Law and Economics Commons^™

The Cost Of Legal Restrictions On Experience Rating, Levon Barseghyan, Francesca Molinari, Darcy Steeg Morris, Joshua C. Teitelbaum

Georgetown Law Faculty Publications and Other Works

We investigate the cost of legal restrictions on experience rating in auto and home insurance. The cost is an opportunity cost as experience rating can mitigate the problems associated with unobserved heterogeneity in claim risk, including mispriced coverage and resulting demand distortions. We assess this cost through a counterfactual analysis in which we explore how risk predictions, premiums, and demand in home insurance and two lines of auto insurance would respond to unrestricted multiline experience rating. Using claims data from a large sample of households, we first estimate the variance-covariance matrix of unobserved heterogeneity in claim risk. We then show …

Conclusion: A Way Forward, Peter B. Edelman

Georgetown Law Faculty Publications and Other Works

Where do we go next? I have three suggestions. One is to enlarge the frame of our work on poverty and race, including a focus on the ever-widening chasm of inequality, and all of it pressing toward the center stage of national attention. A second is to consolidate our work about income, jobs, and cash assistance into a unified frame, which I call a three-legged stool. And the third is to think from a perspective of place, and what that tells us about our antipoverty work.

We need a banner, a message, a theme, a politics for ending poverty. The …

Considering Law And Macroeconomics, Anna Gelpern, Adam J. Levitin

Georgetown Law Faculty Publications and Other Works

The worst financial and economic crisis to hit the world’s richest economies since the Great Depression inspired a flood of scholarship that straddled the disciplines of law and macroeconomics. With few exceptions, this crisis scholarship did not set out to build a new interdisciplinary movement and did not claim the legacy of earlier efforts to mine the intersection of law and macroeconomics. What are we to make of this moment ten years on? Could Law and Macroeconomics (#LawMacro for short) be an important new turn in legal and economic thought, a casual interdisciplinary tryst on the margins of a hundred-year …

Quantifying The Increase In “Effective Concentration” From Verticle Mergers That Raise Input Foreclosure Concerns: Comment On The Draft Vertical Merger Guidelines, Serge Moresi, Steven C. Salop

Georgetown Law Faculty Publications and Other Works

This comment responds to the request by the Federal Trade Commission and the Department of Justice’s Antitrust Division for public comment on the draft 2020 Vertical Merger Guidelines. In this comment, we show that there is an inherent loss of an indirect competitor and competition when a vertical merger raises input foreclosure concerns. We also show that it then is possible to calculate an effective increase in the HHI measure of concentration for the downstream market. We refer to this “proxy” measure as the “dHHI.” We derive the dHHI measure by comparing the pricing incentives and associated upward …

Recommendations And Comments On The Draft Vertical Merger Guidelines, Jonathan B. Baker, Nancy L. Rose, Steven C. Salop, Fiona Scott Morton

Georgetown Law Faculty Publications and Other Works

These recommendations and comments respond to the request by the Federal Trade Commission and the Department of Justice’s Antitrust Division for public comment on the draft 2020 Vertical Merger Guidelines. We commend the agencies for updating the 1984 non-horizontal merger guidelines by recognizing the substantial advances in economic thinking about vertical mergers in the thirty-five years since those guidelines were issued. Our comments emphasize four issues: (i) the treatment of the elimination of double marginalization (“EDM”), particularly that the draft vertical merger guidelines appear inappropriately to make proof of cognizability part of the agencies burden and that they appear to …

Why A Wealth Tax Is Definitely Constitutional, John R. Brooks, David Gamage

Georgetown Law Faculty Publications and Other Works

Wealth tax reform proposals are playing a major role in the 2020 presidential campaign. However, some opponents of these wealth tax reform proposals have claimed that a wealth tax would be unconstitutional. Other prominent critics have argued that wealth tax reforms are probably unconstitutional, so that, after review by the courts, the “likeliest outcome is that a wealth tax will raise exactly zero dollars.”

These claims are wrong. More precisely, these claims are wrong conditioned on wealth tax legislation being carefully drafted so as to ensure its constitutionality. As we will explain in this essay, properly drafted, wealth tax reform …

The Costs And Benefits Of Affordable Housing: A Partial Solution To The Conflict Of Competing Goods, Michael R. Diamond

Georgetown Law Faculty Publications and Other Works

In this Article, I extend a prior inquiry into the costs borne by society due to the lack of enough decent, affordable housing units. I previously outlined those costs and suggested a combination of public cost savings and public and private benefits that would accrue by providing that housing. I posited that the savings and benefits, in the aggregate, could at least substantially offset the costs and might even exceed them. If that is so, I queried, why has society not produced the needed units? In answering that question, I offered several possible responses: inadequate resources, racism, and public choice …

The Effects Of Shareholder Primacy, Publicness, And “Privateness” On Corporate Cultures, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

There is widespread belief in both scholarship and business practice that internal corporate cultures materially affect economic outcomes for firms. In turn, there is also a growing belief that corporate governance arrangements materially affect corporate cultures. If this is true, it suggests an intriguing three-link causal chain: governance choices influence corporate performance, at least in part via their effects on internal culture. This essay, written for the “Berle XI” symposium, explores that possibility. This subject is important to lawyers and legal scholars because of the symbiotic nature of law and governance, with an increasing risk of enhanced corporate criminal and …

Catalyzing Privacy Law, Anupam Chander, Margot E. Kaminski, William Mcgeveran

Georgetown Law Faculty Publications and Other Works

The United States famously lacks a comprehensive federal data privacy law. In the past year, however, over half the states have proposed broad privacy bills or have established task forces to propose possible privacy legislation. Meanwhile, congressional committees are holding hearings on multiple privacy bills. What is catalyzing this legislative momentum? Some believe that Europe’s General Data Protection Regulation (GDPR), which came into force in 2018, is the driving factor. But with the California Consumer Privacy Act (CCPA) which took effect in January 2020, California has emerged as an alternate contender in the race to set the new standard for …

Stabilizing “Pillar One”: Corporate Profit Reallocation In An Uncertain Environment, Itai Grinberg

Georgetown Law Faculty Publications and Other Works

This paper is about how the world reestablishes international tax order.

The paper focuses on the OECD’s work on profit reallocation and asks whether this multilateral effort can be successful in stabilizing the international tax system. The analysis centers on the current leading concepts for reallocating profit among jurisdictions under what is known as “Pillar One” of the OECD work programme. To analyze whether any Pillar One concept can be turned into a stable multilateral regime, it is necessary to specify certain elements of what a proposal to reallocate profits might entail. Accordingly, this paper sets out two strawman proposals. …

Five Principles For Vertical Merger Enforcement Policy, Jonathan B. Baker, Nancy L. Rose, Steven C. Salop, Fiona Scott Morton

Georgetown Law Faculty Publications and Other Works

There seems to be consensus that the Department of Justice’s 1984 Vertical Merger Guidelines do not reflect either modern theoretical and empirical economic analysis or current agency enforcement policy. Yet widely divergent views of preferred enforcement policies have been expressed among agency enforcers and commentators. Based on our review of the relevant economic literature and our experience analyzing vertical mergers, we recommend that the enforcement agencies adopt five principles: (i) The agencies should consider and investigate the full range of potential anticompetitive harms when evaluating vertical mergers; (ii) The agencies should decline to presume that vertical mergers benefit competition on …

Analyzing Vertical Mergers To Avoid False Negatives: Three Recent Case Studies, Steven C. Salop

Georgetown Law Faculty Publications and Other Works

This article analyzes three recent vertical mergers: a private antitrust case attacking the consummated merger of Jeld-Wen and Craftmaster Manufacturing Inc. (“CMI”) that was cleared by the DOJ in 2012 but subsequently litigated and won by the plaintiff, Steves & Sons in 2018; and two recent vertical merger matters investigated and cleared (with limited remedies) by 3-2 votes by the Federal Trade Commission in early 2019 -- Staples/Essendant and Fresenius/NxStage. There are some factual parallels among these three matters that make it interesting to analyze them together. First, the DOJ’s decision to clear Jeld-Wen/CMI merger appears to be a clear …

Reflecting On Straight Talk On Trade, Alvaro Santos

Georgetown Law Faculty Publications and Other Works

A question that motivates this essay is: What insights can we offer from legal scholarship that Dani Rodrik could take on board and put to good use?

Rodrik is an economist, but he might as well have been a lawyer in the way he builds his argument and anticipates counterarguments. I mean that as a compliment. As a bonus, he delivers the punch line with humor and grace. In his book I recognized several of the many contributions Rodrik has made: his argument for policy space and revitalization of industrial policy, the globalization trilemma, the idea and process of growth …

World Trade And Investment Law In A Time Of Crisis: Distribution, Development And Social Protection, David M. Trubek, Alvaro Santos, Chantal Thomas

Georgetown Law Faculty Publications and Other Works

World trade and investment law is in crisis: new and progressive ideas are needed. Rules that facilitated globalization and supported global economic growth are being challenged. A system of global governance that once seemed secure is now at risk as the US ignores the rules while developing countries struggle to escape restrictions. Some want to tear global institutions and agreements down while others try desperately to maintain the status quo. Rejecting both options, we convened a group of trade and investment law experts from 10 countries South and North who have proposed ideas for a new world trade and investment …

The New Frontier For Labor In Trade Agreements, Alvaro Santos

Georgetown Law Faculty Publications and Other Works

In the spring of 2015, I took my students of international trade law to visit the World Trade Organization (WTO) in Geneva. It was a two-day trip, organized around lectures and discussions with staff from different divisions of the organization, the Advisory Centre of WTO Law and the permanent missions of two countries. None of my students had been there before, and even though I had taught international trade law for several years, it was also my first time visiting the headquarters of the organization. We were excited and curious. The building looked big and majestic. The back side opened …

Multilateral Economic Institutions And U.S. Foreign Policy: Hearing Before The Subcomm. On Multilateral Int'l Dev., Multilateral Insts., & Int'l Econ., Energy, & Envtl. Pol'y Of The S. Comm. On Foreign Relations, 115th Cong., Nov. 27, 2018 (Statement Of Jennifer A. Hillman), Jennifer A. Hillman

Testimony Before Congress

Virtually every major international gathering of world leaders recently has ended in failure—or at least failure to reach enough agreement to issue a concluding statement or communique. These failures come at a time when many have been looking for signs that world leaders would come together to address the most pressing problems facing the world—including climate change, the breakdown in the rules of the international trading system, the need everywhere for good jobs that pay a living wage, and rapidly growing income inequality.

The failure of these meetings to produce formal agreements—or even specific paths to reaching agreements in the …

The At&T/Time Warner Merger: How Judge Leon Garbled Professor Nash, Steven C. Salop

Georgetown Law Faculty Publications and Other Works

The US District Court in the AT&T/Time Warner vertical merger case has issued its opinion permitting the merger. At of this writing in August 2018, the Department of Justice (DOJ) has appealed to the DC Circuit and filed its brief, as have several Amici. I was disappointed that the DOJ was unable to prove its case to the satisfaction of Judge Leon, the trial judge. Notwithstanding the court’s confidence that the merger is procompetitive, I remain concerned that it will have anti- competitive effects, both on its own and following the subsequent vertical mergers in the TV industry, which this …

Different Contexts, Different Risk Preferences?, Levon Barseghyan, Joshua C. Teitelbaum, Lin Xu

Georgetown Law Faculty Publications and Other Works

We examine the stability of risk preferences across contexts involving different stakes. Using data on households' deductible choices in three property insurance coverages and their limit choices in two liability insurance coverages, we assess the stability across the five contexts in the ordinal ranking of the households' willingness to bear risk. We find evidence of stability across contexts involving stakes of the same magnitude, but not across contexts involving stakes of very different magnitudes. Our results appear to be robust to heterogeneity in wealth and access to credit, complicating seemingly ready explanations.

Adolf Berle During The New Deal: The Brain Truster As An Intellectual Jobber, Robert Thompson

Georgetown Law Faculty Publications and Other Works

Thirty-seven year old law professor Adolf Berle had a career year in 1932. His book published that year, The Modern Corporation and Private Property (written with Gardiner Means), framed the fundamental twentieth century change in understanding modern corporations. Berle’s exchange with Merrick Dodd on the purpose of the corporation that played out that spring on the pages of the Harvard Law Review launched a still fierce debate over the role of shareholders and other stakeholders. His service as a brain truster for Franklin Roosevelt during the fall election gave voice to the transformative economic policies of the New Deal. This …

User Participation In Value Creation, Itai Grinberg

Georgetown Law Faculty Publications and Other Works

This article examines HM Treasury’s proposal to account for the active participation of users in value creation in certain digital platforms. The first key question is whether there is any reason to believe, as HM Treasury suggests, that users only meaningfully or actively contribute to value creation in the context of certain digital platforms. The article accordingly explores the factors HM Treasury sets out for the attribution of income to active user participation, including features such as network effects, multisided business models, and a lack of physical presence in the jurisdiction of the user. It concludes that if a user …

Macroeconomic Modeling Of Tax Policy: A Comparison Of Current Methodologies, Itai Grinberg, Alan J. Auerbach, Thomas A. Barthold, Nicholas Bull, W. Gavin Elkins, Pamela J. Moomau, Rachel Moore, Benjamin Page, Brandon Pecoraro, Kyle Pomerleau

Georgetown Law Faculty Publications and Other Works

The macroeconomic effects of tax reform are a subject of significant discussion and controversy. In 2015, the House of Representatives adopted a new “dynamic scoring” rule requiring a point estimate within the budget window of the deficit effect due to the macroeconomic response to certain proposed tax legislation. The revenue estimates provided by the staff of the Joint Committee on Taxation (JCT) for major tax bills often play a critical role in Congressional deliberations and public discussion of those bills. The JCT has long had macroeconomic analytic capability, and in recent years, responding to Congress’ interest in macrodynamic estimates for …

A Destination-Based Cash Flow Tax Can Be Structured To Comply With World Trade Organization Rules, Itai Grinberg

Georgetown Law Faculty Publications and Other Works

This paper briefly outlines alternative approaches to enacting a destination-based cash flow tax that are more clearly compatible with the World Trade Organization rules than the approach that has previously been described in the literature. The first structural alternative involves expanding the universe of businesses subject to the tax by clearly defining both the base of the new U.S. business tax and its tax nexus requirement as domestic consumption, and thereafter treating foreign importers and other sellers equivalently, rather than imposing a deduction disallowance or an import tax. The second alternative involves adopting a business activities tax, and then enacting …

The Limits Of Mobility And The Persistence Of Urban Inequality, Sheila Foster

Georgetown Law Faculty Publications and Other Works

David Schleicher's Article, Stuck! The Law and Economics of Residential Stagnation, draws much-needed attention to the consequences of declining interregional mobility of low-income workers. However, this Response argues that Schleicher's policy prescriptions evince a blind spot for the economic and racial stratification of disadvantaged populations within the successful metro regions these new migrants would enter. The concentration of highly skilled, educated, and affluent populations in the urban core, and the segregation and isolation of disadvantaged populations outside of it, impose additional costs on new migrants to access economic opportunities. Schleicher fails to sufficiently account for these costs, which offset …

Do Credit-Based Insurance Scores Proxy For Income In Predicting Auto Claim Risk?, Darcy Steeg Morris, Daniel Schwarcz, Joshua C. Teitelbaum

Georgetown Law Faculty Publications and Other Works

Auto insurers often use credit-based insurance scores in their underwriting and rating processes. The practice is controversial—many consumer groups oppose it, and most states regulate it, in part out of concern that insurance scores proxy for policyholder income in predicting claim risk. We offer new evidence on this issue in the context of auto insurance. Prior studies on the subject suffer from the limitation that they rely solely on aggregate measures of income, such as the median income in a policyholder's census tract or zip code. We analyze a panel of households that purchased auto and home policies from a …

Pay It Forward? Law And The Problem Of Restricted-Spending Philanthropy, Brian Galle

Georgetown Law Faculty Publications and Other Works

American foundations and other philanthropic giving entities hold about $1 trillion in investment assets, and that figure continues to grow every year. Even as urgent contemporary needs go unmet, philanthropic organizations spend only a tiny fraction of their wealth each year, mostly due to restrictive terms in contracts between donors and firms limiting the rate at which donations can be distributed. Law has played a critical role in underwriting and encouraging this build-up of philanthropic wealth. For instance, contributors can typically take a full tax deduction for the value of their contribution today, no matter when the foundation spends their …

Behavioral Ethics, Behavioral Compliance, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

The design of an effective legal compliance system for an organization fearing prosecution for white-collar crime or regulatory violations requires skill at predicting human behavior. It is entirely plausible to use the economist’s simplifying assumptions of rational choice and pecuniary self-interest in making these predictions. But the realism of these assumptions has been under attack for decades now, suggesting that we should at least consider more nuanced behavioral possibilities when designing and implementing compliance programs. The label “behavioral compliance” can be attached to the design and management of compliance that draws from this wider range of behavioral predictions about individual …

The Evolution And Vitality Of Merger Presumptions: A Decision-Theoretic Approach, Steven C. Salop

Georgetown Law Faculty Publications and Other Works

This article reviews the formulation and evolution of the Philadelphia National Bank anticompetitive presumption through the lens of decision theory and Bayes Law. It explains how the economic theory, empirical evidence and experience are used to determine a presumption and how that presumption interacts with the reliability of relevant evidence to rationally set the appropriate burden of production and burden of persuasion to rebut the presumption. The article applies this reasoning to merger presumptions. It also sketches out a number of non-market share structural factors that might be used to supplement or replace the current legal and enforcement presumptions for …

Inference Under Stability Of Risk Preferences, Levon Barseghyan, Francesca Molinari, Joshua C. Teitelbaum

Georgetown Law Faculty Publications and Other Works

We leverage the assumption that preferences are stable across contexts to partially identify and conduct inference on the parameters of a structural model of risky choice. Working with data on households' deductible choices across three lines of insurance coverage and a model that nests expected utility theory plus a range of non-expected utility models, we perform a revealed preference analysis that yields household-specific bounds on the model parameters. We then impose stability and other structural assumptions to tighten the bounds, and we explore what we can learn about households' risk preferences from the intervals defined by the bounds. We further …

In Praise Of Ex Ante Regulation, Brian Galle

Georgetown Law Faculty Publications and Other Works

Timing is an important consideration in regulatory design. Corrective taxes are usually imposed before or contemporaneously with the harmful activity they are aimed at preventing, while tort awards are assessed ex post, in its aftermath. Patents and research grants both can encourage innovation, but patents pay off only after the invention is marketed. In a world of perfect information, fully rational actors, and complete credit or insurance markets, time would not matter. In the real world, though, the failure of one or more of these assumptions can change dramatically the impact of a regulatory option. For example, prior commentators have …

High Technology, Consumer Privacy, And U.S. National Security : Hearing Before The Subcomm. On Commerce, Manufacturing, And Trade Of The H. Comm. On Energy And Commerce, 113th Cong., September 17, 2014 (Remarks By Professor Laura K. Donohue, Geo. U. L. Center), Laura K. Donohue

Testimony Before Congress

Documents released over the past year detailing the National Security Agency’s telephony metadata collection program and interception of international content under the Foreign Intelligence Surveillance Act (FISA) directly implicated U.S. high technology companies in government surveillance. The result was an immediate, and detrimental, impact on U.S. firms, the economy, and U.S. national security.

The first Snowden documents, printed June 5, 2013, revealed that the U.S. government had served orders on Verizon, directing the company to turn over telephony metadata under Section 215 of the USA PATRIOT Act. The following day, The Guardian published classified slides detailing how the NSA had …