Law and Economics Commons^™

Bankruptcy On The Side, Kenneth Ayotte, Anthony J. Casey, David A. Skeel Jr.

Kenneth Ayotte

This article provides a framework for analyzing side agreements in corporate bankruptcy, such as intercreditor and “bad boy” agreements. These agreements are controversial because they commonly include a promise by one party to remain silent – to waive some procedural right they would otherwise have under the Bankruptcy Code – at potentially crucial points in the reorganization process. Using simplified examples, we show that side agreements create benefits in some instances, but parties to a side agreement may have incentive to contract for specific performance or excessive stipulated damages that impose negative externalities on non-parties to the agreement. A promise …

Hedge Fund Activism, Poison Pills, And The Jurisprudence Of Threat, William W. Bratton

All Faculty Scholarship

This chapter reviews the single high profile case in which twentieth century antitakeover law has come to bear on management defense against a twenty-first century activist challenge—the Delaware Court of Chancery’s decision to sustain a low-threshold poison pill deployed against an activist in Third Point LLC v. Ruprecht. The decision implicated an important policy question: whether a twentieth century doctrine keyed to hostile takeovers and control transfers appropriately can be brought to bear in a twenty-first century governance context in which the challenger eschews control transfer and instead makes aggressive use of the shareholder franchise. Resolution of the question …

Transatlantic Influences On American Corporate Jurisprudence: Theorizing The Corporation In The United States, Tara Helfman

Indiana Journal of Global Legal Studies

In interpreting and evaluating the history of the Supreme Court's corporate jurisprudence, legal scholars have deployed three broad theories of corporate legal personality: the aggregate entity theory, the artificial entity theory, and the real entity theory. While these theories are powerful ways of conceptualizing the corporation, this article shows that they have not been as central to the Supreme Court's corporate jurisprudence as recent scholarship suggests. It instead argues that historic transformations in the high court's corporate jurisprudence are best understood in light of contemporary intellectual currents rather than through an expost facto application of the aggregate, artificial, and real …

Agency Activism As A New Way Of Life: Administrative Modification Of The Internal Revenue Code Through Limited Issue Focused Examinations, W Edward Afield

W. Edward "Ted" Afield

In the name of increasing efficiency and better utilizing limited resources, the IRS has begun to adopt audit policies that overly favor taxpayers and greatly hinder the IRS’s ability to perform thorough audits. Highlighting this trend is a relatively new audit technique used by the Large to Mid-Size Business Division (LMSB), known as the Limited Issue Focused Examination (LIFE) Process. Under LIFE, the LMSB has attempted to involve taxpayers in the audit process by sharing responsibility for timely completion of the audit and has attempted to streamline the audit by reducing the scope of issues examined and applying materiality thresholds …

Optimizing Government For An Optimizing Economy, Cary Coglianese

All Faculty Scholarship

Much entrepreneurial growth in the United States today emanates from technological advances that optimize through contextualization. Innovations as varied as Airbnb and Uber, fintech firms and precision medicine, are transforming major sectors in the economy by customizing goods and services as well as refining matches between available resources and interested buyers. The technological advances that make up the optimizing economy create new challenges for government oversight of the economy. Traditionally, government has overseen economic activity through general regulations that aim to treat all individuals equally; however, in the optimizing economy, business is moving in the direction of greater individualization, not …

Motivating Without Mandates: The Role Of Voluntary Programs In Environmental Governance, Cary Coglianese, Jennifer Nash

All Faculty Scholarship

For the last several decades, governments around the world have tried to use so-called voluntary programs to motivate private firms to act proactively to protect the environment. Unlike conventional environmental regulation, voluntary programs offer businesses flexibility to adopt cost-effective measures to reduce environmental impacts. Rather than prodding firms to act through threats of enforcement, they aim to entice firms to move forward by offering various kinds of positive incentives, ranging from public recognition to limited forms of regulatory relief. Despite the theoretical appeal of voluntary programs, their proper role in government’s environmental toolkit depends on the empirical evidence of how …

The New Governance And The Challenge Of Litigation Bylaws, Jill E. Fisch

All Faculty Scholarship

Corporate governance mechanisms designed to ensure that managers act in shareholders’ interest have evolved dramatically over the past forty years. “Old governance” mechanisms such as independent directors and performance-based executive compensation have been supplemented by innovations that give shareholders greater input into both the selection of directors and ongoing operational decisions. Issuer boards have responded with tools to limit the exercise of shareholder power both procedurally and substantively. This article terms the adoption and use of these tools, which generally take the form of structural provisions in the corporate charter or bylaws, the “new governance.”

Delaware law has largely taken …

Copyright And Good Faith Purchasers, Shyamkrishna Balganesh

All Faculty Scholarship

Good faith purchasers for value — individuals who unknowingly and in good faith purchase property from a seller whose own actions in obtaining the property are of questionable legality — have long obtained special protection under the common law. Despite the seller’s own actions being tainted, such purchasers obtain valid title themselves and are allowed to freely alienate the property without any restriction. Modern copyright law, however, does just the opposite. Individuals who unknowingly and in good faith purchase property embodying an unauthorized copy of a protected work are altogether precluded from subsequently alienating such property, or risk running afoul …

Of Property And Information, Abraham Bell, Gideon Parchomovsky

All Faculty Scholarship

The property-information interface is perhaps the most crucial and under-theorized dimension of property law. Information about property can make or break property rights. Information about assets and property rights can dramatically enhance the value of ownership. Conversely, dearth of information can significantly reduce the benefit associated with ownership. It is surprising, therefore, that contemporary property theorists do not engage in sustained analysis of the property-information interface and in particular of registries — the repositories of information about property.

Once, things were different. In the past, discussions of registries used to be a core topic in property classes and a focal …

Family Ties: Salman And The Scope Of Insider Trading, Jill E. Fisch

All Faculty Scholarship

On October 5, 2016, the Supreme Court heard oral argument in Salman v. United States. Salman raises questions about the scope of insider trading liability for tippees under the personal benefit test previously articulated in Dirks v. SEC. Some critics have argued the Second Circuit’s decision last year in United States v. Newman demonstrates that the personal benefit test is unduly restrictive and should be reconsidered. Salman offers an opportunity for the Supreme Court to do so.

This essay argues that Salman does not require the Court to reexamine the parameters of insider trading liability. Instead, the Court can …

From Promise To Form: How Contracting Online Changes Consumers, David A. Hoffman

All Faculty Scholarship

I hypothesize that different experiences with online contracting have led some consumers to see contracts—both online and offline—in distinctive ways. Experimenting on a large, nationally representative sample, this paper provides evidence of age-based and experience-based differences in views of consumer contract formation and breach. I show that younger subjects who have entered into more online contracts are likelier than older ones to think that contracts can be formed online, that digital contracts are legitimate while oral contracts are not, and that contract law is unforgiving of breach.

I argue that such individual differences in views of contract formation and enforceability …

The Economics Of The Political Parties: A Comparison Of Economic Performance Under Conservatives And Liberals, Austin Fischer

Honors Program Projects

A topic that has long been a subject of debate is which party in America’s two-party political system has better economic policies. Democrats tout strong economic records, boasting of their tried and true Keynesian principles. Republicans point to the accomplishments of recent presidents in combating recessions with supply-side ideals. This project attempts to look at the actual performance of the economy under Republican and Democratic presidents since 1950, and come to an unbiased conclusion on whose policies really do work better.

This project looks at GDP growth, inflation, unemployment, disposable income, and budget deficits to determine which party’s policies help …

Public Sector Personnel Economics: Wages, Promotions, And The Competence-Control Trade-Off, Charles M. Cameron, John De Figueiredo, David E. Lewis

Faculty Scholarship

We model personnel policies in public agencies, examining how wages and promotion standards can partially offset a fundamental contracting problem: the inability of public sector workers to contract on performance, and the inability of political masters to contract on forbearance from meddling. Despite the dual contracting problem, properly constructed personnel policies can encourage intrinsically motivated public sector employees to invest in expertise, seek promotion, remain in the public sector, and develop policy projects. However, doing so requires internal personnel policies that sort "slackers" from "zealots." Personnel policies that accomplish this task are quite different in agencies where acquired expertise has …

Telecommunications: Competition Policy In The Telecommunications Space, Gene Kimmelman, Maureen K. Ohlhausen, Michael O’Rielly, Christopher S. Yoo, Stephen F. Williams

All Faculty Scholarship

In today’s rapidly evolving telecommunications landscape, the development of new technologies and distribution platforms are driving innovation and growth at a breakneck speed across the Internet ecosystem. Broadband connectivity is increasingly important to our civil discourse, our economy, and our future. What is the proper role of government in facilitating robust investment and competition in this critical sector? When technology companies constantly have to reinvent themselves and adapt to survive – what role should government play? This panel of experts at the Federalist Society’s 2014 National Lawyers Convention discussed the current regulatory environment and how government policies – particularly regarding …

Governmental Intervention In An Economic Crisis, Robert K. Rasmussen, David A. Skeel Jr.

All Faculty Scholarship

This paper articulates a framework both for assessing the various government bailouts that took place at the onset of Great Recession and for guiding future rescue efforts when they become necessary. The goals for those engineering a bailout should be to be as transparent as possible, to articulate clearly the reason for the intervention, to respect existing priorities among investors, to exercise control only at the top level where such efforts can be seen by the public, and to exit as soon as possible. By these metrics, some of the recent bailouts should be applauded, while others fell short. We …

How Corporate Governance Is Made: The Case Of The Golden Leash, Matthew D. Cain, Jill E. Fisch, Sean J. Griffith, Steven Davidoff Solomon

All Faculty Scholarship

This Article presents a case study of a corporate governance innovation—the incentive compensation arrangement for activist-nominated director candidates colloquially known as the “golden leash.” Golden leash compensation arrangements are a potentially valuable tool for activist shareholders in election contests. In response to their use, several issuers adopted bylaw provisions banning incentive compensation arrangements. Investors, in turn, viewed director adoption of golden leash bylaws as problematic and successfully pressured issuers to repeal them.

The study demonstrates how corporate governance provisions are developed and deployed, the sequential response of issuers and investors, and the central role played by governance intermediaries—activist investors, institutional …

Does Majority Voting Improve Board Accountability?, Stephen Choi, Jill E. Fisch, Marcel Kahan, Edward B. Rock

All Faculty Scholarship

Directors have traditionally been elected by a plurality of the votes cast. This means that in uncontested elections, a candidate who receives even a single vote is elected. Proponents of “shareholder democracy” have advocated a shift to a majority voting rule in which a candidate must receive a majority of the votes cast to be elected. Over the past decade, they have been successful, and the shift to majority voting has been one of the most popular and successful governance reforms.

Yet critics are sceptical as to whether majority voting improves board accountability. Tellingly, directors of companies with majority voting …

When The Customer Is King: Employment Discrimination As Customer Service, Lu-In Wang

Articles

Employers profit from giving customers opportunities to discriminate against service workers. Employment discrimination law should not, but in many ways does, allow them to get away with it. Employers are driven by self-interest to please customers, whose satisfaction is critical to business success and survival. Pleasing customers often involves cultivating and catering to their discriminatory expectations with respect to customer service — including facilitating customers’ direct discrimination against workers.

Current doctrine allows employers to escape responsibility for customers’ discrimination against workers because it takes an overly narrow view of the employment relationship. The doctrine focuses on the formal lines of …