Law and Economics Commons^™

The Empty Call For Benefit-Cost Analysis In Financial Regulation, Jeffrey N. Gordon

Faculty Scholarship

The call for benefit-cost analysis (BCA) in financial regulation misunderstands the origins and utility of BCA as a guide to administrative rule making. Benefit-cost analysis imagines an omniscient social planner who can calculate costs and benefits from a natural system that generates prices (costs and benefits) that do not change (or change much) no matter what the central planner does. For example, the toxicity of chemicals, the health hazards of emissions, the statistical value of life – these do not change in response to health-and-safety regulation. For the financial sector, however, the system that generates costs and benefits is constructed …

Public Utility And The Low-Carbon Future, William Boyd

Publications

Substantial reductions in global power sector emissions will be needed by midcentury to avoid significant disruption of the climate system. Achieving these reductions will require greatly increased levels of financing, technological innovation, and policy reform. In the United States, the scale and complexity of the overall challenge have raised important questions regarding prevailing regulatory and business models, with much scrutiny directed at the traditional practice of public utility regulation. Recognizing the many valid criticisms leveled against public utility regulation and the important questions raised about the viability of traditional utility business models, particularly in the face of substantial growth in …

Classcrits Mission Statement, Justin Deystone, Angela P. Harris, Martha Mccluskey, Athena Mutua, James Pope, Ann Tweedy

Publications

No abstract provided.

Penalty Default Licenses: A Case For Uncertainty, Kristelia A. García

Publications

Research on the statutory license for certain types of copyright-protected content has revealed an unlikely symbiosis between uncertainty and efficiency. Contrary to received wisdom, which tells us that in order to increase efficiency, we must increase stability, this Article suggests that uncertainty can actually be used to increase efficiency in the marketplace. In the music industry, the battle over terrestrial performance rights--that is, the right of a copyright holder to collect royalties for plays of a sound recording on terrestrial radio--has raged for decades. In June 2012, in a deal that circumvented the statutory license for sound recordings for the …

For-Profit Public Enforcement, Margaret H. Lemos, Max Minzner

Faculty Scholarship

This Article investigates an important yet undertheorized phenomenon: financial incentives in public enforcement. Each year, public enforcers assess billions of dollars in penalties and other financial sanctions for violations of state and federal law. Why? If the awards in question were the result of private lawsuits, the answer would be obvious. We expect that private enforcers—the victims of law violations and their fee-seeking attorneys—will attempt to maximize financial recoveries. Record recoveries come as no surprise in private class actions, for example. But dollar signs are harder to explain in the context of public enforcement. Unlike private attorneys, public enforcers are …

Everything Must Stay In Place - President Business, The Lego Movie, Tamara Belinfanti

Other Publications

No abstract provided.

How International Institutions Evolve, Anu Bradford

Faculty Scholarship

Economic theory suggests that international institutions cannot simultaneously widen and deepen. There is an inevitable trade-off between the benefits of site and the costs of heterogeneity. Consequently, institutions ought to be either small and deep or, alternatively, large and shallow. Yet in reality, we observe that international institutions embrace new members while concurrently pursuing deeper cooperation. This Article seeks to explain how institutions evolve over time in light of this size/heterogeneity trade-off It examines the strategic responses of members of institutions to heterogeneity costs and identifies two distinct yet related strategies that allow states to pursue gains from cooperation while …

Value Creation By Business Lawyers In The 21st Century, Ronald J. Gilson

Faculty Scholarship

It’s a delight to be here. When I started working on Value Creation by Business Lawyers – or when I was in law school – we could have held today’s meeting in a telephone booth. There was nothing even remotely in the curriculum. Victor Brudney and Marvin Chirlestien’s Corporate Finance book was still in mimeograph form – note the dated technology reference. David Herwitz’s Business Planning book had been around for a while, but it was strictly legal. And that exhausted it. What I take the greatest pleasure from is the fact that a number of years later, enough to …

Measuring Benchmark Damages In Antitrust Litigation, Justin Mccrary, Daniel L. Rubinfeld

Faculty Scholarship

We compare the two dominant approaches to estimation of benchmark damages in antitrust litigation, the forecasting approach and the dummy variable approach. We give conditions under which the two approaches are equivalent and present the results of a small simulation study.

Lessons From Sec V. Citigroup: The Optimal Scope For Judicial Review Of Agency Consent Decrees, Dorothy S. Lund

Faculty Scholarship

On November 28, 2011, Judge Jed S. Rakoff of the United States District Court for the Southern District of New York in Manhattan declined to approve a consent judgment between the Securities and Exchange Commission (SEC) and Citigroup. Because Citigroup had not admitted or denied the allegations in the consent decree, Judge Rakoff concluded that he was unable to make an informed judgment about the merits of the settlement. Judge Rakoffs decision has garnered serious criticism from legal observers and rekindled discussion about the scope of judicial review of agency consent decrees, which have become a valuable agency enforcement tool. …

How To Improve The Financial Architecture And Its Resilience, Dirk Helbing, Eve Mitleton-Kelly, Jean-Philippe Bouchaud, Fabio Caccioli, J. Doyne Farmer, Steve Keen, Katharina Pistor, Dennis J. Snower, Olsen Richard, Angelo Ranaldo, Norbert Häring, Edward Fullbrook

Faculty Scholarship

This financial resilience survey was circulated on behalf of a working group of the Complexity Council of the World Economic Forum comprised of Prof. Eve Mitleton-Kelly of London School of Economics and Prof. Dirk Helbing at ETH Zurich's Risk Center. It was sent to a few dozens of financial experts with the aim to create an inventory of ideas of how the financial system might be improved and made more resilient. Unconventional ideas were also welcome.

Three Proposals For Regulating The Distribution Of Home Equity, Ian Ayres, Joshua Mitts

Faculty Scholarship

The Consumer Financial Protection Bureau’s recently-released “qualified mortgage” rules effectively discourage predatory lending but miss an equally important source of systemic risk: low-equity clustering. Specific “volatility-inducing” mortgage terms, when present in a substantial cluster of mortgage contracts, exacerbate macroeconomic risk by increasing the chance that the housing and lending markets will have to absorb a wave of simultaneous defaults after a downturn in housing prices. This Article shows that these terms became prevalent in a substantial proportion of residential mortgages in the years leading up to the home mortgage crisis. In contrast, during the earlier “amortization era” (when mortgagors were …

Merger Control Procedures And Institutions: A Comparison Of The Eu And Us Practice, William E. Kovacic, Petros C. Mavroidis, Damien J. Neven

Faculty Scholarship

The objective of this paper is to discuss and compare the role that different constituencies play in US and EU procedures for merger control. We describe the main constituencies (both internal and external) involved in merger control in both jurisdictions and discuss how a typical merger case would be handled under these procedures. At each stage, we consider how the procedure unfolds, which parties are involved, and how they can affect the procedure. Our discussion reveals a very different ecology. EU and US procedures differ in terms of their basic design and in terms of the procedures that are naturally …

Coasean Bargaining In Consumer Bankruptcy, Edward R. Morrison

Faculty Scholarship

During my first weeks as a graduate student in economics, a professor described the Coase Theorem as “nearly a tautology:” Assume a world in which bargaining is costless. If there are gains from trade, the Theorem tells us, the parties will trade. The initial assignment of property rights will not affect the final allocation because the parties will bargain (costlessly) to an efficient outcome. “How can that be a theorem?,” I remember thinking at the time.

On The Usefulness Of A Flat Economics To The World Of Faith, Andrew P. Morriss

Faculty Scholarship

Is economics unduly flat? Perhaps, sometimes. But part of the power of economics comes from the parsimony of its approach to human nature. If and when we search for more complex approaches, we will need to understand the tradeoffs involved in choosing between that power and simplicity and the alternatives. Rather than deepening our economics with faith, it may be that we are better off using a relatively flat economics to enrich religious understandings.

Fee-Shifting Bylaw And Charter Provisions: Can They Apply In Federal Court? – The Case For Preemption, John C. Coffee Jr.

Faculty Scholarship

In the first months after a decision of the Delaware Supreme Court upholding a fee-shifting bylaw under which the unsuccessful plaintiff shareholder was required to reimburse all defendants for their legal and other expenses in the litigation, some 24 public companies adopted a similar provision – either by means of a board-adopted bylaw or by placing such a provision in their certificate of incorporation (in the case of companies undergoing an IPO). In effect, private ordering is introducing a one-sided version of the “loser pays” rules. Indeed, as drafted, these provisions typically require a plaintiff who is not completely successful …

The Idiosyncrasy Of Patent Examiners: Effects Of Experience And Attrition, Ronald J. Mann

Faculty Scholarship

In recent years, problems with the U.S. patent system have garnered attention from scholars and policymakers of all types. Concerns about the competitiveness of U.S. industry undergird worries that the Great Recession will linger as long as the 1990s downturn in Japan. It is no coincidence that a Congress that has remained at loggerheads on most aspects of economic policy could reach a consensus on the enactment of the Leahy-Smith America Invents Act of 2011, by far the most important statutory reform of U.S. patent law since 1995. Yet, despite Congress's long overdue attention to patent law, it is unlikely …

Mortgage Modification And Strategic Behavior: Evidence From A Legal Settlement With Countrywide, Christopher Mayer, Edward R. Morrison, Tomasz Piskorski, Arpit Gupta

Faculty Scholarship

We investigate whether homeowners respond strategically to news of mortgage modification programs. We exploit plausibly exogenous variation in modification policy induced by settlement of U.S. state government lawsuits against Countrywide Financial Corporation, which agreed to offer modifications to seriously delinquent borrowers. Using a difference-in-difference framework, we find that Countrywide's monthly delinquency rate increased more than 0.54 percentage points – ten percent relative increase – immediately after the settlement's announcement. The estimated increase in default rates is largest among borrowers least likely to default otherwise. These results suggest that strategic behavior should be an important consideration in designing mortgage modification programs.

Irredeemably Inefficient Acts: A Threat To Markets, Firms, And The Fisc, Alex Raskolnikov

Faculty Scholarship

This Article defines and explores irredeemably inefficient acts – a conceptually distinct and empirically important category of socially undesirable conduct. Though inefficient behavior is, no doubt, pervasive, the standard view holds that inefficient conduct may be converted into efficient behavior by forcing actors to internalize the external harms of their decisions. For some acts, however such conversion is impossible. These acts are not just inefficient forms of otherwise socially beneficial activities – they are not just contingently inefficient. Rather, they are inefficient at their core; they reduce social welfare no matter what the regulator does. These irredeemably inefficient (or just …

Three Discount Windows, Kathryn Judge

Faculty Scholarship

It is widely assumed that the Federal Reserve is the lender of last resort in the United States and that the Fed's discount window is the primary mechanism through which it fulfills this role. Yet, when banks faced liquidity constraints during the 2007-2009 financial cfisis (the Cisis), the discount window played a relatively small role in providing banks much needed liquidity. This is not because banks forewent government-backed liquidity; rather, they sought it elsewhere. First, they increased their reliance on collateralized loans, known as advances, from the Federal Home Loan Bank System, a little-known government-sponsored enterprise that grew in size …

The Margin Of Appreciation In International Investment Law, Julian Arato

Articles

Investment treaties tend to say nothing, or only very little, about the appropriate standard of review for arbitrating disputes between sovereign states and foreign investors. Most treaties do not address whether states should be afforded any deference in their own assessment of their treaty obligations. Neither do they specify the converse, that state action must be strictly reviewed. They are simply silent – and their silence has been interpreted in innumerable ways by different tribunals. This interpretive chaos has generated calls for a unified approach – one that would resolve the uncertain and fragmented status quo, while being sufficiently flexible …

Concentrated Ownership And Corporate Control: Wallenberg Sphere And Samsung Group, Hwa-Jin Kim

Articles

Samsung Group’s success cannot be attributed to its corporate governance structure, at least thus far. The corporate governance of Samsung has been rather controversial. As the group faces the succession issue the corporate governance has become as crucial as their new products and services. Samsung has discovered a role model on the other side of the planet, Wallenberg Sphere in Sweden. Much effort has been made to learn about Wallenberg’s arrangements and key to its success. However, a fundamental difference between the institutions in Sweden and Korea has made the corporate structures of the two groups radically different. Wallenberg uses …

Actavis, The Reverse Payment Fallacy, And The Continuing Need For Regulatory Solutions, Daniel A. Crane

Articles

The Actavis decision punted more than it decided. Although narrowing the range of possible outcomes by rejecting the legal rules at the extremes and opting for a rule of reason middle ground, the opinion failed to grapple with the most challenging issues of regulatory policy raised by pharmaceutical patent settlements. In particular, it failed to clearly delineate the social costs of permitting and disallowing patent settlements, avoided grappling with the crucial issues of patent validity and infringement, and erroneously focused on “reverse payments” as a distinctive antitrust problem when equally or more anticompetitive settlements can be crafted without reverse payments. …

A Turquoise Mess: Green Subsidies, Blue Industrial Policy And Renewable Energy: The Case For Redrafting The Subsidies Agreement Of The Wto, Aaron Cosbey, Petros C. Mavroidis

Faculty Scholarship

Canada-Renewable Energy presented the WTO Panel and Appellate Body (AB) with a novel issue: at the heart of the dispute was a measure adopted by the province of Ontario whereby producers of renewable energy would be paid a premium relative to conventional power producers. Some WTO Members complained that the measure was a prohibited subsidy because payments were conditional upon using Canadian equipment for the production of renewable energy. The AB gave them right only in part: it found that a local content requirement had indeed been imposed, but also found that it lacked evidence to determine whether a subsidy …

The Judiciary And Fiscal Crises: An Institutional Critique, Peter Conti-Brown, Ronald J. Gilson

Faculty Scholarship

Scholars have long debated the role for courts with respect to governmental action that responds to crisis. Most of the crises analyzed, however, are exogenous to the political process; the courts’ role in response to politically endogenous crises has received less attention. We evaluate the role of the judiciary in a subset of those endogenous crises: the judicial treatment of governmental efforts to resolve the crisis facing underfunded public pensions. Assessing institutional competence schematically with reference to an institution’s democratic accountability and fact-finding ability, we argue that, where institutions function properly, judicial intervention in politically endogenous economic crises should be …

The Nordic Model Of Corporate Governance: The Role Of Ownership, Ronald J. Gilson

Faculty Scholarship

It is commonplace to credit the invention of the public corporation as an important engine of economic growth. The creation of a long-lived vehicle that gave investors both tradable shares and limited liability allowed talented managers to raise capital to fund enterprise. Writing in 1926, the Economist magazine heralded this role:

The economic historian of the future may assign to the nameless inventor of the principle of limited liability, as applied to trading corporations, a place of honor with Watt and Stephenson, and other pioneers of the Industrial Revolution. The genius of these men produced the means by which man’s …

Towards A Universal Framework For Insurance Anti-Discrimination Laws, Ronen Avraham, Kyle D. Logue, Daniel Schwarcz

Articles

Discrimination in insurance is principally regulated at the state level. Surprisingly, there is a great deal of variation across coverage lines and policyholder characteristics in how and the extent to which risk classification by insurers is limited. Some statutes expressly permit insurers to consider certain characteristics, while other characteristics are forbidden or limited in various ways. What explains this variation across coverage lines and policyholder characteristics? Drawing on a unique, hand-collected data-set consisting of the laws regulating insurer risk classification in fifty-one U.S. jurisdictions, this Article argues that much of the variation in state-level regulation of risk classification can in …

Confronting Chaos: The Fiscal Constitution Faces Federal Shutdowns And (Almost) Debt Defaults, Charles Tiefer

All Faculty Scholarship

Recent events raise the question of whether two near-failures in what scholars call the "Fiscal Constitution" may plunge the government into paralysis or chaos. In October 2013, a lapse in congressional appropriations shut the government down for two weeks. The shutdown furloughed hundreds of thousands of federal employees. It caused some agencies, such as the Internal Revenue Service ("IRS"), virtually to close their doors and to curtail their services.

Simultaneously, and potentially even more devastating, the House of Representatives (alternatively "House") firmly refused during an extremely tense countdown to raise the statutory debt ceiling of the government. When the government …

The Market, The Firm, And Behavioral Antitrust, Avishalom Tor

Book Chapters

This Handbook chapter examines the main distinct concerns facing the application of empirical behavioral evidence to antitrust law and economics—also known as “behavioral antitrust.” More than many (though not all) other legal fields, antitrust law is primarily concerned with the conduct of firms in markets rather than in individual behavior per se. Yet much of the empirical evidence that behavioral antitrust draws on concerns individual behavior outside the firm, often in nonmarket settings. Hence besides adducing additional, direct empirical evidence on behavioral phenomena within firms and markets, there is a need to determine when and how the behavioral evidence on …

Some Challenges Facing A Behaviorally-Informed Approach To The Directive On Unfair Commercial Practices, Avishalom Tor

Book Chapters

The Directive on Unfair Commercial Practices seeks to protect consumers by prohibiting, inter alia, misleading practices, which are defined as practices that are likely to mislead the average consumer and thereby likely to cause him to take a transactional decision he would not have taken otherwise (Directive 2005/29/ EC of the European Parliament and of the Council). While determinations of what constitutes average consumer behavior, what misleads consumers, or how consumers make transactional decisions all can be made as a matter of law, based on anecdotal observations, intuitions or theoretical assumptions, an empirical behavioral foundation can put consumer law on …