Law Commons^™

Globalization And The Provision Of Incentives Inside The Firm: The Effect Of Foreign Competition, Vincente Cuñat, Maria Guadalupe

Center for Contract and Economic Organization

This article studies the effect of changes in foreign competition on the structure of compensation and incentives of U.S. executives. We find that import penetration (instrumented with exchange rates and tariffs) leads to more incentive provision in a variety of ways. First, it increases the sensitivity of pay to performance. Second, it increases within-firm pay differentials between executive levels, with CEOs typically experiencing the largest wage increases. Finally, higher foreign competition is also associated with a higher demand for talent. These results suggest that increased foreign competition can explain some of the recent trends in compensation structures.

An Aggregate Approach To Antitrust: Using New Data And Rulemaking To Preserve Drug Competition, C. Scott Hemphill

Center for Contract and Economic Organization

This Article examines the "aggregation deficit" in antitrust: the pervasive lack of information, essential to choosing an optimal antitrust rule, about the frequency and costliness of anticompetitive activity. By synthesizing available information, the present analysis helps close the information gap for an important, unresolved issue in U.S. antitrust policy: patent settlements between brand-name drug makers and their generic rivals. The analysis draws upon a new dataset of 143 such settlements.

Due to the factual complexity of individual brand-generic settlements, important trends and arrangements become apparent only when multiple cases are examined collectively. This aggregate approach provides valuable information that can …

The Law, Culture, And Economics Of Fashion, C. Scott Hemphill, Jeannie Suk

Center for Contract and Economic Organization

Fashion is one of the world’s most important creative industries. It is the major output of a global business with annual U.S. sales of more than $200 billion — larger than those of books, movies, and music combined. Everyone wears clothing and inevitably participates in fashion to some degree. Fashion is also a subject of periodically rediscovered fascination in virtually all the social sciences and the humanities. It has provided economic thought with a canonical example in theorizing about consumption and conformity. Social thinkers have long treated fashion as a window upon social class and social change. Cultural theorists have …

Public Symbol In Private Contract: A Case Study, Anna Gelpern, Mitu Gulati

Center for Contract and Economic Organization

This Article revisits a recent shift in standard form sovereign bond contracts to promote collective action among creditors. Major press outlets welcomed the shift as a milestone in fighting financial crises that threatened the global economy. Officials said it was a triumph of market forces. We turned to it for insights into contract change and crisis management. This article is based on our work in the sovereign debt community, including over 100 interviews with investors, lawyers, economists, and government officials. Despite the publicity surrounding contract reform, in private few participants described the substantive change as an effective response to financial …

Network Neutrality And The False Promise Of Zero-Price Regulation, C. Scott Hemphill

Center for Contract and Economic Organization

This Article examines zero-price regulation, the major distinguishing feature of many modern "network neutrality" proposals. A zero-price rule prohibits a broadband Internet access provider from charging an application or content provider (collectively, "content provider") to send information to consumers. The Article differentiates two access provider strategies thought to justify a zero-price rule. Exclusion is anticompetitive behavior that harms a content provider to favor its rival. Extraction is a toll imposed upon content providers to raise revenue. Neither strategy raises policy concerns that justify implementation of a broad zero-price rule. First, there is no economic exclusion argument that justifies the zero-price …

Structuring And Restructuring Sovereign Debt: The Role Of Seniority, Patrick Bolton, Olivier Jeanne

Center for Contract and Economic Organization

In an environment characterized by weak contractual enforcement, sovereign lenders can enhance the likelihood of repayment by making their claims more difficult to restructure ex post. We show, however, that competition for repayment between lenders may result in a sovereign debt that is excessively difficult to restructure in equilibrium. This inefficiency may be alleviated by a suitably designed bankruptcy regime that facilitates debt restructuring.

Odious Debts Or Odious Regimes?, Patrick Bolton, David Skeel

Center for Contract and Economic Organization

Odious regimes have always been with us. That there is no silver-bullet solution that will prevent odious regimes from arising, or stymie them once they do, is evident from the plethora of responses employed by the international community once a regime’s odiousness becomes clear. Trade sanctions may be used to try to choke off a malignant regime’s access to weapons or other goods. In egregious cases, such as Milosevic’s Serbian regime, the international community may take military action. Still another strategy, more talked about than implemented, is the one considered in this article: the use of the odious debt (or, …

The Dilemma Of Odious Debts, Lee C. Buchheit, G. Mitu Gulati, Robert B. Thompson

Center for Contract and Economic Organization

When a corrupt governmental regime borrows money in the name of the state, and then steals or squanders the proceeds, must the future citizens of that country repay the loan? The law says yes, but the moral instinct of most people says no.

The odious debt controversy is, at base, a struggle to find a workable legal doctrine that will avoid a morally repugnant result (visiting the sins of corrupt governors on innocent citizens), without undermining the legal basis of all sovereign borrowing. No counterparty, at least no commercial counterparty, would lend money to a sovereign believing that the loan …

Corporate Law And Governance, Marco Becht, Patrick Bolton, Ailsa Röell

Center for Contract and Economic Organization

This chapter surveys the theoretical and empirical research on the main mechanisms of corporate law and governance, discusses the main legal and regulatory institutions in different countries, and examines the comparative governance literature. Corporate governance is concerned with the reconciliation of conflicts of interest between various corporate claimholders and the resolution of collective action problems among dispersed investors. A fundamental dilemma of corporate governance emerges from this overview: large shareholder intervention needs to be regulated to guarantee better small investor protection; but this may increase managerial discretion and scope for abuse. Alternative methods of limiting abuse have yet to be …

An Introduction To The Governance And Taxation Of Not-For-Profit Organizations, Patrick Bolton, Hamid Mehran

Center for Contract and Economic Organization

This paper provides a brief overview of the current state of the not-for-profit sector and discusses specific governance issues in not-for-profit organizations. We offer an in-depth analysis of the issues that arise when not-for-profit organizations compete against for-profit firms in the same markets. We argue that while competition by for-profit firms can discipline not-for-profit firms and mitigate their governance problems, the effects of this competition are distorted by the not-for-profits’ corporate income tax exemptions. Based on a simple general equilibrium analysis, we argue that there is little justification for such exemptions.

Paying For Delay: Pharmaceutical Patent Settlement As A Regulatory Design Problem, C. Scott Hemphill

Center for Contract and Economic Organization

Over the past decade, drug makers have settled patent litigation by making large payments to potential rivals who, in turn, abandon suits that (if successful) would increase competition. Because such "pay-for-delay" settlements postpone the possibility of competitive entry, they have attracted the attention of antitrust enforcement authorities, courts, and commentators. Pay-for-delay settlements not only constitute a problem of immense practical importance in antitrust enforcement, but also pose a general dilemma about the proper balance between innovation and consumer access.

This Article examines the pay-for-delay dilemma as a problem in regulatory design. A full analysis of the relevant industry-specific regulatory statute, …

Pay For Short-Term Performance: Executive Compensation In Speculative Markets, Patrick Bolton, José Scheinkman, Wei Xiong

Center for Contract and Economic Organization

We argue that the root cause behind the recent corporate scandals associated with CEO pay is the technology bubble of the latter half of the 1990s. Far from rejecting the optimal incentive contracting theory of executive compensation, the recent evidence on executive pay can be reconciled with classical agency theory once one expands the framework to allow for speculative stock markets.

Redesigning The International Lender Of Last Resort, Patrick Bolton, David A. Skeel Jr.

Center for Contract and Economic Organization

This paper is concerned with the issue of how to balance bailouts (or "lending into arrears") with debt reductions (or "private sector involvement") in the resolution of sovereign debt crises. It provides a review of recent proposals for improving the sovereign debt restructuring process. In addition to defending a sovereign bankruptcy proposal we have put forward in recent work, this article proposes a major reorientation of the IMF's role in sovereign debt crises.