Archive for the ‘Economic Analysis of Law’ Category
Exciting Addition for Public Choice Profs
posted by Danielle Citron
My colleague, Max Stearns
, and Todd Zywicki of the George Mason University School of Law have just published their new course book, Public Choice Concepts and Applications in Law (West Publishing Company). This course book, the only one of its type, introduces law students to the concepts of public choice and the implications of those concepts for a host of substantive legal doctrines and for features of institutional design of various lawmaking bodies. Covered concepts include an general economic reasoning (including an overview of price theory), interest group theory, social choice theory, and elementary game theory. The institutional applications unit includes chapters that consider the implications of covered concepts for legislatures, the judiciary, the executive branch (and bureaucracies), and constitutions as governing documents. The book is designed for courses or seminars in public choice or for use as a supplement courses as legislation, administrative law, or jurisprudence. Students will love this: the book is in paperback. Max tells me that he and Todd will be submitting the Teachers’ Manual to West this week and that West will quickly make that available to potential adopters. In addition, they are working toward posting supporting materials for part III on line. That part which will include various chapters on discrete topics of law to be used in connection with the bound volume and that will be updated over time. Max tells me that he is happy to respond to any questions or comments that you have by email. Having sat in on Max’s public choice seminar and enjoyed, and learned from, his vast body of work in the area, I have no doubt that Public Choice Concepts and Applications in Law is a great contribution to the classroom and beyond.
October 12, 2009 at 12:39 pm
Posted in: Administrative Law, Economic Analysis of Law, Jurisprudence
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What Factors Correlate With Veil Piercing Success?
posted by Dave Hoffman
When Does This Get Pierced?
If you’ve made it through the content of complaints, some data about who gets sued, and descriptive statistics about wins and losses, you basically are pot committed to this veil piercing project. In this post, I’m going to exploit that commitment by describing the results of our statistical analysis of two different kinds of success that plaintiffs may achieve in veil piercing cases: (1) on motions; and (2) at the case level. If you don’t care to follow me beyond the jump, here’s the bottom line (from our abstract):
“Voluntary creditor causes of action promote veil piercing; LLCs are in very limited circumstances better insulated from veil piercing claims than corporations; undercapitalization is strongly associated with success while conclusory grounds like “façade” and “sham” are not; and defendants’ legal sophistication is predictive of plaintiff failure. Extra-legal factors play a more striking and counterintuitive role. Plaintiffs suing companies with few employees are much more likely to win veil piercing motions, and obtain relief in cases, than plaintiffs suing companies employing many workers. This results holds even when controlling for legally-relevant variables. Contrary to both theory and previous empirical work, we also find that judicial liberalism is inversely related to the likelihood of plaintiff success.”
October 9, 2009 at 6:51 am
Posted in: Contract Law & Beyond, Corporate Law, Economic Analysis of Law, Empirical Analysis of Law, Law School (Scholarship)
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What Does Veil Piercing Success Mean Anyway?
posted by Dave Hoffman
If you look at opinions, winning in a veil piercing case is pretty easy to define: did the court agree to pierce the veil, reaching through an entity to its shareholders. If you were inclined, you could model success at those terminal moments in cases, asking which factors (described in the opinions) correlated with courts agreeing to pierce.
There’s value in this approach, not least because opinions shape reality. But there’s a problem too. Not only are opinions unrepresentative, but they come late in cases. The result is an extreme form of selection. It’s not clear (to me, anyway) what the null hypothesis regarding the effect of independent variables ought to be for late-stage dispositions.
Dockets offer the promise of a different approach: asking which factors correlate with success or failure early in cases. Further, assuming that adjudicated motions teach the parties about the strength of their cases, and that they settle strategically, we can even start to learn from the timing and incidence of settlement.
In this post, I’m going to relay some descriptive statistics about the veil piercing successes that plaintiffs achieved in our data. (I’m continuing to pull the data and some text from our paper.) To those who are getting annoyed by all of these posts, I’m sorry! I’ve been living with this project for a long time — I’m excited to finally share it publicly.
October 8, 2009 at 7:24 am
Posted in: Contract Law & Beyond, Corporate Law, Economic Analysis of Law, Empirical Analysis of Law, Law Practice, Law School (Scholarship)
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A Proposed Study To Measure Law Clerk Influence
posted by Dave Hoffman
Judge food.
Citation studies as a proxy for judicial quality are all the rage. I concur with Larry that the effort spent often seems disproportionate to the result. Selection is the culprit here, not just academic modesty: it’s hard to imagine that any truly dramatic effects of judicial character, or legal rule, would not be washed away by parties’ ability to settle strategically.
Exogenous shocks open windows – of limited scope – which may help us penetrate this fog. There’s one ongoing today that I think could in several years allow us to test one of the most important, but obscure, questions about judicial performance. Although there have been a few studies about the usage, hiring, and quality of law clerks, I haven’t seen work that really convinces me that clerks change judicial performance (rather than match it). That question of influence is pretty important for all kinds of reasons — not least because if law clerks were really influencing their judges, we might want to spend a little bit more time thinking about their roles, ethics, hiring, etc.
So what’s the shock? I think that the period of 2008-2011 will prove, in retrospect, to be bumper years for clerk quality. Anecdotally, I’ve heard that the clerkship market has never been more competitive: Yale grads have been encouraged to take state court clerkships (the horror); judges in popular jurisdictions are receiving literally four to five thousand applications per clerk year; individuals who before might have taken firm jobs are instead throwing their hats in the ring; magistrate judges are taking clerks previously destined for district judges; alumni in practice for five years are going back into the clerk market and competing with fresh-faced 3Ls. As an organ of the government, the judiciary simply eats better brains when the economy stinks.
Assuming the effect is real (which we could test by looking at placement statistics), I’d propose that eight to ten years from now – in 2018 or thereabouts – we test whether opinions arising from this bumper-clerk period are cited at a higher rate than opinions from the ordinary market periods immediately preceding and following. The hypothesis would be that if clerks influence judges to write better opinions, better clerks will produce to more citable opinions. Notably, we can’t perform this same analysis on the effect of past recessions, as (1) they reportedly didn’t have the same effects on the clerkship market; and (2) opinion collection practices were really sporadic before 1995. It’s 2018 or bust. Mitu et al., I call dibs!
October 7, 2009 at 8:34 am
Posted in: Behavioral Law and Economics, Economic Analysis of Law, Empirical Analysis of Law, Sociology of Law
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Growth and Entrepenuership
posted by Dave Hoffman
Quick: what percent of the U.S. manufacturing workforce labors in workplaces of twenty employees or less. What percent of all workers are self-employed?
No idea? Here’s some help.
- 18 percent of the British manufacturing workforce labors in small firms, and 15 percent of all workers are self-employed.
- 13 percent of the German manufacturing workforce labors in small firms, and 12 percent of all workers are self-employed.
- 31 percent of the Italian manufacturing workforce labors in small firms, and 26 percent of all workers are self-employed.
- 18 percent of the French manufacturing workforce labors in small firms, and 9 percent of all workers are self-employed.
Answers follow the jump.
September 23, 2009 at 10:50 am
Posted in: Economic Analysis of Law, Social Network Websites
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Google Books and the Limits of Courts
posted by Frank Pasquale
The Google Books litigation has inspired a lot of commentary on the web. As an early October fairness hearing approaches, a consensus appears to be building: the proposed settlement is too important and complex for a court to approve in its current form. Agent Lynn Chu has complained that “No one elected the[] ‘class representatives’ to represent America’s tens of thousands of authors and publishers to convey their digital rights to Google.” Pamela Samuelson, by all accounts one of the leading academics in American intellectual property law, has this to say:
The Google Book Search settlement will be, if approved, the most significant book industry development in the modern era [emphasis added]. . . . The Authors Guild has about 8000 members. OCLC has estimated that there are 22 million authors of books published in the U.S. since 1923 (the year before which books can be presumed to be in the public domain). Jan Constantine, a lawyer for the Authors Guild, is optimistic that authors and publishers of out-of-print books will sign up with the Registry, but there are many reasons to question this.
For one thing, the proposed settlement agreement implicitly estimates that only about 750,000 copyright owners will sign up with the Registry, at least in the near term. Second, many books are “orphans,” that is, books whose rights holders cannot be located by a reasonably diligent search. Third, many easily findable rights holders, particularly academic authors, would much rather make their works available on an open access basis than to sign up with the Registry. Fourth, signing up with the Registry will not be a simple matter, since the Registry won’t just take your word for it that you are the rights holder. You are going to have to prove your ownership claim.
The non-representativeness of the class is one ground on which it is possible to object to the proposed Book Search settlement. Other reasons to object or express concerns will be explored in subsequent articles. Objections must be filed with the court by September 4, 2009.
A suitable platform for hosting public discussions of the deal only launched a few weeks ago, thanks to the diligent efforts of James Grimmelmann (who is also organizing an academic conference on the issue in October). The proposed settlement raises a number of issues, which may only be addressed by extensive regulation of the project — or a public alternative dedicated to serving those marginalized by the current proposal.
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August 11, 2009 at 9:39 am
Posted in: Antitrust, Economic Analysis of Law, Google & Search Engines, Intellectual Property, Law and Inequality, Privacy, Uncategorized
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From Antitrust to Anti-Systemic Risk
posted by Frank Pasquale
The “optimal size and complexity of developing countries’ financial systems” has been hotly debated in the economics community. Writing for the Harvard Business Review & Boston Globe, Duncan Watts focuses on our own dilemmas in a provocative account of complex systems:
[G]lobally interconnected and integrated financial networks just may be too complex to prevent crises like the current one from reoccurring. . . . A 2006 report co-sponsored by the Federal Reserve Bank of New York and the National Academy of Sciences concluded that even defining systemic risk was beyond the scope of any existing economic theory. Actually managing such a thing would be harder still, if only because the number of contingencies that a systemic risk model must anticipate grows exponentially with the connectivity of the system.
So if the complexity of our financial systems exceeds that of even the most sophisticated risk models, how can government regulators hope to manage the problem? There is no simple solution, but one approach is close to what the government already does when it decides that some institutions are “too big to fail,” and therefore must be saved – a strategy that, as we have seen recently, can cost hundreds of billions of taxpayer dollars. . . .
An alternate approach is to deal with the problem before crises emerge. On a routine basis, regulators could review the largest and most connected firms in each industry, and ask themselves essentially the same question that crisis situations already force them to answer: “Would the sudden failure of this company generate intolerable knock-on effects for the wider economy?” If the answer is “yes,” the firm could be required to downsize, or shed business lines in an orderly manner until regulators are satisfied that it no longer poses a serious systemic risk. Correspondingly, proposed mergers and acquisitions could be reviewed for their potential to create an entity that could not then be permitted to fail.
Of course, our system has been headed in precisely the opposite direction, largely thanks to the “best and brightest” now at Treasury and the Fed. As Simon Johnson puts it, we “pay too much deference to the expertise and presumed wisdom of a sector that screwed up massively.”
July 20, 2009 at 8:57 am
Posted in: Antitrust, Corporate Finance, Economic Analysis of Law
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Google Book Search Scrutiny
posted by Frank Pasquale
Writing in Slate, Mark Gimein knocks down a number of straw man arguments against the Google Book search deal. I look forward to seeing how he grapples with more serious concerns, like those raised by James Grimmelmann. I’ve also been impressed by Christopher Suarez’s working paper on the need for antitrust scrutiny of the proposed deal . Suarez proposes a number of sensible settlement modifications that I hope the court will take seriously. It doesn’t have much time to get this right, as the following conference announcement shows:
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July 1, 2009 at 4:29 pm
Posted in: Antitrust, Economic Analysis of Law, Google & Search Engines, Intellectual Property
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Modern Day McCarthyism
posted by Frank Pasquale
I was recently listening to a program on the rise of “red-baiting” in some Vietnamese-American communities. It’s apparently becoming a common rhetorical strategy:
On April 16, 2009, the Thurston County Court ruled in favor of a Vietnamese man who sued for defamation. This case was the first of its kind in the state of Washington. . . . The court found the five defendants . . . guilty for wrongly accusing the plaintiff . . . of having communist sympathies.
[I]n this case, both the defendants and plaintiffs fought against communism during the Second Indochina War. All those interviewed invoked a word commonly used within the Vietnamese émigré community to describe the act of wrongly accusing someone of communist sympathies: chụp mũ. As this trial brought to light, chụp mũ is a widespread practice among Vietnamese community leaders. However, it is very rare for a person who has been chụp mũ to sue his/her accusers.
This might be an interesting precedent for those accused by shock jocks of being socialist, Marxist, Bolshevik, or in favor of concentration camps.
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June 25, 2009 at 5:41 pm
Posted in: Current Events, Economic Analysis of Law, First Amendment, Law and Inequality
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Paging Dr. Gawande: Health Reform Matters.
posted by Frank Pasquale
Atul Gawande’s article “The Cost Conundrum” has become a cause celebre in policy circles. The Obama White House is reading it, leading journal Health Affairs has sponsored a roundtable on it, and pundits across the political spectrum are invoking it.
There are good reasons for all the attention in health reform circles. But there’s a paradox here, too, because Gawande doesn’t believe that changes to health care finance and regulation can deter the wasteful and uncoordinated provider behavior which he sees at the root of the present crisis. I respectfully disagree. Law may not be doing a good job at this now—largely because health care regulators over the past 20 years vastly overestimated the degree to which the market would improve quality and access. But we have a rare window of opportunity to correct for those assumptions. Moreover, without real reform, the profit-obsessed providers who are the villains of Gawande’s piece will systematically outcompete the integrated delivery systems he champions. Gresham’s Law applies in health care, too.
June 24, 2009 at 6:51 am
Posted in: Economic Analysis of Law, Health Law
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Where are the Rating Agencies in the Financial Regulatory Overhaul?
posted by Frank Pasquale
Jonathan Stempel of Reuters notes that “rating agencies [were] largely spared” in the financial industry regulatory overhaul proposed by the Obama administration. Jonathan Macey of Yale critiques the oversight:
“The overall impact of existing and proposed regulatory changes on rating agencies is extraordinarily easy to summarize: They reward abject failure,” said Jonathan Macey, deputy dean of Yale Law School.
“Any credit rating agency that relies on an NRSRO rating [nationally recognized statistical rating organization pursuant to the Securities and Exchange Act of 1934], which is effectively a government subsidy, should be subject to lawsuits by investors,” he went on. “It should also be made clear to professional investors that it is not a defense or a sufficient discharge of their fiduciary duties to rely on credit ratings when assembling portfolios.”
Given my recent series of posts on the “public/private” divide, I was heartened to see Macey characterize the government licensure of rating agencies as a “subsidy.” As I noted in my 2007 post “From First Amendment Absolutism to Financial Meltdown?,” the agencies have used a “free expression” shield to protect against legal consequences for their incompetence, malfeasance, and conflicts of interests. Following the reasoning of FAIR v. Rumsfeld, Congress may be able to condition the “subsidy” of requiring investor reliance on ratings agencies’ work on ratings agencies’ willingness to give up First Amendment immunity from lawsuits.
Admittedly, Congress has gone in precisely the opposite direction in the recent past. In 2006, the Rating Agency Reform Act specifically prohibited the SEC from regulating the “substance of the credit rating or the procedures and methodologies.” We can only hope that current Congress is more serious about either really regulating this field, or getting out of the “implicit subsidy” business altogether.
June 19, 2009 at 8:27 am
Posted in: Corporate Finance, Economic Analysis of Law
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Routing Around Government Pay Scales
posted by Frank Pasquale
I know, you’re expecting a post on the new compensation czar. But before commenting on that, I want to think a bit about the way in which Sallie Mae–once a GSE, now “fully privatized”–may amount to a de facto end-run around the usual pay scales for government work.
Back in May, Gail Collins editorialized on “the epicenter of the college loan strangeness,” guaranteed student loans. For such loans, she says, the following holds:
We the taxpayers pay the banks to make loans to students.
We the taxpayers then guarantee the loans so the banks won’t lose money if the students don’t pay.
We the taxpayers then buy back the loans from the banks so they can make more loans to students, for which we will then pay them more rewards.
As she noted in another column, “The White House believes that if it cuts out the middlemen, and just gives the loans to the students directly, it can save $94 billion over 10 years.”
Predictably, the middlemen have furiously lobbied to preserve their prerogatives. Sallie Mae
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