Law Commons^™

Efficient Markets, Costly Information, And Securities Research, Jeffrey N. Gordon, Lewis A. Kornhauser

Faculty Scholarship

Courts, administrative policy makers and legal scholars have widely embraced the theory that well-developed markets are efficient. In this Article, Professors Gordon and Kornhauser cast doubt on the wisdom of reliance on the efficient market hypothesis as applied to various areas of corporate law. Their charge is that legal decision makers and scholars have misunderstood the assumptions and limitations of the theory and have neglected recent critical economics scholarship. Professors Gordon and Kornhauser begin by detailing the assertions of the hypothesis in relation to the workings of securities markets, focusing on various asset pricing models used to test the hypothesis …

Federal Jurisdiction Over Preemption Claims: A Post-Franchise Tax Board Analysis, Ronald J. Mann

Faculty Scholarship

As Congress uses the commerce power to regulate areas of the economy previously controlled by the states, federal statutes conflict with state law with increasing frequency. When such conflicts occur, federal law "preempts" the state law under the supremacy clause of the United States Constitution. Litigants who foresee a preemption issue often seek a declaratory judgment of preemption or nonpreemption in order to clarify their rights and duties. This Note addresses the scope of federal question jurisdiction over declaratory judgment actions in which preemption is the only federal question raised.

Market Failure And The Economic Case For A Mandatory Disclosure System, John C. Coffee Jr.

Faculty Scholarship

Recent academic commentary on the securities laws has much in common with the battles fought in historiography over the origins of the First World War. The same progression of phases is evident. First, there is an orthodox school, which tends to see historical events largely as a moral drama of good against evil. Next come the revisionists, debunking all and explaining that the good guys were actually the bad. Eventually, a new wave of more professional, craftsmanlike scholars arrives on the scene to correct the gross overstatements of the revisionists and produce a more balanced, if problematic, assessment.

The Free Rider Problem, Imperfect Pricing, And The Economics Of Retailing Services, Victor P. Goldberg

Faculty Scholarship

In GTE Sylvania, the Supreme Court acknowledged what a group of law and economics scholars had been arguing for the previous two decades: vertical restrictions that limit intrabrand competition can have a desirable effect on interbrand competition. The Court approvingly accepted the argument that the free rider problem might justify a manufacturer's use of vertical restrictions. The argument, in its simplest form, is that if a retailer provides services such as advice and demonstrations to consumers, a consumer could make use of the service and then buy the product from a "no- frills" retailer. If the manufacturer cannot control the …

An Economic Analysis Of The Lost-Volume Retail Seller, Victor P. Goldberg

Faculty Scholarship

Suppose that a customer agrees to buy a boat and before it is delivered, he reneges. The dealer subsequently resells the boat to another customer at the same price. Has the seller suffered damages (aside from incidental damages) and, if so, should he be compensated? This question, dubbed the lost-volume seller problem, has been the subject of considerable legal analysis, usually in the context of explicating section 2-708(2) of the Uniform Commercial Code (U.C.C.). There have been a number of attempts to apply economic analysis to this difficult question, the most recent by Professors Goetz and Scott. Unfortunately, the economic …

Regulating The Market For Corporate Control: A Critical Assessment Of The Tender Offer's Role In Corporate Governance, John C. Coffee Jr.

Faculty Scholarship

Better answers often await better questions. In the wake of a recent series of provocative articles dealing with contested tender offers, several questions have been vigorously debated:

(1) Should management of the target company be allowed to resist a hostile tender offer in order to remain an independent company? Which, if any, of the various "shark repellent" measures by which a potential target can make itself unattractive to a bidder are justified?;

(2) If defensive tactics were generally forbidden, should the target company's management still be permitted to encourage competing bids thereby creating an auction?; and

(3) Do hostile takeovers …

Corporate Crime And Punishment: A Non-Chicago View Of The Economics Of Criminal Sanctions, John C. Coffee Jr.

Faculty Scholarship

In this article, Professor Coffee argues that fines are an inefficient means by which to deter organizational crimes. Instead, he urges a focus on the individual decision-maker and a system of competitive bids with respect to the choice of a fine as an alternative punishment.

Implementing A Progressive Consumption Tax, Michael J. Graetz

Faculty Scholarship

Much scholarly debate has been devoted to the theoretical merits of using an individual's consumption expenditures as the basis for measuring ability to pay tax. In this Article, Professor Graetz examines the practical problems of implementing and administering a progressive consumption tax as an alternative to the income tax. He concludes that although a consumption tax is feasible, practical implementation difficulties, together with the political unlikelihood of enacting a tax which is both administratively workable and retains the alleged theoretical advantages of a consumption-based tax, argue against its adoption.

The Law And Economics Of Vertical Restrictions: A Relational Perspective, Victor P. Goldberg

Faculty Scholarship

Vertical restrictions between franchisors and their dealers have long been a thorny problem in antitrust law. Richard Posner's characterization of the case law as a "fiasco" and a "doctrinal shambles" is echoed by many other commentators. Perhaps partly because of the intellectual confusion in the area, the Supreme Court recently made an apparently sharp change in direction. In Continental T.V., Inc. v. GTE Sylvania Inc. the Court reversed the decade-old Schwinn per se doctrine, holding that at least some vertical restrictions deserve a rule of reason test. Whether this decision will prove a more durable precedent than Schwinn remains …

Measuring Sellers' Damages: The Lost-Profits Puzzle, Charles J. Goetz, Robert E. Scott

Faculty Scholarship

A buyer repudiates a fixed-price contract to purchase goods, and the seller sues for damages. How should a court measure the seller's loss? The answer seems simple: The seller should be awarded damages sufficient to place it in the same economic position it would have enjoyed had the buyer performed the contract. But the seductive conceptual simplicity of the compensation principle disguises substantial practical problems in measuring seller's damages.

Contract law has traditionally minimized measurement difficulties by basing damages in most cases on the difference between the contract price and market value of the repudiated goods. The common law courts …

The "Stationarity" Of Shadow Prices Of Factors In Project Evaluation, With And Without Distortions, Jagdish N. Bhagwati, Henry Wan Jr.

Faculty Scholarship

Until recently, the literature on cost-benefit analysis for projects has been largely within the domain of research on "public monopoly," literature currently reviewed by Jacques Lesourne, (ch. 3), and the work of public finance theorists as typified in the celebrated practical work of Ian Little and James Mirrlees in their Manual, and in the recent theoretical contribution of Peter Diamond and Mirrlees. International trade theorists have, however, turned now to the analysis of these problems, starting with the early work of Vijay Joshi and Deepak Lai, then that of W. M. Corden, and most recently culminating in the contributions of …

Constitutional Regulation Of Provisional Creditor Remedies: The Cost Of Procedural Due Process, Robert E. Scott

Faculty Scholarship

In recent years a series of Supreme Court decisions has purported to envelop the rights of defaulting debtors in an enlarged concept of procedural due process. The central theme underlying this development is clearly an attempt by the Court to impose some degree of constitutional control on the exercise of provisional creditor remedies. The path that leads from Sniadach v. Family Finance Corp. to North Georgia Finishing, Inc. v. Di-Chem, Inc., is however, far from clear and the cases have provoked serious questioning of the meaning and impact of this doctrine. Due process as reflected in Sniadach and Fuentes …

Institutional Change And The Quasi-Invisible Hand, Victor P. Goldberg

Faculty Scholarship

The fundamental principle of economics is that people will pursue their own self-interest within a given institutional framework. The economist's basic policy premise is that (so long as certain "market failures" do not arise) this self-interest will, like an Invisible Hand, guide resources to their proper usage; when market failures arise the usual policy prescription is to amend the rules (for example, by breaking up monopolies, placing an "optimal" tax on pollution, or redefining property rights) to make the marginal private costs and benefits equal to the marginal social costs and benefits so that the free play on self-interest will …

Marginal Cost Pricing, Investment Theory And Catv, Victor P. Goldberg

Faculty Scholarship

In his article, Marginal Cost Pricing, Investment Theory and CATV, James Ohls makes a number of erroneous assertions concerning the optimum pricing of CATV. Most of his problems stem from a failure to properly define the environment in which the optimum price is to be set and the role that an optimum price should play. If one alters Ohls' implicit (and sometimes contradictory) assumptions and if one keeps in mind the purpose prices should serve in an economic system, a number of Ohls' conclusions are altered.