Law and Economics Commons^™

The Race To The Middle, William Magnuson

Faculty Scholarship

How does federalism affect the quality of law? It is one of the fundamental questions of our constitutional system. Scholars of federalism generally fall into one of two camps on the question. One camp argues that regulatory competition between states leads to a “race to the bottom,” in which states adopt progressively worse laws in order to pander to powerful constituencies. The other camp, conversely, argues that regulatory competition leads to a “race to the top,” incentivizing states to adopt progressively better laws in the search for more desirable outcomes for their constituencies. Despite their apparent differences, however, both the …

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 …

An Economic Approach To Religious Exemptions, Stephanie H. Barclay

Journal Articles

Externalities caused by religious exemptions have been getting the spotlight again in light a case the U.S. Supreme Court will hear this term: Fulton v. City of Philadelphia. Some argue that religious individuals should be required to internalize the costs they impose on third parties and thus should be denied the right to practice that harmful behavior. These new progressive theories about harm trade on rhetoric and normative intuitions regarding externalities and costs. But curiously, these theories also largely ignore an influential theoretical movement that has studied externalities and costs for the last fifty years: law and economics.

This Article …

Copyright And Economic Viability: Evidence From The Music Industry, James Hicks, Kristelia García, Justin Mccrary

Scholarship@WashULaw

Copyright provides a long term of legal excludability, ostensibly to encourage the production of new creative works. How long this term should last, and the extent to which current law aligns with the economic incentives of copyright owners, has been the subject of vigorous theoretical debate. We investigate the economic viability of content in a major creative industry—commercial music—using a novel longitudinal dataset of weekly sales and streaming counts. We find that the typical sound recording has an extremely short commercial half-life—on the order of months, rather than years or decades—but also see evidence that subscription streaming services extend the …

Rule By Data: The End Of Markets?, Katharina Pistor

Faculty Scholarship

This Article explores data as a source and, in their processed variant, as a means of governance that will likely replace both markets and the law. Discussing data not as an object of transactions or an object of governance, but as a tool for governing others on a scale that rivals that of nation states with their law, seems a fitting topic for a special issue that is devoted to the legal construction of markets. Here, I argue that while it may well be the case that law constitutes markets, markets are not the only way in which economic relations …

In Defense Of Empiricism In Family Law, Elizabeth S. Scott

Faculty Scholarship

It is fitting to include an essay defending the application of empirical research to family law and policy in a symposium honoring the scholarly career of Peg Brinig, who is probably the leading empiricist working in family law. While such a defense might seem unnecessary, given the expanding role of behavioral, social, and biological research in shaping the regulation of children and families, prominent scholars recently have raised concerns about the trend toward reliance on empirical science in this field. A part of the criticism is directed at the quality of the science itself and at the lack of sophistication …

Building A Law-And-Political-Economy Framework: Beyond The Twentieth-Century Synthesis, Jedediah S. Purdy, David Singh Grewal, Amy Kapczynski, K. Sabeel Rahman

Faculty Scholarship

We live in a time of interrelated crises. Economic inequality and precarity, and crises of democracy, climate change, and more raise significant challenges for legal scholarship and thought. “Neoliberal” premises undergird many fields of law and have helped authorize policies and practices that reaffirm the inequities of the current era. In particular, market efficiency, neutrality, and formal equality have rendered key kinds of power invisible, and generated a skepticism of democratic politics. The result of these presumptions is what we call the “Twentieth-Century Synthesis”: a pervasive view of law that encases “the market” from claims of justice and conceals it …

Picking The Low-Hanging Fruit: A Short Essay For Michael Klausner, Ronald J. Gilson

Faculty Scholarship

The articles that comprise this issue of the Journal of Corporation Law were first presented at a conference held at the Wharton School and co-sponsored by Wharton together with Columbia and Stanford Law Schools. The event was organized by my friend Peter Conti-Brown, to whom I am grateful for both the thought and the effort. Standing alone, the thought that the conference was warranted would have been extremely generous. However, anyone who has organized a conference knows that the idea for such events can be exciting, but what follows is an amount of work that had it been anticipated would …

Anticipating Venezuela's Debt Crisis: Hidden Holdouts And The Problem Of Pricing Collective Action Clauses, Robert E. Scott, Stephen J. Choi, Mitu Gulati

Faculty Scholarship

A creditor who asks for stronger enforcement rights upon its debtor’s default will rationally accept a lower interest rate reflecting the greater expected recovery the exercise of those rights provides. Over a dozen studies, however, have failed to document this basic relationship in the context of the collective action clause, a key provision in sovereign bonds. We conjecture that this failure is because enforcing the rights in question requires collective decision-making among anonymous creditors with different interests, impeding market predictions regarding future price effects. The pricing of rights that require collective enforcement thus turns on whether the market observes an …

Executive Underreach, In Pandemics And Otherwise, David E. Pozen, Kim Lane Scheppele

Faculty Scholarship

Legal scholars are familiar with the problem of executive overreach, especially in emergencies. But sometimes, instead of being too audacious or extreme, a national executive's attempts to address a true threat prove far too limited and insubstantial. In this Essay, we seek to define and clarify the phenomenon of executive underreach, with special reference to the COVID-19 crisis; to outline ways in which such underreach may compromise constitutional governance and the international legal order; and to suggest a partial remedy.

Why The Fed Should Issue A Policy Framework For Credit Policy, Kathryn Judge

Faculty Scholarship

The Federal Reserve has long used policy frameworks to both explain and inform its policymaking. These policy frameworks typically explain what the Fed is seeking to achieve in a given domain and how it plans to achieve its desired aims. Two prominent examples are the Fed’s use of Bagehot’s dictum when acting as a lender of last resort and its monetary policy framework issued in 2012 and revised in 2020. In both instances, the framework provides a foundation for informed debate among Fed policymakers, Congress, and the public, enhancing both efficacy and accountability. Since the onset of the Covid crisis, …

The Paradox Of Contracting In Markets, Robert E. Scott

Faculty Scholarship

Traditional economic analysis distinguishes economic organization along three dimensions: firm, contract, and market. This categorization is misleading in any number of respects, but none more so than the assumption that contract and market are separate modes of exchange. In fact, other than barter, which is almost unknown in contemporary commercial transactions, every market transaction is implemented by contract. Thus, in markets the two modes of exchange are inextricably combined. Moreover, the vast majority of contract activity occurs in some form of market, so it does not require much loss of generalization to say that not only are contracts in all …

How To Help Small Businesses Survive Covid-19, Todd Baker, Kathryn Judge

Faculty Scholarship

Small businesses are among the hardest hit by the COVID-19 crisis. Many are shuttered, and far more face cash flow constraints, raising questions about just how many will survive this recession. The government has responded with a critical forgivable loan program, but for many of these businesses, this program alone will not provide the cash they need to retain workers, pay rent, and help their business come back to life when Americans are no longer sheltering in place. This essay calls on regulators to find new and creative ways to work with existing intermediaries, including banks and online lenders, who …

Enhancing Efficiency At Nonprofits With Analysis And Disclosure, David M. Schizer

Faculty Scholarship

The U.S. nonprofit sector spends $2.54 trillion each year. If the sector were a country, it would have the eighth largest economy in the world, ahead of Brazil, Italy, Canada, and Russia. The government provides nonprofits with billions in tax subsidies, but instead of evaluating the quality of their work, it leaves this responsibility to nonprofit managers, boards, and donors. The best nonprofits are laboratories of innovation, but unfortunately some are stagnant backwaters, which waste money on out-of-date missions and inefficient programs. To promote more innovation and less stagnation, this Article makes two contributions to the literature.

First, this Article …

For Coöperation And The Abolition Of Capital, Or, How To Get Beyond Our Extractive Punitive Society And Achieve A Just Society, Bernard E. Harcourt

Faculty Scholarship

In hindsight, the term "capitalism" was always a misnomer, coined paradoxically by its critics in the nineteenth century. The term misleadingly suggests that the existence of capital produces a unique economic system or that capital itself is governed by economic laws. But that's an illusion. In truth, we do not live today in a system in which capital dictates our economic circumstances. Instead, we live under the tyranny of what I would call "tournament dirigisme": a type of state-directed gladiator sport where our political leaders bestow spoils on the wealthy, privileged elite.

We need to displace this tournament dirigisme with …

The New Mechanisms Of Market Inefficiency, Kathryn Judge

Faculty Scholarship

Mechanisms of market inefficiency are some of the most important and least understood institutions in financial markets today. A growing body of empirical work reveals a strong and persistent demand for “safe assets,” financial instruments that are sufficiently low risk and opaque that holders readily accept them at face value. The production of such assets, and the willingness of holders to treat them as information insensitive, depends on the existence of mechanisms that promote faith in the value of the underlying assets while simultaneously discouraging information production specific to the value of those assets. Such mechanisms include private arrangements, like …

Revising Boilerplate: A Comparison Of Private And Public Company Transactions, Stephen J. Choi, Robert E. Scott, G. Mitu Gulati

Faculty Scholarship

The textbook model of commercial contracts between sophisticated parties holds that terms are proposed, negotiated and ultimately priced by the parties. Parties reach agreement on contract provisions that best suit their transaction with the goal of maximizing the joint surplus from the contract. The reality, of course, is that the majority of the provisions in contemporary commercial contracts are boilerplate terms derived from prior transactions and even the most sophisticated contracting parties pay little attention to these standard terms, focusing instead on the price of the transaction. With standard-form or boilerplate contracts, this dynamic of replicating by rote the terms …

Race And Bankruptcy: Explaining Racial Disparities In Consumer Bankruptcy, Edward R. Morrison, Belisa Pang, Antoine Uettwiller

Faculty Scholarship

African American bankruptcy filers select Chapter 13 far more often than other debtors, who opt instead for Chapter 7, which has higher success rates and lower attorneys’ fees. Prior scholarship blames racial discrimination by attorneys. We propose an alternative explanation: Chapter 13 offers benefits, including retention of cars and driver’s licenses, that are more valuable to African American debtors because of relatively long commutes. We study a 2011 policy change in Chicago, which seized cars and suspended licenses of consumers with large traffic-related debts. The policy produced a large increase in Chapter 13 filings, especially by African Americans. Two mechanisms …

The Essential Roles Of Agency Law, Gabriel Rauterberg

Faculty Scholarship

This Article suggests a fundamental shift in how we think about agency The essential function of agency law lies not only in enabling the delegation of authority, as is widely suggested, but as significantly in its effect on creditors’ rights through asset partitioning There is an increasing temptation in legal scholarship to treat agency law as a sideshow confined to the first day of corporations class This is because much of what agency law does in commerce could simply be accomplished through standard-form contracts that provide default terms for the relationships among firms, their managers, and third parties Even agency’s …

Revising Boilerplate: A Comparison Of Private And Public Company Transactions, Robert E. Scott, Stephen J. Choi, Mitu Gulati

Faculty Scholarship

The phenomenon of “sticky boilerplate” causing inefficient contract terms to persist exists across a variety of commercial contract types. One explanation for this failure to revise suboptimal terms is that the key agents on these transactions, including attorneys and investment bankers, are short sighted; their incentives are to get the deal done rather than ensure that they are using the best terms possible for their clients. Moreover, these agents face a first mover disadvantage that deters unilateral revisions to inefficient terms. If agency costs are indeed driving the stickiness phenomenon, we expect that the pace of revision will vary across …

Parsing And Managing Inconsistency In Investor-State Dispute Settlement, Julian Arato, Chester Brown, Federico Ortino

Other Publications

Inconsistency in legal interpretation is among the most salient problems in investor-state dispute settlement (ISDS). Some such instances have been particularly glaring, and introducing consistency into ISDS rates high on the agenda of reformers - particularly for several government delegations leading multilateral reform efforts in the United Nations Commission on International Trade Law (UNCITRAL) Working Group III. This Article starts from the position that some degree of interpretive inconsistency is endemic to any legal order. Yet systemic inconsistency tends to undermine the basic purposes of the investment treaty regime – namely protecting and promoting foreign direct investment through predictable international …

The Ethical Tax Judge, Kim Brooks

Articles, Book Chapters, & Popular Press

This chapter advances the claim that judges have an ethical obligation of competence that requires them to enhance their knowledge about language (in the context of statutory interpretation) and income tax law design and policy. It articulates some of the foundational understandings that support that competence and provides a simple hierarchy of approaches to interpreting income tax law. It concludes by contending that greater competence is not only more ethical but also advances other important societal goals fulfilled by the imposition of income tax systems.

International Economic Law In The Global South And Covid-19, James Thuo Gathii, Olabisi D. Akinkugbe, Nthope Mapefane, Ohio Omiunu, Titilayo Adebola

Articles, Book Chapters, & Popular Press

The COVID-19 pandemic has disrupted all facets of human relations on a magnitude not witnessed in the post-World War II era. Due to the interdependence of countries in the international system, it is not surprising that the unfolding public health crisis has had significant ramifications for the functioning of the global economy as well. In responding to this global health crisis, and the associated fallouts, the academic community has a crucial role to play in finding solutions to the hydra-headed problems we all face.

Driven by this sense of urgency and responsibility, AfronomicsLaw put out a call for contributions in …

Dispute Settlement Under The African Continental Free Trade Area Agreement: A Preliminary Assessment, Olabisi D. Akinkugbe

Articles, Book Chapters, & Popular Press

The African Continental Free Trade Area Agreement (AfCFTA) will add a new dispute settlement system to the plethora of judicial mechanisms designed to resolve trade disputes in Africa. Against the discontent of Member States and limited impact the existing highly legalized trade dispute settlement mechanisms have had on regional economic integration in Africa, this paper undertakes a preliminary assessment of the AfCFTA Dispute Settlement Mechanism (DSM). In particular, the paper situates the AfCFTA-DSM in the overall discontent and unsupportive practices of African States with highly legalized dispute settlement systems and similar WTO-Styled DSMs among other shortcomings. Notwithstanding the transplantation of …

Covid-19 And South-South Trade & Investment Cooperation: Three Emerging Narratives, Clair Gammage, Olabisi D. Akinkugbe

Articles, Book Chapters, & Popular Press

The COVID-19 pandemic has revealed the frailties of economic relations across different aspects of the globalized network. From the national, through the sub-regional, to the regional to the international levels, questions have arisen regarding the seemingly interconnected, yet fractured socio-economic relationships in our modern societies. In this essay we shall focus on the trade and investment dimension of South-South relations that have been affected by the pandemic. In doing so, we shall reveal the (often overlooked or taken for granted) linkages with race in South-South relations. We identify the way(s) in which the Covid-19 pandemic has made obvious the latent …

Symposium Introduction: Vulnerabilities In The Trade And Investment Regimes In The Age Of Covid-19, Olabisi D. Akinkugbe, Clair Gammage

Articles, Book Chapters, & Popular Press

This Symposium is one of the follow-up publications to the Afronomicslaw.org Webinar III on “Vulnerability in the Trade and Investment Regime in the Age of COVID-19”

‘Vulnerability’ in trade and investment regimes is not a new phenomenon. Nor, is the concept of ‘crisis’. While IEL scholarship has acknowledged some of the way(s) in which the formalisation of international legal rules in trade and investment can act like a ‘straightjacket’ on global south states, sustaining and creating forms of dependencies that are difficult to escape, there is a notable lack of meaningful engagement with the contours and manifestations of concepts like …

Africa’S Participation In International Economic Law In The 21st Century: An Introduction, Olabisi D. Akinkugbe, Ohio Omiunu, Amaka Vanni, Regis Y. Simo, Luwam Dirar

Articles, Book Chapters, & Popular Press

This is the introduction to the Manchester Journal of International Economic Law Symposium Issue based on selected papers presented at the Fourth Biennial Conference of the African International Economic Law Network at Strathmore Law School, Nairobi, Kenya in July 2019. The introduction also reflects on four important spaces for the consolidation of the scholarship, teaching and research, practice and policy relating to international economic law in Africa.

Theorizing Developmental Regionalism In Narratives Of African Regional Trade Agreements (Rtas), Olabisi D. Akinkugbe

Articles, Book Chapters, & Popular Press

There is a gap in the legal scholarship on African regional trade agreements (RTAs) that links law and development to narratives of developmental regionalism. This article addresses the gap by making the case for an explicit linking of Law and Development scholarship and Developmental Regionalism in African RTAs.

First, the article argues that the cross- pollination of the fields provides an opportunity for a more rigorous understanding of developmental regionalism in African RTAs. Second, the article that developmental regionalism as an analytical tool responds to and encapsulates the multidimensional character of African RTAs. Third, the article argues for a more …

Doing Development Differently: Reorienting Sino-African Trade And Investment Relations After The Pandemic, Olabisi D. Akinkugbe, Clair Gammage

Articles, Book Chapters, & Popular Press

This article explores the evolutive nature of Sino-African relations and questions how Chinese interventions may influence Africa’s development stories in a post-Covid world. We examine whether the crisis could serve as a catalyst for reorienting the strategic partnership between China and Africa away from debt diplomacy towards genuine partnership or a breaking apart of the long-standing relationship. This article presents three narratives to illustrate how the future direction of Sino-African relations may change and how this might enable Africa to ‘do development differently’.

Intangibles And Transfer Pricing Regulation In Nigeria: An Exposition, Okanga Ogbu Okanga

Articles, Book Chapters, & Popular Press

Intangibles play an important role in the processes of many business enterprises. They facilitate value creation and enhance the profitability of businesses that deploy them. They are also valuable assets that can be traded in themselves, although their appropriate values are often difficult to ascertain. As such, studies show that transactions in intangibles also provide opportunities for profit shifting by multinational enterprises through transfer (mis)pricing; a situation that deprives source states of due and sometimes significant tax revenue. This situation has over time triggered both unilateral and concerted responses by states anxious to cauterize this conduit of revenue bleeding. Through …