiency Twenty Years Later: The Hindsight Bias, Ronald J. Gilson, Reinier Kraakman

Faculty Scholarship

Twenty years ago we published a paper, "The Mechanisms of Market Efficiency," that sought to describe the institutional underpinnings of price formation in the securities market. Since that time, financial economics has moved forward on many fronts. The sub-discipline of behavioral finance has struggled to bring yet more descriptive realism to the study of financial markets. Two important questions are (1) how much has this new discipline changed our understanding of the efficiency and nature of the institutional mechanisms that set price in financial markets; and (2) how far does this discipline carry novel implications for the regulation of financial ...


The Economics Of Form And Substance In Contract Interpretation, Avery W. Katz Jan 2003

The Economics Of Form And Substance In Contract Interpretation, Avery W. Katz

Faculty Scholarship

For the past 100 years or so the historical trend in the law of contracts has been to water down formal interpretive doctrines in favor of a more all-things-considered analysis of what the parties may have meant or what justice might require in the individual case. This trend away from formal and toward substantive interpretation of contracts has been alternately celebrated and criticized for over a century; and in recent years, a number of economically influenced scholars, in translating some of the classic arguments into economic language, have helped to clarify some of the traditional commentators' concerns. While this new ...


Atkins, Adolescence And The Maturity Heuristic: Rationales For A Categorical Exemption For Juveniles From Capital Punishment, Jeffrey Fagan Jan 2003

Atkins, Adolescence And The Maturity Heuristic: Rationales For A Categorical Exemption For Juveniles From Capital Punishment, Jeffrey Fagan

Faculty Scholarship

In Atkins v. Virginia, the U.S. Supreme Court held that mentally retarded people lacked a range of developmental capacities that were necessary to establish the higher threshold of culpability for the execution of murderers in the Court's death penalty jurisprudence. The Court emphasized that the impairments of mental retardation lead to a ... special risk of wrongful execution. The Court had previously concluded that the limitations in developmental capacities that characterize mentally retarded defendants also characterize a significant proportion of adolescent offenders. These parallels invite an extension of the Atkins Court's reasoning to juveniles by highlighting the diminished ...


Unregulable Defenses And The Perils Of Shareholder Choice, Jennifer Arlen, Eric L. Talley Jan 2003

Unregulable Defenses And The Perils Of Shareholder Choice, Jennifer Arlen, Eric L. Talley

Faculty Scholarship

A number of corporate law scholars have recently proposed granting shareholders an enhanced right to oversee the use of takeover defenses. While these "shareholder choice" proposals vary somewhat in their content, they generally agree that shareholder oversight is justified if and only if shareholders hold a bona fide advantage over managers in evaluating and responding to hostile bids. This article challenges that basic premise, arguing that even if shareholders enjoy a comparative advantage over management in reacting to hostile bids, it does not follow that a shareholder choice regime is value enhancing, because it would give managers an incentive to ...


A Theory Of Self-Enforcing Indefinite Agreements, Robert E. Scott Jan 2003

A Theory Of Self-Enforcing Indefinite Agreements, Robert E. Scott

Faculty Scholarship

All contracts are incomplete. But incomplete contracts differ along several key dimensions. Many contracts are incomplete because parties decline to condition performance on future states that they cannot observe or verify to courts. In these cases, the incompleteness is exogenous to the contract. Other agreements, however, appear to be "deliberately" incomplete in the sense that parties decline to condition performance on available, verifiable measures that could be specified in the contract at relatively low cost. Thus, incompleteness is endogenous to these agreements suggesting that the parties had other reasons for leaving the terms in question unspecified.

Traditional contract law doctrine ...


The Case For Auctioning Countermeasures In The Wto, Kyle Bagwell, Petros C. Mavroidis, Robert W. Staiger Jan 2003

The Case For Auctioning Countermeasures In The Wto, Kyle Bagwell, Petros C. Mavroidis, Robert W. Staiger

Faculty Scholarship

A prominent problem with the WTO dispute settlement procedures is the practical difficulty faced by small and developing countries in finding the capacity to effectively retaliate against trading partners that are in violation of their WTO commitments. In light of this problem, Mexico has proposed that retaliation rights be made tradeable.' We offer a first formal analysis of the possibility that retaliation rights within the WTO system be allocated through auctions. We show that the auctions exhibit externalities among bidders, and we characterize equilibrium bidder behavior under alternative auction formats. A key feature of auction format is whether the country ...


Unregulable Defenses And The Perils Of Shareholder Choice, Jennifer Arlen, Eric L. Talley Jan 2003

Unregulable Defenses And The Perils Of Shareholder Choice, Jennifer Arlen, Eric L. Talley

Faculty Scholarship

A number of corporate law scholars have recently proposed granting shareholders an enhanced right to oversee the use of takeover defenses. While these "shareholder choice" proposals vary somewhat in their content, they generally agree that shareholder oversight is justified if and only if shareholders hold a bona fide advantage over managers in evaluating and responding to hostile bids. This article challenges that basic premise, arguing that even if shareholders enjoy a comparative advantage over management in reacting to hostile bids, it does not follow that a shareholder choice regime is value enhancing, because it would give managers an incentive to ...


Placing The Adoptive Self, Carol Sanger Jan 2003

Placing The Adoptive Self, Carol Sanger

Faculty Scholarship

[A]doption law and practices are guided by enormous cultural changes in the composition and the meaning of family. As families become increasingly blended outside the context of adoption – with combinations of blood relatives, step-relatives, de facto relatives, and ex-relatives sitting down together for Thanksgiving dinner as a matter of course – birth families and adoptive families knowing one another may not seem so very strange or threatening at all. There will simply be an expectation across communities that ordinary families will be mixed and multiple. With that in mind, we should hesitate before establishing embeddedness as the source of mother ...


Gatekeeper Failure And Reform: The Challenge Of Fashioning Relevant Reforms, John C. Coffee Jr. Jan 2003

Gatekeeper Failure And Reform: The Challenge Of Fashioning Relevant Reforms, John C. Coffee Jr.

Faculty Scholarship

Securities markets have long employed "gatekeepers" – independent professions who pledge their reputational capital – to protect dispersed investors. This strategy of relying on reputational intermediaries to assess, verify and certify the corporate issuer's disclosures appears to have failed during the late 1990s, as accounting irregularities increased exponentially. Part I of this paper assesses the reasons for this failure, emphasizing both a shortfall in deterrence and the sudden shift from a cash-based to an equity-based system of executive compensation during the 1990s. Part II and III then survey the realistic regulatory options and the incomplete steps taken by the Sarbanes-Oxley Act ...


From Violent Crime To Terrorism: The Changing Basis Of The Federal, State And Local Law Enforcement Dynamic, Daniel C. Richman Jan 2003

From Violent Crime To Terrorism: The Changing Basis Of The Federal, State And Local Law Enforcement Dynamic, Daniel C. Richman

Faculty Scholarship

Two lines of questions dominate discussions about how the nation ought to respond at home to the new (or rather newly perceived) terrorist threat: How do we ensure that information about potential terrorist activities is effectively gathered, shared, and used? And how do we ensure that the Government neither abuses the investigative authority we give it, nor demands more authority than it needs? Each line can profitably be pursued in its own terms. Yet to keep the conversations separate is to miss seeing how the very process of creating an effective domestic intelligence network may introduce a salutary level of ...


Solving Problems V. Claiming Rights: The Pragmatist Challenge To Legal Liberalism, William H. Simon Jan 2003

Solving Problems V. Claiming Rights: The Pragmatist Challenge To Legal Liberalism, William H. Simon

Faculty Scholarship

Recent developments in both theory and practice have inspired a new understanding of public interest lawyering. The theoretical development is an intensified interest in Pragmatism. The practical development is the emergence of a style of social reform that seeks to institutionalize the Pragmatist vision of democratic governance as learning and experimentation. This style is reflected in a variety of innovative responses to social problems, including drug courts, ecosystem management, and "new accountability" educational reform. The new understanding represents a significant challenge to an influential view of law among politically liberal lawyers over the past 50 years. That view – Legal Liberalism ...


Rethinking Racial Profiling: A Critique Of The Economics, Civil Liberties, And Constitutional Literature, And Of Criminal Profiling More Generally, Bernard E. Harcourt Jan 2003

Rethinking Racial Profiling: A Critique Of The Economics, Civil Liberties, And Constitutional Literature, And Of Criminal Profiling More Generally, Bernard E. Harcourt

Faculty Scholarship

New data on highway stops and searches from across the country have spawned renewed debate over racial profiling on the roads. The new data reveal consistently disproportionate searches of minority motorists, but, very often, an equal or lower general success rate – or "hit rate" – associated with those searches. Economists are developing new models of racial profiling to test whether the data are consistent with policing efficiency or racial prejudice, and argue that equal hit rates reflect that the police are maximizing the success rate of their searches. Civil liberties advocates are scrutinizing the same data and, in most cases, reaching ...


The Rise Of State Bankruptcy-Directed Legislation, Ronald J. Mann Jan 2003

The Rise Of State Bankruptcy-Directed Legislation, Ronald J. Mann

Faculty Scholarship

This is a paper for a conference at Cardozo Law School on the relation between securitization and secured credit. Concerns about securitization have been focused by decisions of various States to take the lead in attempting to decide how those issues will be resolved in bankruptcy proceedings. In this paper I step back from that debate to ask a more fundamental question: who is to decide the appropriate policy response to those issues? On the one hand, Congress could decide those questions in the exercise of its exclusive constitutional power to enact bankruptcy laws. Or, if it chose to do ...


What Caused Enron?: A Capsule Social And Economic History Of The 1990'S, John C. Coffee Jr. Jan 2003

What Caused Enron?: A Capsule Social And Economic History Of The 1990'S, John C. Coffee Jr.

Faculty Scholarship

Between January 1997 and June 2002, approximately 10% of all listed companies in the United States announced at least one financial statement restatement. The stock prices of restating companies declined 10% on average on the announcement of these restatements, with restating firms losing over $100 billion in market capitalization over a short three day trading window surrounding these restatements. Such generalized financial irregularity requires a more generic causal explanation than can be found in the facts of Enron, WorldCom or other specific case histories.

Several different explanations are plausible, each focusing on a different actor (but none giving primary attention ...


Network Neutrality, Broadband Discrimination, Tim Wu Jan 2003

Network Neutrality, Broadband Discrimination, Tim Wu

Faculty Scholarship

This paper examines the the concept of network neutrality in telecommunications policy and its relationship to Darwinian theories of innovation. It also considers the record of broadband discrimination practiced by broadband operators in the early 2000s.


Reciprocal Effects Of Crime And Incarceration In New York City Neighborhoods, Jeffrey Fagan, Valerie West, Jan Holland Jan 2003

Reciprocal Effects Of Crime And Incarceration In New York City Neighborhoods, Jeffrey Fagan, Valerie West, Jan Holland

Faculty Scholarship

The social concentration of incarceration among non-whites is a recurring theme in criminal justice research and legal scholarship. Despite robust evidence of its social concentration, few studies have examined its spatial concentration, or the effects of spatially concentrated incarceration over time on individuals and social areas. In this article, we examine the growth and spatial concentration of incarceration in police precincts and smaller homogeneous neighborhoods in New York City from 1985-96. We show that rates of incarceration spiked sharply after 1985 as crime rates rose. Higher incarceration rates persisted through the 1990s, and declined far more slowly after 1990 than ...


The Attorney As Gatekeeper: An Agenda For The Sec, John C. Coffee Jr. Jan 2003

The Attorney As Gatekeeper: An Agenda For The Sec, John C. Coffee Jr.

Faculty Scholarship

Section 307 of the Sarbanes-Oxley Act authorizes the SEC to prescribe "minimum standards of professional conduct" for attorneys "appearing or practicing" before it. This brief statutory provision frames a much larger question: What is the role of the corporate attorney in securities transactions in the public markets? Is the attorney's role that of (a) an advocate, (b) a transaction cost engineer, or, more broadly, (c) a gatekeeper – that is, a reputational intermediary with some responsibility to monitor the accuracy of corporate disclosures? The bar has long divided over this question, with the bar associations resisting any such obligation. Yet ...


When Code Isn't Law, Tim Wu Jan 2003

When Code Isn't Law, Tim Wu

Faculty Scholarship

The prominent effects of computer code have made it difficult to ignore the fact that code can be used to produce regulatory effects similar to laws. Hence, the popularity of the idea that (for computer users at least) "code is law."

But the idea remains extremely vague. Most problematically, none of these understandings of code and law explains the central issue of compliance. Specifically, they do not explain the shifting patterns of legal compliance in the 2000s. Explosions of non-compliance in areas such as copyright, pornography, financial fraud, and prescription drugs fuel the sense of a legal breakdown, yet the ...


Controlling Controlling Shareholders, Ronald J. Gilson, Jeffrey N. Gordon Jan 2003

Controlling Controlling Shareholders, Ronald J. Gilson, Jeffrey N. Gordon

Faculty Scholarship

The rules governing controlling shareholders sit at the intersection of the two facets of the agency problem at the core of public corporations law. The first is the familiar principal-agency problem that arises from the separation of ownership and control. With only this facet in mind, a large shareholder may better police management than the standard panoply of market-oriented techniques. The second is the agency problem that arises between controlling and non-controlling shareholders, which produces the potential for private benefits of control. There is, however, a point of tangency between these facets. Because there are costs associated with holding a ...


Building Criminal Capital Behind Bars: Peer Effects In Juvenile Corrections, Patrick J. Bayer, Randi Pintoff, David Pozen Jan 2003

Building Criminal Capital Behind Bars: Peer Effects In Juvenile Corrections, Patrick J. Bayer, Randi Pintoff, David Pozen

Faculty Scholarship

This paper analyzes the influence that juvenile offenders serving time in the same correctional facility have on each other's subsequent criminal behavior. The analysis is based on data on over 8,000 individuals serving time in 169 juvenile correctional facilities during a two-year period in Florida. These data provide a complete record of past crimes, facility assignments, and arrests and adjudications in the year following release for each individual. To control for the non-random assignment to facilities, we include facility fixed effects, thereby estimating peer effects using only within-facility variation over time. We find strong evidence of peer effects ...


Regulating Internet Payment Intermediaries, Ronald J. Mann Jan 2003

Regulating Internet Payment Intermediaries, Ronald J. Mann

Faculty Scholarship

This paper examines legal and policy issues raised by changes in payment methods related to the rise of the Internet. The two major changes – the rise of P2P systems like PayPal, and the rise of Internet billing systems (EBPP) to replace the use of paper bills and checks – both involve new intermediaries that facilitate payments made by conventional payment systems. The paper first discusses how those systems work. It then discusses problems in the framework currently used to regulate those systems in the United States, which has not been updated to protect consumers from the special problems those systems raise ...


On Copyright’S Communications Policy, Tim Wu Jan 2003

On Copyright’S Communications Policy, Tim Wu

Faculty Scholarship

There is something for everyone to dislike about early twenty-first century copyright. Owners of content say that new and better technologies of infringement have made it too easy to copy expressive works. Easy copying, they say, threatens the basic incentive to create new works; hence, new rights and remedies are needed to “restore the balance.” Most academic critics complain, instead, that a newly enlarged copyright and new mechanisms of technological self-help give content owners unprecedented levels of control over content. This, in one version of the argument, threatens the creativity and progress that copyright is supposed to foster; in another ...