Category: Economic Analysis of Law

6

CELS VIII: Data is Revealing, Part 1.

 

"If you are going to mine my data, at least have the courtesy of displaying predictive probabilities!"

“If you are going to mine my data, at least have the courtesy of displaying predictive probabilities!”

[This is part 1 of my recap of the Penn edition of CELS, promised here.  For previous installments in the CELS recap series, see CELS III, IV, V, and VI, VII.]

Barry Schwartz might’ve designed the choice set facing me at the opening of CELS. Should I go to Civil Procedure I (highlighted by a Dan Klerman paper discussing the limits of Priest-Klein selection), Contracts I (where Yuval Feldman et al. would present on the relationship between contract clause specificity and compliance), on Judicial Decisionmaking and Settlement (another amazing Kuo-Chang Huang paper). [I am aware, incidentally, that for some people this choice would be Morton’s. But those people probably weren’t the audience for this post, were they.] I bit the bullet and went to Civ Pro, on the theory that it’d be a highly contentious slugfest between heavyweights in the field, throwing around words like “naive” and “embarrassing.”  Or, actually, I went hoping to learn something from Klerman, which I did. The slugfest happened after he finished.

In response to a new FJC paper on pleading practices, a discussant and a subsequent presenter criticized the FJC’s work on Twiqbal. The discussant argued that the FJC’s focus on the realities of lawyers’ practice was irrelevant to the Court’s power-grab in Twombly, and that pleading standards mattered infinitely more than pleading practice.  The presenter argued that the FJC committed methodological error in their important 2011 survey, and that their result (little effect) was misleading. The ensuing commentary was not restrained. Indeed, it felt a great deal like the infamous CELS death penalty debate from 2008. One constructive thing did come out of the fire-fight: the FJC’s estimable Joe Cecil announced that he would be making the FJC’s Twombly dataset available to all researchers through Vandy’s Branstetter program. We’ll all then be able to replicate the work done, and compare it to competing coding enterprises. Way to go, Joe!

But still, it was a tense session.  As it was wrapping up, an economically-trained empiricist in the room commented how fun he had found it & how he hoped to see more papers on the topic of Twombly in the future. I’d been silent to that point, but it was time to say something.  Last year in this space I tried being nice: “My own view would go further: is Twiqbal’s effect as important a problem as the distribution of CELS papers would imply?” This year I was, perhaps impolitically, more direct.

I conceded that analyzing the effect of Twombly/Iqbal wasn’t a trivial problem. But if you had to make a list of the top five most important issues in civil procedure that data can shed light on, it wouldn’t rank.* I’m not sure it would crack the top ten.  Why then have Twiqbal papers eaten market share at CELS and elsewhere since 2011? Some hypotheses (testable!) include: (1) civil procedure’s federal court bias; (2) giant-killing causes publication, and the colossi generally write normative articles praising transsubstantive procedure and consequently hate Twombly; (3) network effects; and (4) it’s where the data are. But these are bad reasons. Everyone knows that there is too much work on Twombly. We should stop spending so much energy on this question. It is quickly becoming a dead end.

So I said much of that and got several responses. One person seemed to suggest that a good defense of Twiqbal fixation was that it provided a focal point to organize our research and thus build an empirical community. Another suggested that even if law professors were Twiqbal focused, the larger empirical community was not (yet) aware of the importance of pleadings, so more attention was beneficent. And the rest of folks seemed to give me the kind of dirty look you give the person who blocks your view at a concert. Sit down! Don’t you see the show is just getting started?

Anyway, after that bit of theatre, I was off to a panel on Disclosure. I commented (PPT deck) on Sah/Lowenstein, Nothing to Declare: Mandatory and Voluntary Disclosure leads advisors to avoid conflicts of interestThis was a very, very good paper, in the line of disclosure papers I’ve previously blogged here. The innovation was that advisors were permitted to walk away from conflicts instead of being assigned to them immutably. This one small change cured disclosure’s perverse effect. Rather than being morally licensed by disclosure to lie, cheat and steal, advisors free to avoid conflicts were chastened by disclosure just as plain-vanilla Brandeisian theory would’ve predicted.   In my comments, I encouraged Prof. Sah to think about what happened if advisors’ rewards in the COI were returned to a third party instead of to them personally, since I think that’s the more legally-relevant policy problem. Anyway, definitely worth your time to read the paper.

Then it was off to the reception. Now, as our regular readers know, the cocktail party/poster session is a source of no small amount of stress. On the one hand, it’s a concern for the organizers. Will the food be as good as the legendary CELS@Yale? The answer, surprisingly, was “close to it”, headlined by some grapes at a cheese board which were the size of small apples and tasted great.  Also, very little messy finger food, which is good because the room is full of the maladroit.  But generally, poster sessions are terribly scary for those socially awkward introverts in the crowd. Which is to say, the crowd. In any event, I couldn’t socialize because I had to circle the crowd for you. Thanks for the excuse!

How about those posters?  I’ll highlight two. The first was a product of Ryan Copus and Cait Unkovic of Bolt’s JSP program. They automated text processing of appellate opinions and find significant judge-level effects on whether the panel reverses the district court’s opinion, as well as strong effects for the decision to designate an opinion for publication in the first instance. That was neat. But what was neater was the set of judicial base cards, complete with bubble-gum and a judge-specific stat pack, that they handed out.  My pack included Andrew Kleinfeld, a 9th circuit judge who inspired me to go to law school.  The second was a poster on the state appellate courts by Thomas Cohen of the AO. The noteworthy findings were: (1) a very low appeal-to-merits rate; and (2) a higher reversal rates for plaintiff than defendant wins at trial. Overall, the only complaint I’d make about the posters was that they weren’t clearly organized in the room by topic area, which would have made it easier to know where to spend time.  Also, the average age of poster presenters was younger than the average age of presenters of papers, while the average quality appeared as high or higher. What hypotheses might we formulate to explain that distribution?

That was all for Day 1. I’ll write about Day 2, which included a contracts, international law, and legal education sessions,  in a second post.

 

*At some point, I’ll provide a top ten list.  I’m taking nominations.  If it has federal court in the title, you are going to have to convince me.

Rethinking Airline Deregulation

The challenge to the US Airways/American merger led Justin Fox to reconsider the much-vaunted “success” of passenger airline deregulation:

Before deregulation, airlines in the U.S. were pretty reliable moneymakers. [After deregulation they] lost $41.6 billion (in 2011 dollars). And it’s not just shareholders who have come off terribly. The past few decades have been, if anything, an even bigger disaster for airline employees, many of whom have seen their pensions mostly evaporate and their pay and status diminish. Taxpayers haven’t come off untouched, either — getting stuck with partial pension bailouts and big loan guarantees to aid the ailing industry in recent years along with ongoing subsidies for airport construction and improvement.

But at least things are good for CEOs, right? Doug Henwood adds more critical perspective:

Between 1963 (when the figures begin) and 1979, the airfare subindex of the CPI grew 25% more slowly than the overall CPI. Since 1979, it’s growth 2.4 times as fast as overall inflation. A major reason for this is that there are many fewer nonstop flights than in the regulated days, and far tighter advance purchase restrictions. To the Bureau of Labor Statistics, which computes the CPI, such quality decreases are the same as price increases. (This is the opposite of the logic prevailing in computers, where rapidly increasing power is the same as a price decline.) And then ridership. Between 1948 and 1978, annual passenger miles flown grew 12% a year; since then, they’ve grown less than 4%.

Perhaps we can thank the deregulators for one thing: cutting the climate impact of a carbon-intensive industry.

0

UCLA Law Review Vol. 61, Discourse

Volume 61, Discourse Discourse

Fighting Unfair Credit Reports: A Proposal to Give Consumers More Power to Enforce the Fair Credit Reporting Act Jeffrey Bils 226
A Legal “Red Line”? Syria and the Use of Chemical Weapons in Civil Conflict Jillian Blake & Aqsa Mahmud 244
Alleyne v. United States, Age as an Element, and the Retroactivity of Miller v. Alabama Beth Colgan TBD

A Nobel for Shiller

When I read Robert Shiller’s Finance and the Good Society last year, I had a sense the author treated the work as the penultimate step in a scholarly cursus honorum, to culminate in the Nobel. Thus my cautionary note in this review:

[Shiller] has eloquently analyzed the role of human psychology in markets, and he predicted both the tech and housing bubbles. He has been a methodological trailblazer, introducing behavioral science to the ossified academic discipline of finance. Time’s Michael Grunwald has called him a “must-read” among wonks in the Obama Administration. Shiller’s past books command respect and repay close reading. Given his sterling career, it is deeply disappointing to see Shiller divert the “behavioral turn” in economics into the apologetics of Finance and the Good Society.

As I explain in the review, in Finance and the Good Society Shiller engages in the cardinal sin of celebrity economists: he presumes to comment authoritatively on legal, poltical, and moral matters far from his real domain of expertise. As for co-winner Eugene Fama’s contributions, Justin Fox’s work is useful (as summarized in this 2009 review):

Eugene Fama . . . promulgated the efficient markets hypothesis in its most widely recognised form by combining it with the capital asset pricing model that portrays investing as a trade-off between risk and return. . . . [I]n the early 1990s, Fama and Kenneth French published a large empirical survey of stock market returns since 1940 and found several ways in which returns were not random and which could not be explained by [Fama’s theory]. In aggregate, smaller companies did better than larger ones, while “value” stocks, which are cheap compared with the book value on their balance sheet, also outperformed. There was even a “momentum” effect – stocks that had been doing well for a while tended to continue to do so. . . . . Fox makes clear that this was tantamount to the founder of efficient markets admitting his theory was wrong and quotes the judgment of one critic: “The Pope said God was dead.” He is also scathing about Fama’s attempt to rescue the theory by categorising all these effects as “risk factors”. . . . All of this came more than a decade before last year’s implosion. So why did regulators continue to enshrine assumptions of efficiency in the rules they set?

The person who can answer that last question truly deserves a Nobel.

6

The Credit Card Merchant Fee Litigation Settlement

I’d like to thank Concurring Opinions for inviting me to blog about In re: Payment Card Interchange Fee and Merchant Discount Antitrust Litigation.  This eight-year-old multi-district litigation has produced the largest proposed cash settlement in litigation history  ($7.25 billion) along with what is perhaps the most extraordinary release from liability ever concocted.  It may also be the most contentious.  Over half the name plaintiffs and over 25% of the class, including most large merchants (think Walmart, Target) and most merchant organizations, have objected.  On September 12, Eastern District of New York Judge John Gleesaon held a fairness hearing to consider the settlement, and the parties are awaiting his decision.  An appeal is a virtual certainty.

This post will provide background on the credit card industry pricing mechanisms that led to this litigation, the legal issues in the case, and the structure of the settlement.  (You can read more about the history of the credit card industry’s relationship to the antitrust laws here.)  In subsequent posts, I’ll separately analyze the damages and relief provisions in the settlement.  (If you can’t wait 8-) my working paper analyzing the settlement is here.)  If there are particular issues that you’d like to read more about, let me know in the comments and I will respond in subsequent posts.

The credit card industry is atypical, but not unique, in that it competes in a two-sided market, i.e., one that serves two distinct customer bases.  A card system like Visa provides both a purchasing device (credit cards) to consumers and a payment acceptance service to merchants.  (By way of comparison, the legal blogging market is also two-sided.  Concurring Opinions provides both an information forum to its readers and a platform to its advertisers.)

Read More

6

The Economics of the Baby Shortage: A Horrifying Counter-example

In Landes and Posner’s famous, The Economics of the Baby Shortage, the authors consider the possibility that baby buyers are likely to self-selecting monsters.  Not so, they argue, as

“Moreover, concern for child abuse should not be allowed to obscure the fact that abuse is not the normal motive for adopting a child.  And once we put abuse aside, willingness to pay money for a baby would seem on the whole a reassuring factor from the standpoint of child welfare. Few people buy a car or television set to smash it.  In general, the more costly a purchase, the more care the purchaser will lavish on it.”

I’ve always found these lines to be particularly bizarre  (even in the context of an otherwise famously provocative, probably misleading, essay). In any event, they came to mind when a student in my L&E class forwarded on this chilling story.

“KIEL, Wisconsin, Sept 9 (Reuters) – Todd and Melissa Puchalla struggled more than two years to raise Quita, the troubled teenager they’d adopted from Liberia. When they decided to give up the 16-year-old, they found new parents to take her in less than two days – by posting an ad on the Internet…”

Read More

No Margin for Error

FastSmileSuzanne Kim’s post below on the economic and social pressures for “smile surgery” reminds me of Jonathan Crary’s excellent book, 24/7: Late Capitalism and the Ends of Sleep. Reviewing developments ranging from military use of modafinil to the rise of energy drinks, Crary concludes that “Time for human rest and regeneration is now simply too expensive to be structurally possible within contemporary capitalism.” Might the same be said for unsmiling faces in hypercompetitive service industries?

The key questions here are: who’s in charge, and what are their values? A recent story on gender dynamics at Harvard Business School offers some clues:

The men at the top of the heap worked in finance, drove luxury cars and advertised lavish weekend getaways on Instagram, many students observed in interviews. Some belonged to the so-called Section X, an on-again-off-again secret society of ultrawealthy, mostly male, mostly international students known for decadent parties and travel. Women were more likely to be sized up on how they looked. . . .

As a a recent discussion on the problem of “Second Generation” gender bias showed, emphasis on appearance may be a key “unseen barrier” to equity.

Image Credit: book by Robin Leidner on the commodification of affect.

What Drives Innovation? The State

Magazines like The Economist mock industrial policy while piling praise on the private sector. But the more one knows about the intertwining of state and market in health care, defense, telecommunications, energy, and banking, the less realistic any strict divide between “public” and “private” appears. Moreover, even the internet sector, that last bastion of venture capital and risk-taking, is more a creature of state intervention than market forces. As Mariana Mazzucato argues:

Whether an innovation will be a success is uncertain, and it can take longer than traditional banks or venture capitalists are willing to wait. In countries such as the United States, China, Singapore, and Denmark, the state has provided the kind of patient and long-term finance new technologies need to get off the ground.

Apple is a perfect example. In its early stages, the company received government cash support via a $500,000 small-business investment company grant. And every technology that makes the iPhone a smartphone owes its vision and funding to the state: the Internet, GPS, touch-screen displays, and even the voice-activated smartphone assistant Siri all received state cash. The U.S. Defense Advanced Research Projects Agency bankrolled the Internet, and the CIA and the military funded GPS. So, although the United States is sold to us as the model example of progress through private enterprise, innovation there has benefited from a very interventionist state.

VC’s and other financiers exaggerated their role in promoting innovation in order to get capital gains tax breaks. And while they retreat ever further from taking risks on game-changing advances in productivity, the tax breaks endure, starving the state of the revenues it needs to continue subsidizing innovation. The California Ideology gradually undoes its own material foundations, but its adherents are unfazed. They are content to reap the benefits of past decades of government investment. From Silicon Valley to Wall Street, seed corn is the tax-cutters’ favorite meal.

X-Posted: Madisonian.

King’s Economic Legacy

Joey Fishkin highlights a very important part of Martin Luther King’s march on Washington:

Threaded through the demands of the March on Washington for Jobs and Freedom were calls for economic justice. The marchers demanded a nationwide minimum wage of “at least” $2.00 (it was then $1.25, so a 60% raise), in order to “give all Americans a decent standard of living.” They demanded a “massive federal program to train and place all unemployed workers — Negro and white — on meaningful and dignified jobs at decent wages.”

The legacy lives on. As David Dayen observes, “fast food and retail worker” strikes reflect the original marchers’ demands. An entity like “McDonald’s is so vast and lucrative that it could easily survive a major wage increase.” Such increases are desperately needed. As worker Willietta Dukes puts it:

I make $7.85 at Burger King as a guest ambassador and team leader, where I train new employees on restaurant regulations and perform the manager’s duties in their absence. . . . I’ve worked in fast-food for 15 years, and I can’t even afford my own rent payments. . . .My hours, like many of my coworkers, were cut this year, and I now work only 25 to 28 hours each week. I can’t afford to pay my bills working part time and making $7.85, and last month, I lost my house.

Dukes is one of the millions of faces behind aggregate statistics that suggest grotesque unfairness at the heart of the American economy. They won’t get much of a hearing in a mainstream media obsessed with the problems of the fortunate. But there is hope that a critical mass of actions by them, like the Washington civil rights march of 1963, will eventually force those at the top to take notice.

0

Brian Tamanaha’s Straw Men (Part 2): Who’s Cherry Picking?

(Reposted from Brian Leiter’s Law School Reports)

BT Claim 2:  Using more years of data would reduce the earnings premium

BT Quote: There is no doubt that including 1992 to 1995 in their study would measurabley reduce the ‘earnings premium.'” 

Response:  Using more years of historical data is as likely to increase the earnings premium as to reduce it

We have doubts about the effect of more data, even if Professor Tamanaha does not.

Without seeing data that would enable us to calculate earnings premiums, we can’t know for sure if introducing more years of comparable data would increase our estimates of the earnings premium or reduce it.

The issue is not simply the state of the legal market or entry level legal hiring—we must also consider how our control group of bachelor’s degree holders (who appear to be similar to the law degree holders but for the law degree) were doing.   To measure the value of a law degree, we must measure earnings premiums, not absolute earnings levels.

As a commenter on Tamanaha’s blog helpfully points out:

“I think you make far too much of the exclusion of the period from 1992-1995. Entry-level employment was similar to 1995-98 (as indicated by table 2 on page 9).

But this does not necessarily mean that the earnings premium was the same or lower. One cannot form conclusions about all JD holders based solely on entry-level employment numbers. As S&M’s data suggests, the earnings premium tends to be larger during recessions and their immediate aftermath and the U.S. economy only began an economic recovery in late 1992.

Lastly, even if you are right about the earnings premium from 1992-1995, what about 1987-91 when the legal economy appeared to be quite strong (as illustrated by the same chart referenced above)? Your suggestion to look at a twenty year period excludes this time frame even though it might offset the diminution in the earnings premium that would allegedly occur if S&M considered 1992-95.”

There is nothing magical about 1992.  If good quality data were available, why not go back to the 1980s or beyond?   Stephen Diamond and others make this point.

The 1980s are generally believed to be a boom time in the legal market.  Assuming for the sake of the argument that law degree earnings premiums are pro-cyclical (we are not sure if they are), inclusion of more historical data going back past 1992 is just as likely to increase our earnings premium as to reduce it.  Older data might suggest an upward trend in education earnings premiums, which could mean that our assumption of flat earnigns premiums may be too conservative. Leaving aside the data quality and continuity issues we discussed before (which led us to pick 1996 as our start year), there is no objective reason to stop in the early 1990s instead of going back further to the 1980s.

Our sample from 1996 to 2011 includes both good times and bad for law graduates and for the overall economy, and in every part of the cycle, law graduates appear to earn substantially more than similar individuals with only bachelor’s degrees.

 

Cycles

 

This might be as good a place as any to affirm that we certainly did not pick 1996 for any nefarious purpose.  Having worked with the SIPP before and being aware of the change in design, we chose 1996 purely because of the benefits we described here.  Once again, should Professor Tamanaha or any other group wish to use the publicly available SIPP data to extend the series farther back, we’ll be interested to see the results.