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Author: Michael Kang

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Scandal and Conflict of Interest in Formula One

10238_renault_f1A major cheating scandal has erupted at the highest level of international auto racing. After an investigation by the Federation Internationale de l’Automobile (FIA), the ING Renault Formula One Team announced it does not dispute the FIA’s charge that the team illegally conspired with its driver Nelson Piquet, Jr. to aid his teammate Fernando Alonso’s victory at last year’s Singapore Grand Prix by crashing intentionally during the race. Piquet crashed on lap fourteen of the race, ending his day and requiring deployment of a safety car (race cars stack up in order, with passing prohibited) while stewards cleaned up the course. Piquet’s crash was incredibly well-timed for his teammate Alonso and vaulted Alonso to a race lead that he would never relinquish. Alonso had mechanical problems during qualifying and started the race in fifteenth position on a narrow street circuit where overtaking is difficult. Piquet’s crash came immediately after Alonso had pitted for fuel, but before the rest of the field had done so, and as a result, Alonso promptly assumed the race lead as the other cars pitted in turn during the caution period. The perfect timing of Piquet’s crash for another Renault driver was suspicious from the start: Safety cars are somewhat rare in Formula One, but Piquet’s crash occurred where the stewards couldn’t quickly remove his car, and what is more, Alonso’s race strategy to pit so early was unusual—most cars starting at the back of the field load up on fuel and pit as late as possible, while Alonso did the opposite in the improbable hope of exactly what happened.

Nothing would have come of suspicions about Alonso’s victory, except that Renault fired Piquet as a driver this August, about a year after the race. Immediately following his dismissal, Piquet launched a public campaign against Renault managing director Flavio Briatore and then confessed to the FIA that he had crashed intentionally at Renault’s direction. Piquet claims, and Renault no longer denies, that Briatore and Renault director of engineering Pat Symonds approached him before the race about whether he would be willing to crash intentionally early in the race. Piquet explains that he “was in a very fragile and emotional state of mind . . . brought about by intense stress due to the fact that Mr. Briatore had refused to inform [him] of whether or not [his] driver’s contract would be renewed.” As a result of this developing scandal, Briatore and Symonds have resigned, and it isn’t clear what penalties the FIA will apply against Renault and the various parties involved. The FIA disqualified McLaren-Mercedes outright from the constructor’s championship and levied a $100 million penalty following a similarly appalling scandal two years ago.

The additional wrinkle here is that the scandal features an astounding conflict of interest at its heart. Briatore, while acting as managing director of Renault, served also as Piquet’s professional manager through a separate company. In other words, Briatore sat on both sides of the table in Piquet’s dealings with Renault. To be candid, Piquet has always struck me as an immature, unsympathetic character living a charmed life in no small part because his father is a three-time Formula One champion as a driver. But a driver’s seat in Formula One is incredibly difficult to secure, and it isn’t surprising that even Piquet may have felt overwhelming pressure to compromise himself (as well as risk serious injury) for someone serving as both his personal representative and his boss at the same time. Indeed, Briatore’s conflict of interest is not unusual in the incestuous world of Formula One. Briatore’s company actually has a similar arrangement with Piquet’s replacement, Romain Grosjean, as well as some type of management relationship with virtually every F1 driver employed by Renault during the last decade, including Alonso. As far as I know, neither the FIA nor the Grand Prix Drivers’ Association requires certification for driver’s managers or representatives anywhere comparable to the standards set by the unions for professional athletes in American sports leagues. It appears that the Renault scandal may finally prod the FIA or World Motor Sports Council to action on the issue.

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The Informant!

It’s not often that I hear about a new Hollywood movie based on the facts of a case that I first encountered while clerking, but The Informant!, directed by Steven Soderbergh and starring Matt Damon, is just such a film. It tells the story of Mark Whitacre, a central actor in a case decided while I was clerking for my judge on the Seventh Circuit. Whitacre served as the key informant in a successful FBI investigation into price-fixing charges against Archer Daniels Midland Co. that sent top executives to prison. As my co-clerk Kevin Metz observed, the case featured the type of direct evidence of an agreement to fix prices that antitrust professors explain is almost never available in antitrust prosecution. Whitacre secretly recorded many hours of conversations with co-conspirators in the lysine industry over three years, all while bragging carelessly to others about his role as an FBI informant and embezzling millions from ADM under the FBI’s nose. During my clerkship year, we worked on a number of memorable cases, but United States v. Andreas probably featured the most colorful facts. Whitacre was a very odd and unpredictable personality who suffered from bipolar disorder, which Matt Damon plays up for comic effect in the movie.

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More on Campaign Finance Reform

As Gerard noted earlier, the Court today is hearing arguments in Citizens United v. FEC, the well-publicized case featuring “Hillary: The Movie.” The case is receiving a great deal of public attention, not only because many commentators suspect the Court will overrule Austin v. Michigan Chamber of Commerce, but because the case represents a number of notable firsts—it will be the first case of the 2009 Term, the first oral argument by Elena Kagan as solicitor general, and the first case on the Court for Justice Sonia Sotomayor. Rick Hasen has collected previews of Citizens United here.

I’m not sure that the Court will outright overrule Austin, but I understand why many smart people are predicting that it will.

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Football and Judicial Politics

208388_football_close-upMy colleague Joanna Shepherd and I are working on a project analyzing judicial voting on election law cases in state court. Although there is a sophisticated literature about judicial politics and political influences on judges, there actually is little quantitative work looking at political influences on judges in explicitly political cases, such as election contests, redistricting, and ballot access questions. Thinking generally about judicial politics for this project gives me a different perspective on the state court review of the NFL suspensions of two players from the Minnesota Vikings.

Last September, the NFL suspended Kevin Williams and Pat Williams of the Minnesota Vikings for four games each after they failed drug tests. The two star defensive tackles, who together comprise Minnesota’s “Williams Wall,” tested positive for bumetanide, a prescription diuretic banned under the NFL collective bargaining agreement as a masking agent for steroids. After exhausting the appeals process with the NFL, the two Williams’ and the NFL Players Association challenged the suspensions in Minnesota state court.

Here’s the judicial politics angle: The Minnesota district court that heard the Williams’ claims issued a temporary restraining order last December immediately after the Williams’ final internal appeals with the NFL were rejected. The TRO postponed any suspension until the end of the 2008 season, which kept both Williams’ on the field and helped ensure Minnesota a playoff spot last year. The NFL removed the case to federal court, which then dismissed all but two state law claims and remanded those two claims back to state court. This summer, on remand, the Minnesota district court issued another TRO, blocking the NFL from enforcing its suspensions of the Williams’ until after the upcoming 2009 season. I don’t know enough about Minnesota labor law, the NFL collective bargaining agreement, or the relevant preemption issues to assess the state court TROs that helped both Williams’ postpone their suspensions for almost two full seasons, but one commentator who considered these issues noted that even the issuing judge expressed doubts about the likelihood that the Williams’ claims would prevail on the merits, and at least one Vikings blogger suspected a home-court advantage for the Williams’ on their legal claims.

Of course, I have no real idea whether the Minnesota judge in this case was consciously or subconsciously affected by the possible political consequences of denying the TROs. I have little reason to doubt the integrity of this judge in particular, who I assume has nothing but the best intentions. But it might be reasonable to wonder whether a state judge in his position, who must run for re-election to keep his job, could be influenced by the prospect of hometown football fans unhappy that a judge has effectively sidelined their star players for a quarter of a season. My colleague Joanna Shepherd concludes from her research that state judges are routinely re-elected unless they risk doing something controversial and attract negative publicity. Whether or not this particular judge was consciously affected by the possibility, there’s no doubt that denying the latest TRO and putting Kevin and Pat Williams on the sideline for the beginning of the season, right after the Vikings stirred up fan excitement by signing Brett Favre as their new quarterback, would’ve attracted lots of negative attention. If nothing else, this case offers fed courts professors a very salient example for discussing the risk of a home-court advantage in state court and a foreign defendant’s interest in removal to federal court.

Thinking along the same lines, Gregg Easterbrook, an astute NFL commentator (and brother of Frank), suggested that former NFL wide receiver Plaxico Burress might have fared better in his recent gun possession case, if he had rallied local football support to his side by re-signing with the New York Giants immediately before trial. As Easterbrook put it, “Had Burress remained a Giant, he would have had the most popular organization between Washington and Boston in his corner, and it’s simply human nature that prosecutors and judges might have looked sympathetically upon his case.” Instead, Burress received two years in prison for violating New York’s gun permit law. Football matters intensely to many people, which surely has political consequences. One study finds that public universities with Division I-A football programs receive about six percent more in state appropriations than public universities without football programs, and for those football universities, a victory over an in-state rival is correlated with an additional increase in appropriations the following year. Maybe football shouldn’t matter so much to courts and legislatures, but it seems that sometimes it really does.

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Update to the Tale of the Ph.D. Rapper

About a week ago, the New York Daily News reported a happy tale of Dr. Roxanne Shante, a former rapper who won a legal battle to have her record label pay for a Ph.D. education at Cornell University. Deven blogged briefly about the story here at Concurring Opinions, and the blogosphere was generally pleased by the notion of a young artist winning her fight for an education against a corporate bully.  But now Slate is reporting that Shante by her own admission never received a Ph.D. from Cornell and that many other important elements of the story are untrue. Too bad. It was a great story but apparently one full of factual inaccuracies that undercut it completely.

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Health Care Reform, Public Opinion, and Personal Experience as Information

James Surowiecki describes an interesting recent shift in public opinion about the health care system in the United States. Last year, polling found that only 29 percent of Americans rated the health care system as “good” or “excellent,” but when asked the same question today, the percentage of the public giving the same answer now has jumped up to 48 percent. Why the sudden increase given that, as Surowiecki notes, “[t]he American health-care system didn’t suddenly improve over the past eleven months”? Surowiecki attributes the rapid increase to the endowment effect. Now that health care reform is actively under consideration, people are focused on “what we might lose rather than on what we might get.” When people encounter uncertainty about trading what they already have for something else, psychologists have shown that people tend to overvalue what they already have and gravitate toward a natural instinct to keep things as they are.

The endowment effect is a plausible explanation for the suddenness of the shift in public opinion, but I have a different intuition than Surowiecki. Although I have not studied public opinion these days with respect to the current debate on health care reform, I have done empirical research about public opinion during the health care reform debates of the early 1990s that could be relevant. Political scientists find generally that people do not normally infer about national conditions directly from their own personal situations. For instance, people who are struggling financially do not assume that their personal situation indicates that the national economy is doing poorly overall as a more general matter. Just so, during the late 1980s and early 1990s, people who had undergone unpleasant experiences with their personal health care did not necessarily assume that the health care system was in bad shape. Their evaluations of the health care system as a whole did not vary from everyone else’s nearly as much as you might expect. However, when Democrats began championing health care reform during the early 1990s and arguing that there was an unaddressed crisis in American health care, people who had undergone negative experiences in their personal health care suddenly began to credit those negative experiences as a source of information for evaluating the system overall. Accordingly, compared to their fellow citizens, their overall views of the system changed very abruptly in a negative direction once political leaders substantiated the perceived reasonableness of that inference.

Although I cannot say definitively, it’s worth considering whether the abrupt shift in public opinion today that Surowiecki identifies is actually a mirror image of what happened during the early 1990s. Remember that, as I mentioned in an earlier post, the American public by and large report positive feelings about their personal health care today. Surowiecki, in fact, observes in the article that a clear majority of the public reports satisfaction with their insurance coverage, and public satisfaction with health care costs in particular has increased from the early 1990s into this decade. A year ago, Democratic supporters of reform probably had the edge in leading public perceptions about the system as a whole in a negative direction. But now with Republican opponents of health care reform touting the virtues of the American health care system, people who are happy with their health care situation now may be crediting their personal situation as a source of information about the system overall in a positive direction. The abrupt shift in public opinion may be less about the endowment effect than a portion of the public suddenly drawing stronger connections between their good personal experiences with health care and their sociotropic evaluations of the system as a whole. Such inferences from personal experience could explain not only the direction of the shift in public opinion about the health care system, but also the speed with which it occurred.

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More Moneyball

688484_baseballIn my previous post, I argued that Michael Lewis’s influential bestseller Moneyball, widely cited in academia, ultimately relies too much on hyperbole to make its claims about the superiority of Billy Beane’s statistical methods in managing the Oakland Athletics baseball team. In this post, I assess the value of those Moneyball methods by examining the results of Oakland’s 2002 draft, a central event glamorized in the book as a showcase of Beane’s “scientific selection of amateur baseball players.”

This is a long, baseball-heavy post, so let me cut to the chase at the outset. Oakland’s Moneyball draft of 2002 was not the smash success that Lewis’s book forecasted. The seven years since the draft bear that out. Beane had seven first-round picks that year but drafted none of the eleven all-stars signed from the 2002 draft, despite exercising almost twenty percent of all first-round choices in the draft. In fact, only half the players on Beane’s wish list of the top twenty players in the draft ended up playing even a game in the major leagues. To tell a compelling story of Beane’s superiority, Lewis overstates what Cass Sunstein and Richard Thaler call the “blunders and the confusions of those who run baseball teams.” It turns out that other teams do a pretty good job of identifying talent too. In the 2002 draft, Oakland did not draft the best players available, while other teams using traditional methods did equally well or better.

So, what is the lesson for Moneyball? Lewis describes how Beane imported quantitative methods from the academic and financial worlds to identify assets, in this case baseball players, undervalued by the market. The modest notion that statistical methods can be invaluable in the search for these undervalued assets, particularly in an industry so obsessively numbers-oriented as baseball, is unassailable. But Lewis’s claims that Moneyball demonstrates the outright superiority of Beane’s quantitative methods in identifying the best talent are much more difficult to sustain, and Moneyball does not convincingly establish the backwardness of other teams, which had already begun erasing whatever advantages Oakland possessed by the time of Moneyball’s publication.

Instead, Moneyball demonstrates a slightly but importantly different lesson about Oakland’s successes during the early 2000s.

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Moneyball Revisited

727607_oakland_baseball_Michael Lewis’s bestselling book Moneyball occupies a unique convergence of academic, sports, and popular fascination. Moneyball profiles Billy Beane and his management of the Oakland Athletics baseball team, with particular attention to Beane’s use of cutting-edge quantitative analysis in an industry portrayed as bound by tradition and decisionmaking by anecdote. Moneyball garnered recent attention again after the movie version of Moneyball, starring Brad Pitt, suddenly halted production just five days before shooting was to begin in July. The event, or nonevent, brought forth several commentaries on Moneyball’s legacy, six years after its publication. Today’s post begins to explain my ambivalence about Moneyball’s place in the academic imagination; my next post continues by arguing that, perhaps to the surprise of its academic enthusiasts, Moneyball actually gets a good chunk of its baseball wrong and in the end, may tell a slightly different story than usually thought.

Baseball fans from outside academia would be shocked how influential and popular the book Moneyball has been within academic circles. Cass Sunstein and Richard Thaler wrote a book review of Moneyball for the Michigan Law Review, and  professors have cited Moneyball as inspiration for new approaches to everything from faculty hiring to election administration to health care reform. There’s even a Moneyball-inspired blawg called Moneylaw.  The great contribution of Moneyball was to puncture a certain overconfidence in untested conventional wisdom based on unsystematic anecdotal information. Moneyball offered a colorful example from baseball, now widely cited in academia, of how inefficiencies in markets can be exploited by canny operators who identify objective metrics of value underappreciated by traditional practices. As Sunstein and Thaler note, “If Lewis is right about the blunders and the confusions of those who run baseball teams, then his tale has a lot to tell us about blunders and confusions in many other domains.”

The problem with Moneyball is the hyperbole deployed to construct Lewis’s lesson of absolute quantitative triumph. A key element of Moneyball’s influence is the vividness and persuasiveness of Lewis’s account of the Oakland Athletics’ success, but it is so vivid and persuasive at least in part because it exaggerates the brilliance of Billy Beane and his quantitative approach to baseball.

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The End of Summer (Programs)

On-campus interviewing is already underway at many law schools, and law students are obviously worried about their job prospects this fall. According to NALP, law firms had already cut back their hiring dramatically last year compared to the year before. Based on early feedback from law students and firms so far, as well as the number of firms that are forgoing summer programs altogether for 2010, it doesn’t look good for 2Ls interviewing on campus right now.

Assuming the economy bounces back, law firms will need to ramp up hiring to cope with the increased workload, particularly after laying off many associates, but it seems likely that law firm hiring at law schools will be very different. The economic downturn is a shock to the hiring system that has been in place for decades now—heavy recruiting of 2L students into lavish summer programs, with a high percentage of those students receiving permanent offers during the following fall of their 3L year. Right now, some firms are simply doing away with summer programs for the time being and freezing entry-level hiring out of law schools. Almost all big law firms are limiting the size and duration of their summer programs, and many are deferring the start date by six months to a year for new permanent associates who receive offers out of their summer programs.

I wonder how many of the new changes to law firm recruiting and summer programs will be permanent and remain after the economy bounces back.

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Framing Health Care Reform

Washington is giving national health care reform its most serious attention since 1994, when the Clintons’ Health Security Act went down in flames. Gordon Smith highlights a salient political consideration in the political debate over the years—high levels of personal satisfaction with one’s own doctors and other providers. There’s no question that Gordon is right that a major obstacle to reform has been that “[p]eople in the middle class tend to be more or less satisfied with their own health care.” From my research on public opinion about health care reform, I can vouch that the public has reported satisfaction with surprising consistency over the years about their personal health care. Surveys over the last thirty years through today find that roughly four out of five Americans are satisfied with the quality of their medical care. Given that the middle class has been reasonably happy with many aspects of their health care, it has a lot to lose, and as Gordon summarizes from his personal perspective, “reformers have not made a case that health care reform will do anything other than make my life worse.”

A problem for Obama and Democrats in favor of health care reform is that Gordon’s view is not only winning out right now, but it assumes away one of the strongest arguments for reform of some form—that health care costs are increasing at unsustainable rates. In other words, part of the pro-reform response ought to be that doing nothing is also likely to make Gordon’s life worse. The main reason that increased government involvement in health care has gained new support from business groups is that their health care costs are rising rapidly, with little reason to expect any improvement in the absence of reform. Insurance premiums for family coverage have already more than doubled on average over the last decade, and the Congressional Budget Office projects that total spending on health care will account for almost 40 percent of the national GDP by 2050. In other words, if Gordon thinks his health care is manageably expensive today, any successful argument for reform may depend on convincing him that it will be unmanageably so before too long.

It is worth noting that Gordon’s view won the public’s collective mind in 1994. The Clinton initiative was doomed when the middle class, though unhappy with certain aspects of the health care system, decided that reform would give them rationing of care and less freedom of choice over providers. What happened in the absence of reform? Using managed care to slow down cost increases, private insurers instead of government restricted choice to the point that a political backlash ensued and inspired HMO legislation to curb unpopular, at times unethical insurance practices. Once insurers squeezed the cost savings they could find through managed care, costs resumed steep annual increases. Today, fifteen years later, the public finds itself worried again about spiraling costs and the uninsured, with the middle class again worried about government restrictions on choice. The pro-reform argument might be that if reform fails again, we’ll end up in an even worse place in another fifteen years. My point is not a partisan one that any particular plan will or will not limit per capita costs over the next fifteen years, but a short-term framing of the issue might doom even a plan that would.

Of course, even if doing nothing is bad, there’s no guarantee that current proposals for reform actually offer an improvement over doing nothing. As its critics allege, reform could be even worse. A criticism of these proposals is that they would exacerbate, not limit the annual increases in health care spending. Arguments matter about how much health care reform might increase total spending on health care, how well it would limit per capita costs, the value of universal coverage, and so on. These are the fine points of a debate that is getting increasingly heated. But if Obama and Democrats in favor of reform hope to fare better than their counterparts from 1994, then they’ll need to persuade the middle class that the status quo will be really bad in another fifteen years and that health care reform therefore offers something “in it for them” over the longer term.