Law and Economics Commons^™

The Curious Case Of Greening In Carbon Markets, William Boyd, James Salzman

Publications

Over the last several years, so-called carbon markets have emerged around the world to facilitate trading in greenhouse gas credits. This Article takes a close look at an unexpected and unprecedented development in some of these markets--premium "green" currencies have emerged and, in some cases, displaced standard compliance currencies. Past experiences with other environmental compliance markets, such as the sulfur dioxide and wetlands mitigation markets, suggest the exact opposite should be occurring. Indeed, buyers in such markets should only be interested in buying compliance, not in the underlying environmental integrity of the compliance unit. In some of the compliance carbon …

Beyond Individualism In Law And Economics, Robert B. Ahdieh

Faculty Scholarship

The study of law and economics was built upon two pillars. The first is the familiar assumption of individual rationality. The second, less familiar, is the principle of methodological individualism. Over the last twenty years, law and economics has largely internalized behavioral critiques of the rationality assumption. By contrast, the field has failed to appreciate the implications of growing challenges to its methodological individualism. Where social norms shape individual choices, network externalities are strong, coordination is the operative goal, or information is a substantial determinant of value, a methodology strongly oriented to the analysis of individuals overlooks at least as …

Economics, Behavioral Biology, And Law, Owen D. Jones, Erin O'Hara O'Connor, Jeffrey Evans Stake

Vanderbilt Law School Faculty Publications

The article first compares economics and behavioral biology, examining the assumptions, core concepts, methodological tenets, and emphases of the two fields. Building on this, the article then compares the applied interdisciplinary fields of law and economics, on one hand, with law and behavioral biology, on the other - highlighting not only the most important similarities, but also the most important differences.

The article subsequently explores ways that biological perspectives on human behavior may prove useful, by improving economic models and the behavioral insights they generate. The article concludes that although there are important differences between the two fields, the overlaps …

An Empirical Analysis Of Empirical Legal Scholarship Production, 1990-2009, Michael R. Heise

Cornell Law Faculty Publications

Inspired by the retirement of Professor Tom Ulen of the University of Illinois, the author considers the growth and development of empirical legal scholarship over two decades—a period of time that corresponds, not coincidentally, with Professor Ulen’s career. Starting in the 1990s when empirical scholarship had not yet “caught on,” the author first documents the increase in quantity of empirical scholarship over two decades. Next, the author applies a law and economics perspective to the recent surge in empirical scholarship, explaining that the trend has been fueled by an increase in the number of empirically trained scholars and also by …

Foreign Citizens In Transnational Class Actions, Jay Tidmarsh, Linda Sandstrom Simard

Journal Articles

This Article addresses an increasingly important question: When, if ever, should foreign citizens be included as members of an American class action? The existing consensus holds that courts should exclude from class membership those foreign citizens whose country does not recognize an American class judgment. Our analysis begins by establishing that this consensus is flawed. Rather, to minimize the costs associated with relitigation in a foreign forum, we must distinguish between foreign claimants who are likely to commence a subsequent foreign proceeding from those who are unlikely to do so; distinguishing between those who come from recognizing and nonrecognizing countries …

Foreword: Advances In The Behavioral Analysis Of Law: Markets, Institutions, And Contracts, Avishalom Tor

Journal Articles

Avishalom Tor, Special Editor

The collection of articles in this Special Issue is based on an international conference on Advances in the Behavioral Analysis of Law: Markets, Institutions, and Contracts that took place on December 8, 2009 at the University of Haifa Faculty of Law in Israel. The conference addressed cutting-edge legal issues at the intersection of law, economics, and psychology from a diverse set of viewpoints, bringing together scholars engaged in both theoretical and experimental behavioral analyses of law.

Charting A Course In Clearing, Colleen M. Baker

Journal Articles

Memorable tales of financial collapse, such as that of Lehman Brothers (Lehman), Bear Stearns, and American Financial Group (AIG), frequently drive narratives of financial market crises and future preventative regulatory solutions. Much U.S. financial regulation, such as the monumental and historic “Dodd-Frank Wall Street Reform and Consumer Protection Act,” (Dodd-Frank) can be understood from this perspective. Aspects of such responses, however, are sometimes puzzling. An example is the reforms surrounding certain financial market utilities in Dodd-Frank’s Title VIII, “Payment, Clearing, and Settlement Supervision Act of 2010” (Title VIII). Financial market utilities often play a vital role in a process known …

Clearing And Trade Execution Requirements For Otc Derivatives Swaps Under The Frank-Dodd Wall Street Reform And Consumer Protection Act, Willa E. Gibson

Akron Law Faculty Publications

This paper examines Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act entitled the “Wall Street Transparency and Accountability Act of 2010” (the “Act”). The Act provides a comprehensive regulatory framework for swap transactions that designates the Commodities Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) as the primary regulators of the OTC derivatives swap market. The Act provides a very broad definition of swaps to include most OTC derivatives transactions, and it grants the CFTC regulatory jurisdiction over them with the exception of security-based swaps to which the SEC is granted regulatory jurisdiction. …

The Functionalism Of Legal Origins, Ralf Michaels

Faculty Scholarship

This article, written on request for the centennial issue of Ius Commune Europaeum, connects the economic literature on legal origins (La Porta et al) and the World Bank's Doing Business reports with discussions in comparative law about the functional method. It finds that a number of parallels and similarities exist, and that much of the criticism that has been voiced against functionalism should apply, mutates mutants, also to these more recent projects. The attraction that these projects have derive not, it is argued, from their methodological sophistication, but instead from "the strange lure of economics" and from the ostentatious objectivity …

Markets And Morality, Jagdish N. Bhagwati

Faculty Scholarship

The paper addresses two issues. First, economics has evolved both as a positive science and, from moral philosophy, also as a normative discipline. Advancing the public good requires that public policy walk on both these legs. Second, the criticism has been forcefully made that markets undermine morality. This contention is refuted in several ways.

Cultivating Justice For The Working Poor: Clinical Representation Of Unemployment Claimants, Colleen F. Shanahan

Faculty Scholarship

The combination of current economic conditions and recent changes in the United States' welfare system makes representation of unemployment insurance claimants by clinic students a timely learning opportunity. While unemployment insurance claimants often share similarities with student attorneys, they are unable to access justice as easily as student attorneys, and as a result, face the risk of severe poverty. Clinical representation of unemployment claimants is a rich opportunity for students to experience making a difference for a client, and to understand the issues of poverty and justice that these clients experience along the way. These cases reveal that larger lessons …

Maximizing Autonomy In The Shadow Of Great Powers: The Political Economy Of Sovereign Wealth Funds, Kyle Hatton, Katharina Pistor

Faculty Scholarship

Sovereign wealth funds ("SWFs") have received a great deal of attention since they appeared as critical investors during the global financial crisis. Reactions have ranged from fears of state intervention and mercantilism to hopes that SWFs will emerge as model long-term investors that will take on risky investments in green technology and infrastructure that few private investors are willing to touch. In this paper we argue that both of these reactions overlook the fact that SWFs are deeply embedded in the political economy of their respective sovereign sponsors. This paper focuses on four political entities that sponsor some of the …

Economic Crisis And Share Price Unpredictability: Reasons And Implications, Edward G. Fox, Merritt B. Fox, Ronald J. Gilson

Faculty Scholarship

The volatility of share returns for individual companies increased sharply during the recent financial crisis. The larger part of this increase was due to a dramatic rise – five fold as measured by variance – in idiosyncratic risk. We find that this pattern repeats itself during each major economic reversal going back 85 years. Because idiosyncratic risk is what is involved, this increase cannot be explained by changes in predictions concerning the future course of the economy as a whole.

Our first goal is to explain why difficult economic times, which are defined in terms of market wide phenomena, make …

Dodd-Frank For Bankruptcy Lawyers, Douglas G. Baird, Edward R. Morrison

Faculty Scholarship

The Dodd-Frank financial reform legislation creates an “Orderly Liquidation Authority” (OLA) that shares many features in common with the Bankruptcy Code. This is easy to overlook because the legislation uses a language and employs a decision-maker (both borrowed from bank regulation) that will seem foreign to bankruptcy lawyers. Our task in this essay is to identify the core congruities between OLA and the Code. In doing so, we highlight important differences and assess both their constitutionality and policy objectives. We conclude with a few thoughts on the likelihood that OLA will contribute to market stability.

Systemic Risk After Dodd-Frank: Contingent Capital And The Need For Regulatory Strategies Beyond Oversight, John C. Coffee Jr.

Faculty Scholarship

Because the quickest, simplest way for a financial institution to increase its profitability is to increase its leverage, an enduring tension will exist between regulators and systemically significant financial institutions over the issues of risk and leverage. Many have suggested that the 2008 financial crisis erupted because flawed systems of executive compensation induced financial institutions to increase leverage and accept undue risk. But that begs the question why such compensation formulas were adopted. Growing evidence suggests that shareholders favored these formulas to induce managers to accept higher risk and leverage. Shareholder pressure, then, is a factor that could cause the …

Regulatory Dualism As A Development Strategy: Corporate Reform In Brazil, The United States, And The European Union, Ronald J. Gilson, Henry Hansmaan, Mariana Pargendler

Faculty Scholarship

Countries pursuing economic development confront afundamental obstacle. Reforms that increase the size of the overall pie are blocked by powerful interests that are threatened by the growth-inducing changes. This problem is conspicuous in efforts to create effective capital markets to support economic development. Controlling owners and managers of established firms successfully oppose corporate governance reforms that would improve investor protection and promote capital market growth. In this Article, we examine the promise of regulatory dualism as a strategy to defuse the tension between future growth and the current distribution of wealth and power. Regulatory dualism seeks to mitigate political opposition …

Corporate Governance Reform For The 21st Century: A Critical Reassessment Of The Shareholder Primacy Model, Carol Liao

All Faculty Publications

This article questions the efficiency of the shareholder primacy model of corporate governance in light of the financial calamities that have plagued the first decade of the 21st century. Reform efforts following the global financial crisis have focused on failures in securities regulation, but that is only part of the story. Effective reform measures must also address the legal and normative prescriptions found within existing governance structures, and the collateral effect those prescriptions have on political and regulatory inaction.

There was strong ideological support for the shareholder primacy model at the start of the century. Following the corporate and accounting …

The Price Of Access To The Civil Courts In Australia: Old Problems And New Solutions - A Commercial Litigation Funding Case Study, Camille Cameron

Articles, Book Chapters, & Popular Press

In the past decade litigation funding companies have assumed an increasingly prominent role in commercial litigation and class actions in Australia. The growth of commercial litigation funding is a predictable response to various features of Australia’s costs and fee allocation rules and practices, including the “loser pays” rule, the prohibition on lawyer’s charging contingency fees, the hourly billing practices of lawyers, and the open-ended and unpredictable nature of much civil litigation. This chapter explores the growth of commercial litigation funding in Australia and uses it as a window through which to view how Australia’s costs and fee allocation rules operate …

Harry Potter And The Trouble With Tort Theory, Scott Hershovitz

Articles

Economists argue that tort law promotes an efficient allocation of resources to safety, while philosophers contend that it dispenses corrective justice. Despite the divide, the leading tort theories share something in common: they are grounded in an unduly narrow view of tort. Both economists and philosophers confuse the institution of tort law with the rules that are distinctive of it. They offer theories of tort's substantive rules, but for the most part ignore the procedures by which those rules are implemented. As a consequence, both miss and misconstrue much about tort law. The problem is particularly acute for economists. They …

Law As Asymmetric Information: Theory, Application, And Results In The Context Of Foreign Direct Investment In Real Estate, Patrick J. Glen

Georgetown Law Faculty Publications and Other Works

In his seminal 1970 article on lemon markets, George Akerlof posited the possibility of market failure in the presence of asymmetric information regarding a good’s value. In the intervening four decades, the importance of accurate valuation information has grown as transnational trade has boomed. The aim of the instant article is to assess the potential impact on transnational trade of asymmetric information regarding the legal attributes of a given good. Inaccurate or asymmetric information regarding relevant legal attributes may give rise to the same problem of market failure that Akerlof initially posited. If buyers are unsure of the ownership of …