Law Commons^™

Politics And The Business Corporation, Robert H. Sitkoff

Law & Economics Working Papers Archive: 2003-2009

This essay explores the policy bases for, and the political economy of, the law's long-standing regulation of corporate political speech. The essay has three parts. First, it contends that the conventional justifications for regulating corporate interventions in politics -- that corporate donations unnaturally skew the political discourse (bad politics) and that corporate political donations harm shareholders (agency costs) -- assume irrational investors and substantial capital market inefficiency. Drawing on public choice theory, the essay also explores the aim of retarding rent-seeking as an alternative justification for regulating corporate interventions in politics. Second, the essay reexamines the history of the regulation …

Dying To Get Out Of Debt: Consumer Insolvency Law And Suicide In Japan, Mark West

Law & Economics Working Papers Archive: 2003-2009

This Article explores the complex relation between consumer insolvency law and suicide in Japan, where bankruptcies and suicides have increased dramatically in recent years. The statistical and interview evidence, some of which relates to the creation of a relatively efficient and socially acceptable insolvency mechanism in 2001, suggests that law is at least indirectly relevant to decisions to take one’s own life. Law can bring about debt control and stigma mitigation, each of which can lead to lower levels of stress and depression, each of which can lead to lower suicide rates. Still, responses to the law, even in relatively …

Employment Market Institutions And Japanese Working Hours, Mark West

Law & Economics Working Papers Archive: 2003-2009

Why do Japanese workers work such long hours? Beginning with a series of cases in the 1950s, Japanese courts drastically curtailed firms’ abilities to dismiss workers. As a consequence of the inability to dismiss workers legally, large Japanese firms hired a smaller number of workers than were necessary to fulfill capacity without overtime. Employers rely on the working hours of this undersized cadre of workers, carefully screened to rule out the slothful, as a buffer. In bad times, the size of the work force makes dismissal unnecessary. In good times, workers are forced to work long hours. While these court …

Hand, Posner, And The Myth Of The "Hand Formula", In Symposium, Negligence In The Law, Richard W. Wright

All Faculty Scholarship

There is a striking incongruence between the discussions of negligence in the legal literature, including the American Law Institute's Restatement of Torts, and the understandings of ordinary people and the actual practice of the courts. The legal literature generally assumes that an aggregate-risk-utility test is employed to determine whether conduct was reasonable or negligent. This test was invented by legal academics and inserted in the first Restatement during the first part of the twentieth century, although, as recent studies all conclude, it had almost no support in the cases prior to its adoption in the Restatement and for several decades …

Valuation Averaging: A New Procedure For Resolving Valuation Disputes, Keith Sharfman

Rutgers Law School (Newark) Faculty Papers

In this Article, Professor Sharfman addresses the problem of "discretionary valuation": that courts resolve valuation disputes arbitrarily and unpredictably, thus harming litigants and society. As a solution, he proposes the enactment of "valuation averaging," a new procedure for resolving valuation disputes modeled on the algorithmic valuation processes often agreed to by sophisticated private firms in advance of any dispute. He argues that by replacing the discretion of judges and juries with a mechanical valuation process, valuation averaging would cause litigants to introduce more plausible and conciliatory valuations into evidence and thereby reduce the cost of valuation litigation and increase the …

Trust Law, Corporate Law, And Capital Market Efficiency, Robert H. Sitkoff

Law & Economics Working Papers Archive: 2003-2009

In both the publicly-traded corporation and the private donative trust a crucial task is to minimize the agency costs that arise from the separation of risk-bearing and management. But where the law of corporate governance evolved in the shadow of capital-market checks on agency costs, trust governance did not. Thus, even more than that of close corporations, the law and study of private trusts offers an illuminating counterfactual -- a control, as it were -­ for a playful thought experiment about the importance of capital market efficiency to the law and study of public corporations. The animating idea for this …

Ethnography In The Realm Of The Pragmatic: Studying Pragmatism In Law And Politics, Annelise Riles

Cornell Law Faculty Publications

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The Situation: An Introduction To The Situational Character, Critical Realism, Power Economics, And Deep Capture, Jon Hanson, David Yosifon

Faculty Publications

Throughout most of this introductory Article, we will focus our arguments primarily on economics and law and economics. We believe, however, that the implications of our inquiry extend far beyond those domains. The tendencies we hope to elucidate find their origins in the human animal, not in any particular legal theoretic perspective. It happens that these tendencies are especially prominent in law and economics, currently the dominant theoretical paradigm for creating and analyzing legal policy. But the relevance of our thesis is not confined to one approach , or even to legal-political questions. All humans are more or less implicated, …

Grading The Government, Richard Parker

Faculty Articles and Papers

For over a decade, scathing critiques of government have been fueled by a group of studies called regulatory scorecards, which purport to show that the costs of many government regulations vastly outweigh their benefits. One widely-cited study by John Morrall, an OMB economist, claims that government regulations cost up to $72 billion per life saved. Another study, co-authored by Bush's regulatory czar, John Graham, claims that over 60,000 people lose their lives each year due to irrational government regulation. A third group of scorecards - compiled by Robert Hahn of the AEI-Brookings Joint Center for Regulatory Studies - claims that …

Measuring Recovery For Non-Contractual Investment, Omri Ben-Shahar, Robert A. Mikos

Law & Economics Working Papers Archive: 2003-2009

Parties who make investments that generate externalities may sometimes recover from the beneficiaries, even in the absence of contract. Previous scholarship has shown that granting recovery, based on either the cost of the investment or the benefit it confers, can provide optimal incentives to invest. However, this article demonstrates that the law often awards recovery that is neither purely cost-based, nor purely benefit-based, and instead equals either the greater-of or lesser-of the two measures. These hybrid approaches to recovery distort incentives to invest. The article demonstrates the prevalence of these practices, and explores informational and related reasons why they emerge. …

Roundtable With Former Directors Of The Bureau Of Economics, Jonathan Baker

Presentations

The roundtable commemorates the 100th anniversary of the FTC's predecessor agency, the Bureau of Corporations. It was sponsored by the FTC's Bureau of Economics (BE) and focused on BE history and contributions of BE and economic analysis to antitrust and consumer protection enforcement, and to research and economic knowledge and policy. BE was featured because the original functions of the Bureau of Corporations were to collect information, to conduct industry and policy research, to prepare reports at the request of the Congress and the President. The panelists for the roundtable consisted of former BE Directors and Acting Directors from the …

An Agency Costs Theory Of Trust Law, Robert H. Sitkoff

Law & Economics Working Papers Archive: 2003-2009

This Article develops an agency costs theory of the law of private trusts, focusing chiefly on donative trusts. The agency costs approach offers fresh insights into recurring problems in trust law including, among others, modification and termination, settlor standing, fiduciary litigation, trust-investment law and the duty of impartiality, trustee removal, the role of so-called trust "protectors," and spendthrift trusts. The normative claim is that the law of trusts should minimize the agency costs inherent in locating managerial authority with the trustee and the residual claim with the beneficiaries, but only to the extent that doing so is consistent with the …

What Counts As Fraud? An Empirical Study Of Motions To Dismiss Under The Private Securities Litigation Reform Act, Adam C. Pritchard, Hillary Sale

Law & Economics Working Papers Archive: 2003-2009

This article presents the findings of a study of the resolution of motions to dismiss securities fraud lawsuits since the passage of the Private Securities Litigation Reform Act in 1995. Our sample consists of decisions on motions to dismiss in securities class actions by district and appellate courts in the Second and Ninth Circuits for cases filed after the passage of the Reform Act to the end of 2002. These circuits are the leading circuits for the filing of securities class actions and are generally recognized as representing two ends of the securities class action spectrum. Post-PSLRA, the Second Circuit …

Following The Man On The Clapham Omnibus: Social Science Evidence In Malpractice Litigation, Richard O. Lempert

Law & Economics Working Papers Archive: 2003-2009

This article responds to proposals to admit statistical evidence from empirical studies of actual health care practices to prove prevailing health practice standards in malpractice litigation by arguing that the case for doing so has numerous weaknesses that advocates of admitting such data commonly ignore. A fundamental concern is that the standard of practice defense co-evolved with prevailing modes of proof and might have been different had proof through experts not allowed for an aspirational as well as an empirical element to reach the jury. The article also argues that generating reliable statistical evidence of standard medical practice can be …

“Black People’S Money”: The Impact Of Law, Economics, And Culture In The Context Of Race On Damage Recoveries, Regina Austin

All Faculty Scholarship

“’Black People’s Money’: The Impact of Law, Economics, and Culture in the Context of Race on Damage Recoveries” is one of a series of articles by the author dealing with black economic marginalization; prior work considered such topics as shopping and selling as forms of deviance, street vending, restraints on leisure, and the importance of informality in loan transactions. This article deals with the linkage between the social significance of black people’s money and its material value. It analyzes the construction of “black money,” its association with cash, and the taboos and cultural practices that assure that black money will …

Random Walks, Non-Cooperation Games, And The Complex Mathematics Of Patent Pricing, F. Russell Denton, Paul J. Heald

Scholarly Works

Current patent valuation methods have been described charitably as “inappropriate,” “crude,” “inherently unreliable,” and a “guesstimate.” This article provides a more rational and systematic tool than any we have found in the existing literature or relevant case law. We believe our approach to patent valuation will be useful in improving investment decisions, in facilitating licensing negotiations, and in reducing error costs in litigation. An improved valuation metric also promises to make patents easier to take as collateral and to reduce the amount of “Blue Sky” in mergers and acquisitions involving high tech corporations. To the extent that valuation problems have …

Legal Transitions, Rational Expectations, And Legal Progress, Kyle D. Logue

Law & Economics Working Papers Archive: 2003-2009

This paper was written for a symposium on legal transitions. The central question in the transitions literature is whether or to what extent the government should provide compensation for (or seek in some way to ameliorate) the losses of wealth occasioned by unexpected changes in the law or social policy. This Article argues that the prevailing normative framework for evaluating legal transitions - the consequentialist or economic framework - relies critically on two assumptions: the assumption that private parties (whose incentives are sought to be affected by the choice of transition norm) will behave with rational expectations and the assumption …

The Economics Of Litigation And Arbitration: An Application To Franchise Contracts, Keith N. Hylton, Christopher R. Drahozal

Faculty Scholarship

If we define the deterrence benefits from contract enforcement as avoided harms net of avoidance costs, we should expect contracting parties to choose the dispute resolution forum that provides the greatest difference between deterrence benefits and dispute resolution costs for every type of dispute. We apply this general framework to franchise contracts and conduct an empirical analysis of the determinants of arbitration agreements among franchising parties. Although it is obvious that contracting parties have an incentive to choose arbitration in order to reduce dispute-resolution costs, there have been no studies of the importance of deterrence concerns. We examine the deterrence …

Against Preemption: How Federalism Can Improve The National Legislative Process, Roderick Hills

Law & Economics Working Papers Archive: 2003-2009

How easily should courts infer that federal statutes preempt state law? An ongoing debate exists on the question in Congress and among scholars and judges. One side calls for judges to protect federalism by adopting a rule of statutory construction that would bar preemption absent a clear statement of preemptive intent. Opponents argue against such a "clear statement" rule by arguing that state control over preemptable topics is often presumptively inefficient, because common-law juries lack expertise and because states are prone to imposing external costs on their neighbors. This article sidesteps these debates over preemption and instead argues that, quite …

Insuring Against Terrorism And Crime, Saul Levmore, Kyle D. Logue

Law & Economics Working Papers Archive: 2003-2009

The attacks of September 11th produced staggering losses of life and property. They also brought forth substantial private insurance payouts, as well as federal relief for the City of New York and for the families of individuals who perished on that day. The losses suffered in and after the attacks, and the structure of the relief effort, have raised questions about the availability of insurance against terrorism, the role of government in providing for, subsidizing, or ensuring the presence of such insurance, and the interaction between relief and the incentives for future precaution taking. In response to such losses, and …

Risk, Death And Harm: The Normative Foundations Of Risk Regulation, Matthew D. Adler

All Faculty Scholarship

Is death a harm? Is the risk of death a harm? These questions lie at the foundations of risk regulation. Agencies that regulate threats to human life, such as the EPA, OSHA, the FDA, the CPSC, or NHTSA, invariably assume that premature death is a first-party harm - a welfare setback to the person who dies - and often assume that being at risk of death is a distinct and additional first-party harm. If these assumptions are untrue, the myriad statutes and regulations that govern risky activities should be radically overhauled, since the third-party benefits of preventing premature death and …

The Uncertain Psychological Case For Paternalism, Jeffrey J. Rachlinski

Cornell Law Faculty Publications

Opening Trade In Financial Services – The Chile And Singapore Examples: Hearing Before The H. Subcomm. On Domestic And International Monetary Policy, Trade And Technology, 108th Cong., Apr. 1, 2003 (Statement Of Daniel K. Tarullo, Prof. Of Law, Geo. U. L. Center), Daniel K. Tarullo

Testimony Before Congress

No abstract provided.

The Economic Ambiguity (And Possible Irrelevance) Of Tax Transition Rules, Eric D. Chason

Faculty Publications

No abstract provided.

How To Improve Regulatory Accounting : Costs, Benefits, And Impacts Of Federal Regulations: Testimony Before The H. Subcomm. On Energy Policy, Natural Resources, And Regulatory Affairs, Of The H. Comm. On Government Reform, Hearing On Regulatory Accounting, 108th Cong., Mar. 11, 2003 (Statement Of Lisa Heinzerling, Prof. Of Law, Geo. U. L. Center), Lisa Heinzerling

Testimony Before Congress

No abstract provided.

Technology And Learning By Factory Workers: The Stretch-Out At Lowell, 1842, James Bessen

Faculty Scholarship

In 1842 Lowell textile firms increased weaving productivity by assigning three looms per worker instead of two. This marked a turning point. Before, weavers at Lowell were temporary and mostly literate Yankee farm girls; afterwards, firms increasingly hired local residents, including illiterate and Irish workers. An important factor was on-the-job learning. Literate workers learned new technology faster, but local workers stayed longer. These changes were unprofitable before 1842, and the advantages of literacy declined over time. Firm policy and social institutions slowly changed to permit deeper human-capital investment and more productive implementation of technology

Taxing Sunny Days: Adjusting Taxes For Regional Living Costs And Amenities, Michael S. Knoll, Thomas D. Griffith

All Faculty Scholarship

Taxpayers pay tax on their nominal income without regard to their regional cost of living or the value of their regional amenities. Although commentators have argued that the income tax's failure to account for such differences is unfair - because residents of high-cost and low-amenity regions pay higher taxes than residents of low-cost and high-amenity regions - that argument is unpersuasive because migration tends to eliminate regional differences in living standards. The tax system's failure to adjust for regional differences is, however, likely to misallocate resources across regions in two ways. First, it is likely to discourage taxpayers from settling …

Behavioral Economics And The Sec, Stephen Choi, Adam C. Pritchard

Law & Economics Working Papers Archive: 2003-2009

Investors face myriad investment alternatives and seemingly limitless information concerning those alternatives.Not surprisingly, many commentators contend that investors frequently fall short of the ideal investor posited by the rational actor model. Investors are plagued with a variety of behavioral biases (such as, among others, the hindsight bias, the availability bias, loss aversion, and overconfidence). Even securities market institutions and intermediaries may suffer from biases, led astray by groupthink and overconfidence. The question remains whether regulators should focus on such biases in formulating policy. An omnipotent regulatory decisionmaker would certainly improve on flawed investor decisionmaking. The alternative we face, however, is …

Rethinking The Commitment To Free, Local Television, Christopher S. Yoo

All Faculty Scholarship

One of the most enduring tenets of U.S. television policy has been the commitment to localism. I suggest that the FCC's localism policy can be disaggregated into four, more specific commitments: (1) the preference for locally oriented over nationally oriented programming, (2) the preference for free (i.e., advertising-supported) over pay television, (3) the preference for single-channel over multi-channel television technologies, and (4) the preference for incumbents over new entrants and new technologies. I then analyze each of these commitments in light of what is perhaps the most distinctive feature of the television industry, which is the fact that its cost …

The Rise And Demise Of The Technology-Specific Approach To The First Amendment, Christopher S. Yoo

All Faculty Scholarship

This article examines how analytical, technological, and doctrinal developments are forcing the courts to reconsider their media-specific approach to assessing the constitutionality of media regulation. In particular, it offers a comprehensive reevaluation of the continuing validity of the Broadcast Model of regulation, which contains features, such as licensing and direct content regulation, that normally would be considered paradigmatic violations of the First Amendment. Specifically, the analysis assesses the theoretical coherence of the traditional justification for extending a lesser degree of First Amendment protection to broadcasting than to other media (i.e., the physical scarcity of the electromagnetic spectrum) as well as …