Law Commons^™

Mandatory Rules And Default Rules In Insurance Contracts, Tom Baker, Kyle D. Logue

Law & Economics Working Papers

The economic analysis of contract law can organized around two general questions: (1) what are the efficient or welfare-maximizing substantive rules of contract law; and (2) once those rules have been identified, when if ever should they be made mandatory and when should they be merely “default rules” that the parties can contract around if they wish? Much of contract theory over the past twenty years has been devoted to developing answers to those two questions. The same two questions can be posed with respect to the rules of insurance law. Although previous scholars have examined particular substantive doctrines of …

Mitigating The Problem Of Vulture Holdout: International Certification Boards For Sovereign Debt Restructurings, John A. E. Pottow

Law & Economics Working Papers

The Great Recession has brought greater sovereign debt defaults, which in turn has brought a surfeit of academic explorations and policy discussions of sovereign debt restructuring. The purpose of this article is to offer yet one more idea for the hopper of what to do with the seemingly intractable problem of restructuring sovereign bond debt. The field does not lack for statutory and contractual proposals, from SDRM to CACs, but it is not yet sufficiently saturated that another proposal cannot join the mix. The proposal is for the establishment of international certification boards that can give a stamp of approval …

Meaning In The Natural World, Joseph Vining

Law & Economics Working Papers

James Boyd White devoted much of his work to the rescue of meaning in language, art, and the human world. A turn to the natural world may underscore his confidence that an individual's statement of law can be more than a disguised expression of individual will and desire. This essay may also suggest one more way toward hope that a realistic sense of the natural world need not threaten confidence in the reality of beauty and meaning in our human world.

Understanding Insurance Anti-Discrimination Laws, Ronen Avraham, Kyle D. Logue, Daniel Benjamin Schwarcz

Law & Economics Working Papers

Insurance companies are in the business of discrimination. Insurers attempt to segregate insureds into separate risk pools based on their differences in risk profiles, first, so that they can charge different premiums to the different groups based on their risk and, second, to incentivize risk reduction by insureds. This is why we let insurers discriminate. There are, however, limits to the types of discrimination we will allow insurers to engage in. But what exactly are those limits and how are they justified? To answer these questions, this Article articulates the leading fairness and efficiency arguments for and against limiting insurers’ …

Methods For Multicountry Studies Of Corporate Governance (And Evidence From The Brikt Countries), Bernard S. Black, Antonio Gledson De Carvalho, Vikramaditya Khanna, Woochan Kim, B. Burcin Yurtoglu

Law & Economics Working Papers

We discuss the perils in multicountry studies of corporate governance (CG), focusing on emerging markets. The existing studies are massively multicountry studies, which cover many firms across many countries, but rely on the same limited governance elements in each countries, have few firm-level control variables, and use pure-cross-sectional data. This paper discusses the severe data and construct validity issues in these studies, proposes methods to respond to those issues, and applies those methods through a study of five major emerging markets (Brazil, India, Korea, Russia, and Turkey). We develop unique time-series datasets on governance in each country. We address construct …

Bargaining Over Loyalty, Daniel A. Crane

Law & Economics Working Papers

Contracts between suppliers and customers frequently contain provisions rewarding the customer for exhibiting loyalty to the seller. For example, suppliers may offer customers preferential pricing for buying a specified percentage of their requirements from the supplier or buying minimum numbers of products across multiple product lines. Such loyalty-inducing contracts have come under attack on antitrust grounds because of their potential to foreclose competitors or soften competition by enabling tacit collusion among suppliers. This article defends loyalty inducement as a commercial practice. Although it can be anticompetitive under some circumstances, rewarding loyal customers is usually procompetitive and price- reducing. The two …

Scandal Enforcement At The Sec: The Arc Of The Option Backdating Investigations, Stephen Choi, Adam C. Pritchard, Anat C. Wiechman

Law & Economics Working Papers

We study the SEC’s allocation of enforcement resources in the wake of a salient public scandal. We focus on the SEC’s investigations of option backdating in the wake of numerous media articles on the practice of backdating. We find that the SEC shifted its mix of investigations significantly toward backdating investigations and away from investigations involving other accounting issues. We test the hypothesis that SEC pursued more marginal investigations into backdating at the expense of pursuing more egregious accounting issues. Our event study of stock market reactions to the initial disclosure of backdating investigations shows that those reactions declined over …

Employment Law And Social Equality, Samuel R. Bagenstos

Law & Economics Working Papers

What is the normative justification for individual employment law? For a number of legal scholars, the answer is economic efficiency. Other scholars argue, to the contrary, that employment law protects against (vaguely defined) imbalances of bargaining power and exploitation. Against both of these positions, this paper argues that individual employment law is best understood as advancing a particular conception of equality. That conception, which many legal and political theorists have called social equality, focuses on eliminating hierarchies of social status. Drawing on the author’s work elaborating the justification for employment discrimination law, this paper argues that individual employment law is …

A Proposed Replacement Of The Tax Expenditure Concept And A Different Perspective On Accelerated Depreciation, Douglas A. Kahn

Law & Economics Working Papers

The thesis of this article is that the tax expenditure concept is grounded on an erroneous vision of the structure of an income tax system. The tax expenditure concept adopts a binary view of income taxation. It posits that there is an ideal or pure income tax system whose provisions are elements of the normal structure of that system without any influence from non-tax policy considerations. Tax provisions are described either as falling within those core provisions or outside of them. There are no other categories. To the contrary, this article contends that tax provisions lie on a continuum in …

The Equal Employment Opportunity Commission And Structural Reform Of The American Workplace, Margo Schlanger, Pauline T. Kim

Law & Economics Working Papers

In 2011, the United States Supreme Court struck down a class action suit alleging that Wal-Mart stores discriminated against female employees in pay and promotion decisions, making it more difficult to obtain certification of private employment discrimination class actions. As a result, the role of the Equal Employment Opportunity Commission in seeking structural reform of the workplace, always of substantial influence, has gained in comparative importance. Yet there is remarkably little written about the EEOC’s large-scale injunctive cases. This Article addresses this major gap in scholarship.

Using both qualitative case studies and a new quantitative data-set, we test existing theories …

'Quack Corporate Governance' As Traditional Chinese Medicine – The Securities Regulation Cannibalization Of China's Corporate Law And A State Regulator's Battle Against State Political Economic Power, Nicholas C. Howson

Law & Economics Working Papers

From the start of the PRC’s “corporatization” project in the late 1980s, a Chinese corporate governance regime subject to increasingly enabling legal norms has been determined by mandatory regulations imposed by the PRC securities regulator, the CSRC. Indeed, the Chinese corporate law system has been cannibalized by allencompassing securities regulation directed at corporate governance, at least for companies with listed stock. This article traces the path of that sustained intervention, and makes a case – wholly contrary to the “quack corporate governance” critique much aired in the U.S. – that for the PRC this phenomenon is necessary and appropriate, and …

Understanding The Amt, And Its Unadopted Sibling, The Amxt, James R. Hines Jr., Kyle Logue

Law & Economics Working Papers

U.S. taxpayers are currently required to pay the greater of their liabilities under the regular income tax and their liabilities under the Alternative Minimum Tax (AMT). Despite its unpopularity, the AMT serves the function of permitting Congress to offer tax preferences for certain activities and expenditures while maintaining a progressive tax system. This paper examines this role of the AMT, and explores the possibility of adding an Alternative Maximum Tax (AMxT) that would augment the impact of the AMT. An AMxT limits a taxpayer’s liability to the minimum of the amount due under the regular income tax and the amount …

Explaining Variation In Insurance Anti-Discrimination Laws, Ronen Avraham, Kyle D. Logue, Daniel Benjamin Schwarcz

Law & Economics Working Papers

Discrimination in insurance underwriting is regulated at the state level. Surprisingly, there is a great deal of variation across jurisdictions in how and the extent to which risk classification by insurers is limited. Some states expressly permit insurers to consider certain characteristics, while other characteristics are forbidden or limited in various ways. What explains this variation across states? Drawing on a unique, hand-collected data-set consisting of the laws regulating insurer risk classification in all 51 U.S. jurisdictions, this Article argues that much of the variation in state-level regulation of risk classification can in fact be explained by focusing exclusively on …

Territoriality: For And Against, Reuven S. Avi-Yonah

Law & Economics Working Papers

This article will survey the main arguments for and against territoriality and conclude that it is the wrong way to go in the short run, but can perhaps be adopted in the medium to long run in conjunction with more fundamental international tax reform. The main reason that territoriality should not be adopted now is that the OECD may be about to recommend worldwide consolidation for all its members as part of the Base Erosion and Profit Shifting (BEPS) project, and if the OECD does that, all of the standard arguments in favor of territoriality and against abolishing deferral disappear.

The Creeping Federalization Of Wealth-Transfer Law, Lawrence W. Waggoner

Law & Economics Working Papers

This paper, titled “The Creeping Federalization of Wealth-Transfer Law,” is prepared for a symposium on the role of federal law in private wealth transfer. The symposium is to be held at Vanderbilt University Law School on February 21, 2014, and is sponsored by the American College of Trust and Estate Counsel Foundation. Symposium papers will be published in volume 66 of the Vanderbilt Law Review (Nov. 2014 issue).

This paper surveys areas of federalization of wealth-transfer law. Federal authorities have little experience in making law that governs wealth transfers, because that function is traditionally within the province of state law. …

Evidence-Based Sentencing And The Scientific Rationalization Of Discrimination, Sonja B. Starr

Law & Economics Working Papers

This paper critiques, on legal and empirical grounds, the growing trend of basing criminal sentences on actuarial recidivism risk prediction instruments that include demographic and socioeconomic variables. I argue that this practice violates the Equal Protection Clause and is bad policy: an explicit embrace of otherwise-condemned discrimination, sanitized by scientific language. To demonstrate that this practice should be subject to heightened constitutional scrutiny, I comprehensively review the relevant case law, much of which has been ignored by existing literature. To demonstrate that it cannot survive that scrutiny and is undesirable policy, I review the empirical evidence underlying the instruments. I …

And Yet It Moves: A Tax Paradigm For The 21st Century, Reuven S. Avi-Yonah

Law & Economics Working Papers

A central premise of tax scholarship of the last thirty years has been the greater mobility of capital than labor. Recently, scholars such as Edward Kleinbard have recommended that the US adopt a variant of the 'dual income tax' model used by the Scandinavian countries, under which income from capital is subject to significantly lower rates than labor income because of its supposedly greater mobility. This article argues that the premise upon which this argument is built is mistaken, because for individual US taxpayers (as opposed to corporations), there are significant limitations on their ability to avoid tax by moving …

Essential Health Benefits And The Affordable Care Act: Law And Process, Nicholas Bagley, Helen Levy

Law & Economics Working Papers

Beginning in 2014, the Affordable Care Act (ACA) will require private insurance plans sold in the individual and small-group markets to cover a roster of “essential health benefits.” Precisely which benefits should count as essential, however, was left to the discretion of the Department of Health and Human Services (HHS). The matter was both important and controversial. HHS nonetheless announced its policy on essential health benefits by posting on its website a 13-page bulletin stating that it would allow each state to define essential benefits for itself by choosing a “benchmark” plan modeled on existing plans in the state. On …

Why Y? Reflections On The Baucus Proposal, Reuven S. Avi-Yonah

Law & Economics Working Papers

The international tax reform proposal introduced by Sen. Max Baucus (D-MT) on November 19, 2013 contains several significant innovations that promise to define the terms of the debate for the foreseeable political future. It is therefore worth examining in detail even if it seems unlikely that progress toward meaningful reform can be achieved very soon. The major component of the proposal is a move toward territoriality coupled with two alternative anti-profit shifting options, option Y and option Z. This article will argue that option Y represents a significant step forward and can be the basis of adopting a territorial regime, …

A Presumptively Better Approach To Arbitrability, John A. E. Pottow, Jacob Brege, Tara J. Hawley

Law & Economics Working Papers

One of the most complex problems in the arbitration field is the question of who decides disputes over the scope of an arbitrator’s purported authority. Courts in Canada and the United States have taken different approaches to this fundamental question of “arbitrability” that necessarily arises when one party disputes the contractual validity of the underlying “container” contract carrying the arbitration clause. If arbitration is a creature of contract, and contract is a product of consensual agreement, then any dispute that impugns the underlying consent of the parties to the container contract implicates the arbitration agreement itself (i.e., no contract, no …

Offices Of Goodness: Influence Without Authority In Federal Agencies, Margo Schlanger

Law & Economics Working Papers

Inducing governmental organizations to do the right thing is the central problem of public administration. If Congress or another principal wants a federal executive agency to pay attention to a value that constrains or conflicts with the agency’s overall mission — that additional value is here labeled, generically, "Goodness" — the principal often creates a subsidiary agency office — an "Office of Goodness." Both policymakers and scholars should care about how and when Offices of Goodness work. Yet while Offices of Goodness are frequently established in federal agencies, they are nearly invisible in scholarship. And the resulting knowledge gap is …

Formalism And Employer Liability Under Title Vii, Samuel R. Bagenstos

Law & Economics Working Papers

Most lawyers, law professors, and judges are familiar with two standard critiques of formalism in legal reasoning. One is the unacknowledged-policymaking critique — that formalist reasoning purports to be above judicial policymaking but instead simply hides the policy decisions offstage. The other is the false-determinacy critique — that formalist reasoning purports to reduce decision costs in the run of cases by sorting cases into defined categories, but that instead of going away the difficult questions of application migrate to the choice of the category in which to place a particular case. Last Term’s decision in Vance v. Ball State University …

Favoritism And Corporate Law: The Confused Corporate Opportunity Doctrine In The Hyundai Motor Case, Hwa-Jin Kim, Seung Hwan Lee, Stephen M. Woodcock

Law & Economics Working Papers

Core legal principles of U.S. corporate law are often met with perplexity in foreign jurisdictions – this is especially true when a particular principle remains controversial even in the U.S. This Article takes the corporate opportunity doctrine and examines how it has been exported to the civil law regime in Korea. Korean conglomerates such as Samsung Group and Hyundai Motor Group have become major players in the global market, but corporate law and practice in Korea have had a difficult time keeping up with the developments in the business sector. The Hyundai Motor Case demonstrates an ambitious but ill-fated attempt …

Unitary Taxation And International Tax Rules, Reuven S. Avi-Yonah

Law & Economics Working Papers

Any proposal to adopt Unitary Taxation (UT) of multinationals has to contend with whether such taxation is compatible with existing international tax rules and in particular with the bilateral tax treaty network. Indeed, some researchers have argued that the separate accounting (SA) method and the arm’s length standard are so embodied in the treaties that they form part of customary international law and are binding even in the absence of a treaty. In this paper we will argue that UT can be compatible with most of the existing tax treaties, and that developing countries in particular can implement it in …

Back From The Dead: How To Revive Transfer Pricing Enforcement, Reuven S. Avi-Yonah

Law & Economics Working Papers

In the six years since the then Chief of Staff of the JCT pronounced transfer pricing enforcement to be dead, numerous case studies have demonstrated the truth of his observation, starting with the JCTs own examination of six US based multinationals (MNEs) in 2010 and followed by the Senate Permanent Subcommittee on Investigations hearings on Microsoft, HP and Apple in 2012-13. There is little doubt that the current transfer pricing rules, in conjunction with the dysfunctional Subpart F rules, allow US-based MNEs to shift most of their profits to low tax jurisdictions. It is estimated that there are currently about …