Law and Economics Commons^™

Copyrighting Nature, Cathay Y. N. Smith -- Professor Of Law

Vanderbilt Law Review

This Article introduces a "work of nature" doctrine for copyright law. In 1903, the U.S. Supreme Court established the principle in copyright law that, while anyone can copy the original source of a copyrighted work, they cannot copy an author's copy of the original source. A century later, the U.S. Court of Appeals for the Ninth Circuit hinted at a "work of nature" exception, suggesting that even if copying the copy is restricted, copying elements of expression that nature displays for all observers is permissible. U.S. patent law excludes products of nature from protection, but this Article is the first …

Opting Out Of Court? Reputation And Informal Norms In Private Equity, Kobi Kastiel Professor Of Law, Yaron Nili Professor Of Law

Vanderbilt Law Review

Private equity, an industry characterized by high-stake investments and complex contractual arrangements, operates almost entirely outside of courts. Despite the substantial financial stakes involved--billions of dollars locked in for years--and the potential for fiduciary conflicts, litigation between limited partners ("LPs") and general partners ("GPs") who manage the investment is exceptionally rare. In stark contrast to public markets, where shareholder litigation plays a prominent role in deterring misconduct and shaping corporate norms, the private equity world is largely defined by its absence. The puzzle, then, is this: In an industry where fiduciary breaches or misaligned incentives are not uncommon, why do …

Viscusi Circular A-4 Peer Review Comments, W. Kip Viscusi

Vanderbilt Law School Faculty Publications

This working paper provides commentary on my 2023 peer review panel comments on the 2023 Office of Management and Budget (OMB) Circular A-4. The Prologue section introduces my official peer review comments and indicates how the structure of my comments was tailored to the guidelines established by the OMB. The main section consists of my 2023 peer review comments as they were submitted to OMB. I recommended changes in the draft Circular A-4 to increase the discount rate from the 1.7% rate that OMB proposed, to report domestic benefits whenever global benefits are reported, to adopt a behavioral transfer test …

The Social Discount Rate: Legal And Philosophical Underpinnings, W. Kip Viscusi

Vanderbilt Law School Faculty Publications

Discounting of deferred impacts of government policies is a long-established practice that has been the target of substantial litigation and continued philosophical debate. Legal challenges to the social rate of discount have resulted in general acceptance of the principle of discounting at a nonzero rate for both monetary and nonmonetary impacts. Courts have displayed a general familiarity with discounting and often require transparent justification for the selection of the discount rate based on established scientific principles. The philosophical issues are more wide-ranging and include whether nonmonetary impacts should be discounted, the use of the opportunity cost of capital or the …

Globalize Me: Regulating Distributed Ledger Technology, Roee Sarel, Hadar Y. Jabotinsky, Israel Klein

Vanderbilt Journal of Transnational Law

Distributed Ledger Technology (DLT)—the technology underlying cryptocurrencies—has been identified by many as a game-changer for data storage. Although DLT can solve acute problems of trust and coor- dination whenever entities (e.g., firms, traders, or even countries) rely on a shared database, it has mostly failed to reach mass adoption out- side the context of cryptocurrencies.

A prime reason for this failure is the extreme state of regulation, which was largely absent for many years but is now pouring down via uncoordinated regulatory initiatives by different countries. Both of these extremes—under-regulation and over-regulation—are consistent with traditional concepts from law and economics. …

The Limits Of Portfolio Primacy, Roberto Tallarita,

Vanderbilt Law Review

According to the “portfolio primacy” theory, large asset managers, and in particular large index funds, can and will undertake the role of “climate stewards” and will push corporations to reduce their carbon footprint. This theory is based on the view that index fund portfolios mirror the entire market and therefore have strong financial incentives to reduce market-wide threats, such as climate change.

But how much can we rely on portfolio primacy to mitigate the effects of climate change? In this Article, I provide a conceptual and empirical assessment of the potential impact of portfolio primacy on climate change mitigation by …

How Regulations Undervalue Occupational Fatalities, W. Kip Viscusi, Robert J. Cramer

Vanderbilt Law School Faculty Publications

The U.S. Occupational Safety and Health Administration establishes incentives for safety by setting and enforcing regulatorystandards. Using four and a half decades of inspection data, this article provides a comprehensive analysis of the factors underpinning penalties following fatalities. The “fatality premium” for regulatory violations following a worker death is quitemodest and is several orders of magnitude below the value-of-a-statistical-life figure needed to establish efficient levels of deterrence in the absence of all other financial incentives. Although there are low statutory caps on penalties, only 8% of thepenalties for violations involving fatalities are constrained by the cap, suggesting that current statutes …

The Pandemic Legacy: Accounting For Working-From-Home Emissions, Michael P. Vandenbergh, Sharon Shewmake

Vanderbilt Law School Faculty Publications

The COVID-19 pandemic has resulted in millions of employees working from home, a development that is challenging public and private standards for reporting and reducing greenhouse gas emissions. Under these standards, corporations disclose the emissions from large buildings and the power plants that supply them with energy, but most do not report other types of emissions. When employees shift from working at an office to working at home, the corporate emissions appear to have decreased even though they have simply shifted beyond the boundary of the reporting requirement. This move creates greenwashing risks--the ability to claim that corporate greenhouse gas …

Extending Democracy To Corporate Governance And Beyond, Edward Rubin

Vanderbilt Law School Faculty Publications

This article proposes a different rationale for corporate democracy, one that extends more broadly to all forms of employment. It is based on an equivalence, not an analogy. The equivalence is that subordination feels essentially the same to an individual whether a public or a private entity is carrying it out. As recognized in the public arena, it undermines people’s dignity and autonomy, and at least threatens—and often produces—actual oppression. Based on this equivalence, this article proposes a different argument for corporate democracy. Proponents of democracy in the public sphere believe that the citizens of a nation should control its …

Publication Selection Biases In Stated Preference Estimates Of The Value Of A Statistical Life, W. Kip Viscusi, Clayton J. Masterman

Vanderbilt Law School Faculty Publications

This article presents the first meta-analysis documenting the extent of publication selection biases in stated preference estimates of the value of a statistical life (VSL). Stated preference studies fail to overcome the publication biases that affect much of the VSL literature. Such biases account for approximately 90% of the mean value of published VSL estimates in this subset of the literature. The bias is greatest for the largest estimates, possibly because the high-income labor market and stated preference estimates from the USA serve as an anchor for the VSL in other higher income countries. Estimates from lower-income countries exhibit less …

Predicting Variation In Endowment Effect Magnitudes, Owen D. Jones, C. Jaeger, S. Brosnan, D. Levin

Vanderbilt Law School Faculty Publications

Hundreds of studies demonstrate human cognitive biases that are both inconsistent with “rational” decisionmaking and puzzlingly patterned. One such bias, the “endowment effect” (also known as “reluctance to trade”), occurs when people instantly value an item they have just acquired at a much higher price than the maximum they would have paid to acquire it. This bias impedes a vast range of real-world transactions, making it important to understand. Prior studies have documented items that do or do not generate endowment effects, and have noted that the effects vary in magnitude. But none has predicted any of the substantial between-item …

Money, Private Law, And Macroeconomic Disasters, Morgan Ricks

Vanderbilt Law School Faculty Publications

Last year, Ben Bernanke published a blockbuster paper whose importance to the emerging field of law and macroeconomics would be hard to overstate. Titled The Real Effects of Disrupted Credit: Evidence from the Global Financial Crisis,' the paper gets to a vital threshold question for financial stability policy: through what channel or channels do financial crises crush the real economy? Bernanke pits what he calls the "household leverage" narrative of the Great Recession of 2007 to 2009 against what he calls the "financial fragility" narrative. His empirical analysis comes down firmly on the side of the latter narrative. In this …

The Aid Gap, Chris Cuthrie, Emily Lamm

Vanderbilt Law School Faculty Publications

Women lag men in wages and wealth. Women earn 81 percent as much as similarly situated men,' and they own only 32 percent of the wealth that men own. Lawyers are no different. According to the U.S. Census Bureau, female lawyers make 77 percent as much as their male peers, and according to the National Association of Women Lawyers, female equity partners make almost $1oo,ooo less each year than their male peers. Because wage gaps lead to wealth gaps, female lawyers accrue less wealth than their male counterparts.

Identifying The Legitimate Role Of The Value Of A Statistical Life In Legal Contexts, W. Kip Viscusi

Vanderbilt Law School Faculty Publications

This article is based on my keynote address at the American Academy of Economic and Financial Experts conference in which I examined some of the implications for legal contexts of my book, Pricing Lives: Guideposts for a Safer Society. The value of a statistical life (VSL) provides an economic measure of the efficient cost-risk tradeoff rate for mortality risk decisions. Consequently, the VSL is well suited to serving as a measure of the benefits of mortality risk reduction for government regulatory policies and for corporate risk decisions. The tort liability counterpart of this function is using the VSL to assess …

The Mortality Cost Metric For The Costs Of War, W. Kip Viscusi

Vanderbilt Law School Faculty Publications

Estimates of the costs of war include the financial costs and the lives that are lost. Using estimates of the value of a statistical life and the value of a statistical injury, the health losses can be converted to a common monetary metric and added to the budgetary costs. Counting the monetary value of the direct war-related fatalities and injuries plays a relatively greater role for the Vietnam War than for the Iraq and Afghanistan conflicts. This article proposes an alternative war cost metric that also recognizes the lives that are also lost because economic resources are diverted to war …

Merger Negotiations In The Shadow Of Judicial Appraisal, Brian Broughman, Audra Boone, Antonio Macias

Vanderbilt Law School Faculty Publications

The recent surge in appraisal litigation has sparked debate over the desirability of appraisal and how this remedy should be structured. Much of this debate is based on untested assertions about appraisal's ex ante effect on the structure and pricing of takeovers. Systematically investigating this effect, we find evidence that target shareholders receive higher abnormal returns as the strength of the appraisal remedy increases. We find no evidence that bidders offer a lower up- front price as a means to pay off dissenting shareholders after a sale. Further- more, threat of appraisal does not appear to limit takeover activity or …

Decision Irrationalities Involving Deadly Risks, W. Kip Viscusi, Scott Deangelis

Vanderbilt Law School Faculty Publications

This article provides an experimental analysis of two-armed bandit problems that have a different structure in which the first unsuccessful outcome leads to termination of the game. It differs from a conventional two-armed bandit problem in that there is no opportunity to alter behavior after an unsuccessful outcome. Introducing the risk of death into a sequential decision problem alters the structure of the problem. Even though play ends after an unsuccessful outcome, Bayesian learning after successful outcomes has a potential function in this class of two-armed bandit problems. Increasing uncertainty boosts the chance of long-term survival since ambiguous probabilities of …

The Trouble With Corporate Conscience, James D. Nelson

Vanderbilt Law Review

Accomplished corporate law scholars claim that modern businesses need an infusion of morality. Disappointed by conventional regulatory responses to recurring corporate scandal, these scholars argue that corporate conscience provides a more fruitful path to systemic economic reform. In Burwell v. Hobby Lobby, which held that for-profit businesses can claim religious exemptions from general laws, the Supreme Court gave this notion of corporate conscience added momentum. Emboldened by the Court's embrace of business goals extending beyond shareholder profit, proponents of a moralized marketplace now celebrate corporate conscience as an idea whose time has come. This Essay criticizes the leading arguments for …

The Middle-Class Constitution: A Response, Ganesh Sitaraman

Vanderbilt Law School Faculty Publications

I am very grateful to the Boston University Law Review for bringing together such a terrific group of scholars to engage with my book, The Crisis of the Middle-Class Constitution: Why Economic Inequality Threatens Our Republic. It is a testament to the work and excellence of the Boston University Law Review that they pulled together such an intellectually engaging group of commentators. My deepest thanks also to Professors Markovits, Rahman, Lyons, Epstein, and Somin for taking the time to read the book and comment on it.

Consumer Litigation Funding: Just Another Form Of Payday Lending?, Paige Marta Skiba, Jean Xiao

Vanderbilt Law School Faculty Publications

This article provides a side-by-side comparison of payday lending and consumer litigation funding in order to aid policymakers. Funding has similarities with payday lending because they are both alternative financial services, involve high interest rates, and cater to customers who need money for living expenses. However, they differ in ways that regulators should recognize. Many justify bans on payday lending by pointing to the fact that millions of borrowers every year are getting stuck in an inescapable cycle of interest payments. While legal finance has real costs, funding’s nonrecourse nature prevents consumers from getting stuck in a cyclical repayment of …

Who Are The Top Law Firms? Assessing The Value Of Plaintiffs' Law Firms In Merger Litigation, Randall S. Thomas, C.N. V. Krishnan, Steven D. Solomon

Vanderbilt Law School Faculty Publications

Using a hand-collected sample of 1,739 class actions that challenge the fairness of M&A transactions from the period 2003 through 2012, we examine the effectiveness of plaintiffs’ law firms. From out of the 336 law firms in our sample, we determine the top law firms based on their popularity with informed plaintiffs as well as their proven ability to obtain large attorneys’ fees awards. We find that the presence of a top plaintiffs’ law firm is significantly and positively associated with a higher probability of lawsuit success. These results hold even after instrumenting for unobserved case quality, given that top …

Online Sovereignty: The Law And Economics Of Tribal Electronic Commerce, Gavin Clarkson, Katherine A. Spilde, Carma M. Claw

Vanderbilt Journal of Entertainment & Technology Law

In 1886, the US Supreme Court wrote that, for Indian tribes,"the people of the states where they are found are often their deadliest enemies." Recently, state agencies and regulators have continued that tradition of hostility by improperly attempting to regulate electronic commerce businesses operated by tribal governments that are more properly subject to regulations established by tribal law and subject to federal oversight. Despite the fact that these online businesses operate exclusively under tribal law and make their tribal affiliation clear to customers, certain state regulators have demanded absolute compliance with state law, even when such laws are from states …

Delaware Law As Lingua Franca: Theory And Evidence, Brian Broughman, Jesse A. Fried, Darian Ibrahim

Vanderbilt Law School Faculty Publications

Why would a firm incorporate in Delaware rather than in its home state? Prior explanations have focused on the inherent features of Delaware corporate law, as well as the positive network externalities created by so many other firms domiciling in Delaware. We offer an additional explanation: a firm may choose Delaware simply because its law is nationally known and thus can serve as a “lingua franca” for in-state and out-of-state investors. Analyzing the incorporation decisions of 1,850 VC-backed startups, we find evidence consistent with this lingua-franca explanation. Indeed, the lingua-franca effect appears to be more important than other factors that …

Assessing The Insurance Role Of Tort Liability After Calabresi, Joni Hersch, W. Kip Viscusi

Vanderbilt Law School Faculty Publications

Calabresi’s theory of tort liability (1961) as a risk distribution mechanism established insurance as an objective of tort liability. Calabresi’s risk-spreading concept of tort has provided the impetus for much of the subsequent development of tort liability doctrine, including risk-utility analysis and strict liability. Calabresi’s analysis remains a powerful basis for modern tort liability. However, high transactions costs, correlated risks, catastrophic losses, mass toxic torts, shifts in liability rules over time, noneconomic damages, and punitive damages affect the functioning of tort liability as an insurance mechanism. Despite some limitations of tort liability as insurance, tort compensation serves both a compensatory …

Dude, Where's My Car Title?: The Law, Behavior, And Economics Of Title Lending Markets, Paige Marta Skiba, Kathryn Fritzdixon, Jim Hawkins

Vanderbilt Law School Faculty Publications

Millions of credit-constrained borrowers turn to title loans to meet their liquidity needs. Legislatures and regulators have debated how to best regulate these transactions, but surprisingly, we still know very little about the customers who use title loans. This Article reports findings from the first large-scale academic study of title lending customers. We surveyed over 400 title lending customers across three states and obtained information about customers’ demographic and behavioral characteristics.

Based on the results of our survey and guided by insights from behavioral economics, this Article seeks to reframe the title lending debate. Instead of focusing on the risks …

Criminal Law Pays: Penal Law's Contribution To China's Economic Development, Margaret K. Lewis

Vanderbilt Journal of Transnational Law

China's rapid rise to become the second largest economy in the world is nothing short of extraordinary. When economic reforms took off in the late 1970s, China had been without formal criminal law for three decades. China's economic development since the launch of the reform period has occurred directly alongside the development of its criminal law, but the academic literature has failed to ask what role criminal law plays in China's impressive growth. This Article argues that not only has the People's Republic of China leadership historically used criminal law in service of economic ends but also, going forward, criminal …

Opting Out Among Women With Elite Education, Joni Hersch

Vanderbilt Law School Faculty Publications

Whether highly educated women are exiting the labor force to care for their children has generated a great deal of media attention, even though academic studies find little evidence of opting out. This paper shows that female graduates of elite institutions have lower labor market involvement than their counterparts from less selective institutions. Although elite graduates are more likely to earn advanced degrees, marry at later ages, and have higher expected earnings, there is little difference in labor market activity by college selectivity among women without children and women who are not married. But the presence of children is associated …

Independent Directors And Board Control In Venture Finance, Brian Broughman

Vanderbilt Law School Faculty Publications

In most startup firms neither the entrepreneurs nor the investors control the board. Instead control is typically shared with a mutually appointed independent director holding the tie-breaking seat. Contract theory, which treats control as an indivisible right held by one party, does not have a good explana- tion for this practice. Using a bargaining game similar to final offer arbitration, I show that an independent director as tiebreaker can reduce holdup by moderating each party's ex post threat position, potentially expanding the range of firms which receive external financing. This project contributes to the literature on incomplete contracting and holdup …

Law And Economics As A Pillar Of Legal Education, W. Kip Viscusi, Joni Hersch

Vanderbilt Law School Faculty Publications

This paper reports the distribution of doctoral degrees in economics and in other fields among faculy at the 26 hghest-ranked law schools. Almost one-third of professors at the top 13 law schools have a Ph.D. degree, with 9 % having a Ph.D. in economics. Law school rank is hghly correlated with the share of faculy holding a Ph.D. in economics and is less correlated with the share offaculy with other doctoral degrees. Law and economics is a major area of legal scholarsh based on citations in the law literature and other impact rankings. In recognition of the increased importance of …

Japan's Love For Derivative Actions: Irrational Behavior And Non-Economic Motives As Rational Explanations For Shareholder Litigation, Dan W. Puchniak, Masafumi Nakahigashi

Vanderbilt Journal of Transnational Law

Not long ago, there was a consensus in the legal academy that the Japanese were irrational litigants. As the theory went, Japanese people would forgo litigating for financial gain because of a cultural obsession with maintaining social harmony. Based on this theory, it made perfect (but economically irrational) sense that Japanese shareholders let their U.S.-transplanted derivative action lay moribund for almost four post-war decades, while at the same time the derivative action was a staple of shareholder litigation in the United States.

The 1980s brought a wave of law and economics to the scholarship of Japanese law, which largely discredited …