Law and Economics Commons^™

Fixing The Business Of Food: The Food Industry And The Sdg Challenge, Barilla Center For Food And Nutrition, Sustainable Development Solutions Network, Columbia Center On Sustainable Investment, Sanda Chiara Lab

Columbia Center on Sustainable Investment Staff Publications

In collaboration with the Barilla Center for Food and Nutrition, the UN Sustainable Development Solutions Network, and the Santa Chiara Lab of the University of Siena, CCSI presented its first report on Fixing the Business of Food.

The document, part of a two-year effort, highlights the sustainable development challenge faced by the food industry. By proposing a Four Dimension framework, the report asks four overarching questions for companies in the food sector to address alignment with the SDGs:

1. Does the company contribute to healthy and sustainable dietary patterns through its products and strategy?
2. Are the company’s production processes economically, socially, …

Human Rights Law And The Investment Treaty Regime, Jesse Coleman, Kaitlin Y. Cordes, Lise Johnson

Columbia Center on Sustainable Investment Staff Publications

In its current form, the international investment treaty regime may stymie the business and human rights agenda in various ways. The regime may incentivize governments to favour the protection of investors over the protection of human rights. Investment treaty standards enforced through investor-state arbitration risk adversely affecting access to justice for project-affected rights holders. More broadly, the regime contributes to a system of global economic governance that elevates and rewards investors’ actions and expectations, irrespective of whether they have adhered to their responsibilities to respect human rights. Without comprehensive reform, investment treaties and investor-state arbitration will continue to interfere with …

Investment Treaties, Investor-State Dispute Settlement, And Inequality: How International Investment Treaties Exacerbate Domestic Disparities, Lise Johnson, Lisa E. Sachs

Columbia Center on Sustainable Investment Staff Publications

Over roughly the past four decades, government officials from around the world have been erecting a framework of economic governance with major – but under-appreciated – implications for intra-national inequality. The components of this framework are thousands of bilateral and multilateral treaties designed to protect international investment. In many jurisdictions, the treaties have been concluded without public awareness or scrutiny or even much discussion or analysis by government officials – including those officials responsible for negotiating the agreements(Poulsen 2015) – and without an adequate understanding of how these agreements could affect intra-national inequality. Long imperceptible, the size and power of …

Fiduciary Principles In Family Law, Elizabeth S. Scott, Ben Chen

Faculty Scholarship

Family members bear primary responsibility for the care of dependent and vulnerable individuals in our society, and therefore family relationships are infused with fiduciary obligation. Most importantly, the legal relationship between parents and their minor children is best understood as one that is regulated by fiduciary principles. Husbands and wives relate to one another as equals under contemporary law, but this relationship as well is subject to duties of care and loyalty when either spouse is in a condition of dependency. Finally, if an adult is severely intellectually disabled or becomes incapacitated and in need of a guardian, a family …

Guarantor Of Last Resort, Kathryn Judge

Faculty Scholarship

The optimal response to a financial crisis entails addressing two, often conflicting, demands: stopping the panic and starting the clock. When short-term depositors flee, banks can be forced to sell assets at fire-sale prices, causing credit to contract and real economic activity to decline. To reduce these adverse spillover effects, policymakers routinely intervene to stop systemic runs. All too often, however, policymakers deploy stopgap measures that allow the underlying problems to fester. To promote long-term economic health, they must also ferret out the underlying problems and allocate the losses that cannot be avoided. A well-designed guarantor of last resort can …

I Promise To Pay, Joshua Mitts

Faculty Scholarship

Consumers are more likely to keep a repayment promise they make themselves. When a scheduling conflict prevents a borrower from attending a mortgage closing, a power of attorney (POA) empowers a third party to promise that the borrower will repay the loan. On a matched sample of POA and non-POA loans, and comparing within borrower and within property, I link POAs to greater delinquency and foreclosure. Although POAs are uncorrelated with cash flow shocks, they reflect reduced promise keeping when borrowers undergo financial distress. This association vanishes for originator-servicers’ loans, which suggests that financial intermediation plays a role in consumer …

A Reconsideration Of Copyright's Term, Kristelia A. Garcia, Justin Mccrary

Faculty Scholarship

For well over a century, legislators, courts, lawyers, and scholars have spent significant time and energy debating the optimal duration of copyright protection. While there is general consensus that copyright’s term is of legal and economic significance, arguments both for and against a lengthy term are often impressionistic. Utilizing music industry sales data not previously available for academic analysis, this Article fills an important evidentiary gap in the literature. Using recorded music as a case study, we determine that most copyrighted music earns the majority of its lifetime revenue in the first five to ten years following its initial release …

Price And Prejudice: An Empirical Test Of Financial Incentives, Altruism, And Racial Bias, Kristen Underhill

Faculty Scholarship

Many argue that paying people for good behavior can crowd out beneficial motivations like altruism. But little is known about how financial incentives interact with harmful motivations like racial bias. Two randomized vignette studies test how financial incentives affect bias. The first experiment varies the race of a hypothetical patient in need of a kidney transplant (black or white), an incentive ($18,500 or none), and addition of a message appealing to altruism. Incentives encouraged donation but introduced a significant bias favoring white patients. The second experiment assesses willingness to donate to a patient (black or white) without an incentive and …

Money That Costs Too Much: Regulating Financial Incentives, Kristen Underhill

Faculty Scholarship

Money may not corrupt. But should we worry if it corrodes? Legal scholars in a range of fields have expressed concern about “motivational crowding-out,” a process by which offering financial rewards for good behavior may undermine laudable social motivations, like professionalism or civic duty. Disquiet about the motivational impacts of incentives has now extended to health law, employment law, tax, torts, contracts, criminal law, property, and beyond. In some cases, the fear of crowding-out has inspired concrete opposition to innovative policies that marshal incentives to change individual behavior. But to date, our fears about crowding-out have been unfocused and amorphous; …

The Death Of Corporate Law, Zohar Goshen, Sharon Hannes

Faculty Scholarship

For decades, corporate law played a pivotal role in regulating corporations across the United States. Consequently, Delaware, the leading state of incorporation, and its courts came to occupy a central and influential position in corporate law and governance. This, however, is no longer the case: The compositional shift in equity markets from retail to institutional ownership has relocated regulatory power over corporations from courts to markets. Corporate law has, as a result, and as illustrated by the declined role of the Delaware courts, lost its pride of place and is now eclipsed by shareholder activism.

What explains the connection between …

Asking The Right Question: The Statutory Right Of Appraisal And Efficient Markets, Jonathan Macey, Joshua Mitts

Faculty Scholarship

In this article, we make several contributions to the literature on appraisal rights and cases in which courts assign values to a company's shares in the litigation context. First, we applaud the recent trend in Delaware cases to consider the market prices of the stock of the company being valued if that stock trades in an efficient market, and we defend this market-oriented methodology against claims that recent discoveries in behavioral finance indicate that share prices are unreliable due to various cognitive biases. Next, we propose that the framework and methodology for utilizing market prices be clarified. We maintain that …

Blind Spot: The Attention Economy And The Law, Tim Wu

Faculty Scholarship

Human attention, valuable and limited in supply, is a resource. It has become commonplace, especially in the media and technology industries, to speak of an "attention economy" and of competition in "attention markets.” There is even an attentional currency, the "basic attention token," which purports to serve as a medium of exchange for user attention. Firms like Facebook and Google, which have emerged as two of the most important firms in the global economy, depend nearly exclusively on attention markets as a business model.

Yet despite the well-recognized commercial importance of attention markets, antitrust and consumer protection authorities have struggled …

Board 3.0: An Introduction, Ronald J. Gilson, Jeffrey N. Gordon

Faculty Scholarship

This essay sketches out the case for a new model for public company boards: Board 3.0. The now-dominant public board model is an organizational experiment begun approximately 40 years ago, which replaced a prior organizational form that had fallen short. The current model, the “monitoring board,” is dominated by part-time independent directors who are dependent on company management for information and are otherwise heavily influenced by stock market prices as the measure of managerial performance. We have seen a recurrent pattern of monitoring boards composed of talented people that fail to effectively monitor. Nevertheless, when companies fall short in business …

The Data Standardization Challenge, Kathryn Judge, Richard Berner

Faculty Scholarship

Data standardization offers significant benefits for industry and regulators alike, suggesting that it should be easy. In practice, however, the process has been difficult and slow moving. Moving from an abstract incentive-based analysis to one focused on institutional detail reveals myriad frictions favoring the status quo despite foregone gains. This paper explores the benefits of and challenges confronting standardization, why it should be a top regulatory priority, and how to overcome some of the obstacles to implementation.

The paper also uses data standardization as a lens into the challenges that impede optimal financial regulation. Alongside capture and other common explanations …

Being True To Trulia: Do Disclosure-Only Settlements In Merger Objection Lawsuits Harm Shareholders?, Eric L. Talley, Giuseppe Dari‐Mattiacci

Faculty Scholarship

A significant debate within mergers and acquisitions law concerns the explosive popularity of the “merger objection lawsuit” (MOL), a shareholder action seeking to enjoin an announced deal on fiduciary duty grounds. MOLs blossomed during the Financial Crisis, becoming popularly associated with “shareholder shakedowns,” whereby quick-triggered plaintiff attorneys would file against – and then rapidly settle with – acquirers, typically on non-monetary terms containing modest added disclosures in exchange for blanket class releases and attorney fee awards. This practice unleashed a torrent of criticism from lawyers, commentators, academics, and (ultimately) judges, culminating in a doctrinal shift in Delaware law in the …

Reforming Institutions: The Judicial Function In Bankruptcy And Public Law Litigation, Kathleen G. Noonan, Jonathan C. Lipson, William H. Simon

Faculty Scholarship

Public law litigation (PLL) is among the most important and controversial types of dispute that courts face. These civil class actions seek to reform public agencies such as police departments, prison systems, and child welfare agencies that have failed to meet basic statutory or constitutional obligations. They are controversial because critics assume that judicial intervention is categorically undemocratic or beyond judicial expertise.

This Article reveals flaws in these criticisms by comparing the judicial function in PLL to that in corporate bankruptcy, where the value and legitimacy of judicial intervention are better understood and more accepted. Our comparison shows that judicial …

The Core Corporate Governance Puzzle: Contextualizing The Link To Performance, Merritt B. Fox, Ronald J. Gilson, Darius Palia

Faculty Scholarship

There is a puzzle at the core of corporate governance theory. Prior scholarship reports a strong relationship between firms best at creating shareholder value and those rated highly by the established corporate governance indices. Little work explores why, however. We hypothesize that the link between governance and performance depends centrally on context. We illustrate the importance of context by exploring circumstances when a firm's governance structure can operate as a signal of the quality of its management. The idea is that better managers are on average more likely to choose a highly rated governance structure than are bad managers because …

Building A Good Jobs Economy, Dani Rodrik, Charles F. Sabel

Faculty Scholarship

Conventional models are failing throughout the world. In the developed world, the welfare state-compensation model has been in retrenchment for some time, and the drawbacks of the neoliberal conception that has superseded it are increasingly evident. Yet there is no compelling alternative on offer. In the developing world, the conventional, tried-and-tested model of industrialization has run out of steam. In both sets of societies a combination of technological and economic forces (in particular, globalization) is creating or exacerbating productive/technological dualism, with a segment of advanced production in metropolitan areas that thrives on the uncertainty generated by the knowledge economy co-existing …

Why Do Auditors Fail? What Might Work? What Won't?, John C. Coffee Jr.

Faculty Scholarship

Auditing failures and scandals have become commonplace. In response, reformers (including the Kingman Review in the U.K. and a recent report of the U.K.’s Competition and Market Authority) have proposed a variety of remedies, including prophylactic bans on auditors providing consulting services to their clients in the belief that this will minimize the conflicts of interest that produce auditing failures. Although useful, such reforms are already in place to a considerable degree and may have reached the point of diminishing returns. Moreover, this strategy does not address the deeper problem that clients (or their managements) may not want aggressive auditing, …

Resourcing Green Technologies Through Smart Mineral Enterprise Development: A Case Analysis Of Cobalt, Saleem Ali, Perrine Toledano, Nicolas Maennling, Nathaniel Hoffman, Lola Aganga

Columbia Center on Sustainable Investment Staff Publications

Achieving the goals of the Paris Agreement requires the world to adopt ‘green technologies’ such as renewable energies and electric transportation at an unprecedented scale. While many countries have implemented policies to spur the adoption of such technologies, a lack of focus has been placed on the sourcing of minerals that are required as inputs. As a result, there is likely to be a significant deficit that may constrain the adoption of green technologies.

In this report, we argue that a neglected area in addressing the mineral scarcity challenge is the private sector’s current trajectory for geological mineral exploration and …

The Lost Volume Seller In English Law, Victor P. Goldberg

Faculty Scholarship

If a buyer breaches a contract but the market price has remained unchanged, English courts and the treatises have treated the seller as a “lost volume seller.” The seller, it is argued, could have had two sales, not one, so it lost the profit on the second sale. This paper recognizes that the buyer has an option to terminate and that the contract prices that option. The implicit option price of the lost volume remedy results in an absurd contract, setting the option price high when it should be low and vice versa. The default rule ought to be the …

Remedies In The Ucc: Some Critical Thoughts, Victor P. Goldberg

Faculty Scholarship

I thank the conference organizers and the law review for giving me the opportunity to vent some of my frustrations with the Uniform Commercial Code (UCC). I have expressed my concerns with the Code’s overreliance on “custom and usage” elsewhere, and will not pursue that further here. Nor will I bemoan the Code’s invocation of good faith to undo the parties’ balancing of flexibility and reliance. I will confine my discussion to contract remedies. But I have to begin by noting one section I simply do not understand. Why on earth would the Code drafters in § 2–718(2)(b) have required …

The Fortification Of Inequality: Constitutional Doctrine And The Political Economy, Kate Andrias

Faculty Scholarship

As Parts I and II of this Essay elaborate, the examination yields three observations of relevance to constitutional law more generally: First, judge-made constitutional doctrine, though by no means the primary cause of rising inequality, has played an important role in reinforcing and exacerbating it. Judges have acquiesced to legislatively structured economic inequality, while also restricting the ability of legislatures to remedy it. Second, while economic inequality has become a cause célèbre only in the last few years, much of the constitutional doctrine that has contributed to its flourishing is longstanding. Moreover, for several decades, even the Court’s more liberal …

The Macpherson-Henningsen Puzzle, Victor P. Goldberg

Faculty Scholarship

In the landmark case of MacPherson v. Buick, an automobile company was held liable for negligence notwithstanding a lack of privity with the injured driver. Four decades later, in Henningsen v. Bloomfield Motors, the court held unconscionable the standard automobile company warranty which limited its responsibility to repair and replacement, even in a case involving physical injury. This suggests a puzzle: if it were so easy for firms to contract out of liability, did MacPherson accomplish anything?

Appraisal Arbitrage And Shareholder Value, Scott Callahan, Darius Palia, Eric L. Talley

Faculty Scholarship

Post-merger appraisal rights have been the focus of heated controversy within mergers and acquisitions circles in recent years. Traditionally perceived as an arcane and cabalistic proceeding, the appraisal action has recently come to occupy center stage through the ascendancy of appraisal arbitrage — whereby investors purchase target-company shares shortly after an announcement principally to pursue appraisal. Such strategies became more feasible and profitable a decade ago, on the heels of two seemingly technocratic reforms in Delaware: (i) the statutory codification of pre-judgment interest, pegging a presumptive rate at five percent above the federal discount rate; and (ii) the Transkaryotic opinion, …

Consequential Damages And Exclusion Clauses, Victor P. Goldberg

Faculty Scholarship

Contracts often include language excluding compensation for consequential damages. However, the boundary between consequential and direct damages is a blurry one. Courts have used concepts like foreseeability, natural result of the breach, and collateral business in their attempts to define the boundary. Those categories, I argue, are not particularly helpful. I consider three classes of cases: wrongful termination, delay, and breach of warranty. This paper argues that lost profits, when referring to the change in value of the contract after a wrongful termination would be direct damages; the hard case involves terminated dealers who had been paid indirectly for retailing …

How Investors Can (And Can't) Create Social Value, Paul Brest, Ronald J. Gilson, Mark A. Wolfson

Faculty Scholarship

Most investors throughout the world have a single goal: to earn the highest risk- adjusted financial returns. They would not accept a lower financial return from an investment that also produced social benefits.

More recently, an increasing number of socially-motivated investors have goals beyond maximizing returns. They also seek to align their investments with their social values (value alignment), and some also seek to cause the companies in which they invest to create more social value as a result of their investment (social value creation). We show in this essay that while it is relatively easy to achieve value alignment, …

The Origins Of A Capital Market Union In The United States, Jeffrey N. Gordon, Kathryn Judge

Faculty Scholarship

EU policy-makers have focused on the creation of a “Capital Market Union” to advance the economic vitality of the EU in the aftermath of the Global Financial Crisis of 2007-09 and the Eurozone crisis of 2011-13. The hope is that EU-wide capital markets will help remedy the limitations in the EU’s pattern of bank-centered finance, which, despite the launch of the Banking Union, remains tied to Member States. Capital market development will provide alternative channels for finance, which will facilitate greater resiliency, more economic integration within the EU, and more choices for savers and firms. This chapter uses the origins …

Economic Individualism And Preference Formation, Andrzej Rapaczynski

Faculty Scholarship

This note examines some issues involved in an attempt to go beyond the assumption, long-made by most economists, that people’s preferences are simply to be treated as “given” and that the principle of consumer sovereignty entails a refusal to consider some (or some people’s) revealed preferences as more authoritative than others. The most important break with that assumption has been the development of behavioral economics, which shows that people may not always know what they really want, and that economists have to develop a more critical approach, distinguishing people’s true preferences from those that are merely apparent. While this approach, …

Regulation And Deregulation: The Baseline Challenge, Kathryn Judge

Faculty Scholarship

What does it mean to deregulate? Is deregulation just about the repeal of existing rules? In a closed and static system, this definition seems apt. But what if the bounds are porous? Or the internal workings of the system are dynamic? Once a system is structured to allow the option set to change, do the proscriptions embedded in law at Time A remain the appropriate baseline? Or should the baseline evolve, recreating the balance struck at Time A given the option set that exists at Time B? What if the reasons for the balance struck at Time A are myriad, …