2024-03-29T06:15:41Zhttps://escholarship.org/oaioai:escholarship.org:ark:/13030/qt6p72d6zz2012-12-11T22:31:37Zqt6p72d6zzFrom Independence to Politics in Financial RegulationGadinis, Stavros2012-08-28Administrative LawBanking and FinancePresident/Executive DepartmentSecurities Lawapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6p72d6zzpublicationoai:escholarship.org:ark:/13030/qt9tb831rs2012-03-13T01:58:19Zqt9tb831rsDoctor Frankenstein's International OrganizationGuzman, Andrew T2012-03-09International Organizationapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9tb831rspublicationoai:escholarship.org:ark:/13030/qt11p1v5fw2012-03-13T01:53:02Zqt11p1v5fwThe Case Against Consent in International LawGuzman, Andrew T2012-02-28International Lawapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/11p1v5fwpublicationoai:escholarship.org:ark:/13030/qt4mp5t4ff2012-01-27T02:56:18Zqt4mp5t4ffUnderstanding the Democratic Transition in South AfricaInman, Robert P.Rubinfeld, Daniel L.2012-01-12South Africa’s transition from apartheid to democracy stands as one of the past century’smost important political events. The transition has been successful to this point because thenew constitution adopted a form of federal governance that has been able to provideprotection for the economic elite from maximal redistributive taxation. Appropriatelystructured, federal governance creates a “hostage game” in which the majority centralgovernment controls the tax rate but elite run province(s) control the provision of importantredistributive services to a significant fraction of lower income households. At least totoday, the political economy of South Africa has found a stable equilibrium with less thanmaximal redistributive taxation. Moreover, the move to a democratic federalist system hasimproved the economic welfare of both the white minority and the black majority. Whetherthe federal structure can continue to check maximal taxation depends crucially upon the rate of time preference of the majority and their demands for redistributive public services. Anew, impatient and more radical majority (ANC) party threatens the current equilibrium.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/4mp5t4ffpublicationoai:escholarship.org:ark:/13030/qt9z66c05g2011-09-20T20:59:22Zqt9z66c05gEmissions Trading and Social JusticeFarber, Daniel A2011-09-20Cap and trade is controversial in part because of claims that it is unjust, an issue that was highlighted by recent litigation against California’s proposed carbon market. This essay considers an array of fairness issues relating to cap and trade. In terms of fairness to industry, the conclusion is that distributing free allowances overcompensates firms for the cost of compliance, assuming any compensation is warranted. Industry should not receive, in effect, ownership of the atmosphere at the expense of the public. Environmental justice advocates argue that cap-and-trade systems promote hotspots and encourage dirtier, older plants to continue operating to the detriment of some communities. Designers of cap-and-trade systems should be alert to possible hotspots, particularly in disadvantaged communities. Little reason exists, however, to believe that any such hotspots are systematically linked with disadvantage. Finally, any regulation of emissions raises costs, with a disproportionate impact on low-income consumers. This effect can be greatly ameliorated through adroit use of revenue from auctions. The bottom line is that fairness issues are not a deal-breaker for cap and trade, but do deserve thoughtful consideration in designing a system.Administrative LawEconomicsEnergy and Utilities LawEnvironmental LawSocial Welfareapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9z66c05gpublicationoai:escholarship.org:ark:/13030/qt0kn6d3dw2011-09-12T19:18:04Zqt0kn6d3dwSkepticism about Universalism: International Bankruptcy and International RelationsTung, Frederick2002-04-02There is no international bankruptcy law, but only the national bankruptcy laws of various states. The failure of a multinational firm therefore raises difficult questions of conflict and cooperation among national bankruptcy regimes. Theorists have proposed various reforms to the uncoordinated territorial approach that most states pursue when a multinational firm suffers financial distress. Among these reform proposals, universalism has long been the dominant idea. Under universalism, the bankruptcy regime of the debtor firm’s home country would govern, and that regime would have extraterritorial reach to treat all of the debtor’s assets and claimants worldwide.Despite its conceptual dominance, universalism has yet to find vindication in any concrete policy enactments. No universalist arrangements exist. While recent challenges to universalism have emerged, the current lively debate over universalism and rival proposals focuses almost exclusively on their comparative efficiencies. This article provides an entirely new perspective. Applying insights from elementary game theory and international relations theory, I show that universalism is politically implausible. Even for states interested in establishing universalist arrangements, they will be unable to do so. They will find themselves caught in a prisoners’ dilemma with no ready solution. I conclude therefore that universalism holds only dubious promise as a prescription for international bankruptcy cooperation.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/0kn6d3dwpublicationoai:escholarship.org:ark:/13030/qt6289107q2011-08-30T23:44:32Zqt6289107qLaw, Sustainability, and the Pursuit of HappinessFarber, Daniel A.2011-08-30Environmental law focuses on regulating the production of energy and goods. Less attention has been given to reducing the environmental footprint of consumption. This Article brings together several strands of research, including psychological and economic research on subjective wellbeing; research on energy efficiency; writings by urban planners on sustainable communities; and recent work on individual behavior and sustainability. The conclusion, in a nutshell, is that changes in consumption of goods and energy, assisted by improvements in urban design and transportation infrastructure, can significantly reduce energy use and environmental harm. A variety of legal tools are available to promote these changes. Remarkably, many of the steps needed for sustainability can actually improve quality of life, adding to individual satisfaction. Thus, sustainability for society and the pursuit of individual happiness need not be at odds.Administrative LawEconomicsEnergy and Utilities LawEnvironmental LawLand Use PlanningLaw and EconomicsNatural Resources LawOilGasand Mineral LawPublic Law and Legal TheoryWater Lawapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6289107qpublicationoai:escholarship.org:ark:/13030/qt9d73t21v2011-08-30T22:59:30Zqt9d73t21vA Way Forward for State Taxation of E-CommerceGamage, DavidHeckman, Devin2011-08-21We propose a novel solution for states that wish to tax interstate e-commerce based on fully and adequately compensating remote vendors for all tax compliance costs. We argue that our proposed solution is compatible with the Quill framework for when states can constitutionally impose burdens on remote vendors. We argue that unlike our proposed solution, the recent state attempts to tax interstate e-commerce through so-called “Amazon laws” are unconstitutional, ineffective, or both. We thus urge the states to adopt our proposed approach as the best way forward for state taxation of interstate e-commerce.Constitutional LawLegislationPublic Law and Legal TheoryState and Local Government LawTaxationTaxation-State and Localapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9d73t21vpublicationoai:escholarship.org:ark:/13030/qt0xg2h8852011-07-08T17:46:07Zqt0xg2h885Freedom to Trade and the Competitive ProcessEdlin, AaronFarrell, Joseph2011-02-01Although antitrust courts sometimes stress the competitive process, they have not deeply explored what that process is. Inspired by the theory of the core, we explore the idea that the competitive process is the process of sellers and buyers forming improving coalitions. Much of antitrust can be seen as prohibiting firms’ attempts to restrain improving trade between their rivals and customers. In this way, antitrust protects firms’ and customers’ freedom to trade to their mutual betterment.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/0xg2h885publicationoai:escholarship.org:ark:/13030/qt1vw0d9sf2011-07-08T17:30:28Zqt1vw0d9sfAnti-InsuranceCooter, Robert D.Porat, Ariel2002-06-01In standard models of contracts, efficient incentives require the promisor to pay damages for non-performance and the promisee to receive no damages. To give efficient incentives to both parties, we propose a novel contract requiring the promisor to pay damages for nonperformance to a third party, not to the promisee. In exchange for the right to damages, the third party pays the promisor and promisee in advance before performance or nonperformance occurs. We call this novel contract "anti-insurance" because it strengthens incentives by magnifying risk, whereas insurance erodes incentives by spreading risk. Anti-insurance is based on the general principle that efficient incentives typically require each party to bear the full risk that they jointly create. By improving incentives, anti-insurance contracts can create value and benefit everyone. Anti-insurance could be especially useful in contracts for goods susceptible to consumer misuse (e.g. automobile transmissions) and goods or service contracts requiring buyer’s cooperation (e.g. building construction). In some circumstances we recommend allowing sellers to substitute anti-insurance for implied warranties or liability to consumers of defective products.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/1vw0d9sfpublicationoai:escholarship.org:ark:/13030/qt8sh2w9fp2011-07-08T17:30:00Zqt8sh2w9fpEffects of Tax Morale on Tax Compliance: Experimental and Survey EvidenceCummings, Ronald G.Martinez-Vazquez, JorgeMcKee, MichaelTorgler, Benno2006-12-13There is considerable evidence that enforcement efforts can increase tax compliance. However, there must be other forces at work because observed compliance levels cannot be fully explained by the level of enforcement actions typical of most tax authorities. Further, there are observed differences, not related to enforcement effort, in the levels of compliance across countries and cultures. To fully understand differences in compliance behavior across cultures one needs to understand differences in tax administration and citizen attitudes toward governments. The working hypothesis is that cross-cultural differences in behavior have foundations in these institutions. Tax compliance is a complex behavioral issue and its investigation requires the use of a variety of methods and data sources. Results from laboratory experiments conducted in different countries demonstrate that observed differences in tax compliance levels can be explained by differences in the fairness of tax administration, in the perceived fiscal exchange, and in the overall attitude towards the respective governments. These experimental results are shown to be robust by replicating them for the same countries using survey response measures of tax compliance.H20C90application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/8sh2w9fppublicationoai:escholarship.org:ark:/13030/qt1z97645j2011-07-08T17:29:29Zqt1z97645jA Defense of Shareholder FavoritismChoi, Stephen J.Talley, Eric L.2001-07-01This paper considers the efficiency implications of managerial "favoritism" towards block shareholders of public corporations. While favoritism can take any number of forms (including the payment of greenmail, diversion of opportunities, selective information disclosure, and the like), each may have the effect (if not the intent) of securing a block shareholder's loyalty in order to entrench management. Accordingly, the practice of making side payments is commonly perceived to be contrary to other shareholders' interests and, more generally, inefficient. In contrast to this received wisdom, we argue that when viewed ex ante, permissible acts of patronage toward block shareholders may play an important efficiency role that benefits all shareholders alike. We demonstrate that the prospect of having to share rents with a third party may itself have a deterrent effect on managerial self-dealing - an off-equilibrium benefit that would not be readily apparent if one looked only at instances where favoritism actually occurs in practice.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/1z97645jpublicationoai:escholarship.org:ark:/13030/qt2dg9t3x92011-07-04T03:45:37Zqt2dg9t3x9Preliminary References — Analyzing the Determinants that Made the ECJ the Powerful Court it IsHornuf, LarsVoigt, Stefan2011-05-17European Court of JusticeEconomic Analysis of Court BehaviorPreliminary Reference Procedure.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2dg9t3x9publicationoai:escholarship.org:ark:/13030/qt8wv4p90c2011-07-04T03:28:43Zqt8wv4p90cA Model of Optimal Government BailoutsBernardo, AntonioTalley, EricWelch, Ivo2011-03-03We analyze incentive-efficient government bailouts within a canonical model of intra-firm moral hazard. Bailouts exacerbate the moral hazard of firms and managers in two ways. First, they make them less averse to failing. Second, the taxes to fund bailouts dampen their incentives. Nevertheless, if third-party externalities from keeping the firm alive are strong, bailouts can improve welfare. Our model suggests that governments should use bailouts sparingly, where social externalities are large and subsidies small; eliminate incumbent owners and managers to improve a priori incentives; and finance bailouts through redistributive taxes on productive firms instead of forcing recipients to repay in the future.Government BailoutMoral Hazardapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/8wv4p90cpublicationoai:escholarship.org:ark:/13030/qt50t4d0kt2011-07-04T03:21:59Zqt50t4d0ktLaw and Growth Economics: A Framework for ResearchCooter, Robert D.Edlin, Aaron2011-01-13Many law and economics models concern static efficiency and redistribution. The standard analysis of dynamic industries requires lawmakers to balance faster innovation against lower consumer prices. Sustained growth dominates these effects, so law and growth economics should focus on maximizing it. Law can increase the growth rate by making innovation more profitable. We distinguish innovation into phases -- discovering ideas, developing them with capital and labor, and marketing innovations. Strengthening intellectual property law and weakening antitrust law increases the costs of developing ideas, and also increases the revenues from marketing innovations. To maximize the profitability of innovation, law should balance these two effects. We use these ideas to develop a framework for law and growth economics.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/50t4d0ktpublicationoai:escholarship.org:ark:/13030/qt2zj750jr2011-07-04T03:20:25Zqt2zj750jrLeft, Right, and Center: Strategic Information Acquisition and Diversity in Judicial PanelsSpitzer, Matthew LTalley, Eric2011-03-24application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2zj750jrpublicationoai:escholarship.org:ark:/13030/qt04x8x1742011-07-04T03:05:15Zqt04x8x174The Consent Problem in International LawGuzman, Andrew2011-03-10International law is built on the foundation of state consent. A state’s legal obligations are overwhelmingly – some would say exclusively – based on its consent to be bound. This focus on consent offers maximal protection to individual states. If a country feels that a proposed change to international law does not serve its interests, it can avoid that change by withholding its agreement. This commitment to consent preserves the power of states, but it also creates a serious problem for the international system. Because any state can object to any proposed rule of international law, only changes that benefit every single affected state can be adopted. This creates a cumbersome status quo bias. Though legal reforms that would lead to a loss of well-being are avoided, so are reforms that would increase well-being for most but not all states. This Article challenges the conventional view of consent. It argues that our existing commitment to consent is excessive and that better outcomes would result from greater use of non-consensual forms of international law. Though consent has an important role to play, we cannot address the world’s greatest problems unless we are prepared to overcome the problem it creates – the consent problem. International law has developed a variety of ways to live with the consent problem. These include the granting of concessions by supporters of change to opponents thereof, customary international law, and to the United Nations Security Council. None of these, however, provide a sufficient counterweight to the consent problem. There are also strategies employed to work around the consent problem, mostly through the use of soft law. In particular, the international system has developed a plethora of international organizations and international tribunals that generate soft law. As currently used and perceived by the international legal system, states, and commentators, these soft law strategies are helpful, but insufficiently so. We could achieve better results within the system by expanding our acceptance of the soft law promulgated by these bodies and raising the expectation of compliance placed on states. This move toward greater support for non-consensual soft law would help to overcome the consent problem, and represent a step in the right direction for the international system.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/04x8x174publicationoai:escholarship.org:ark:/13030/qt99f758qd2011-07-04T03:04:53Zqt99f758qdRational Treaties: Article II, Congressional-Executive Agreements, and International BargainingYoo, John2011-03-08application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/99f758qdpublicationoai:escholarship.org:ark:/13030/qt6h59v4m62011-07-04T03:04:48Zqt6h59v4m6A Century of American Economic ReviewTorgler, BennoPiatti, Marco2011-03-01Using information collected from American Economic Review publications of the last 100 years, we try to provide answers to various questions: Which are the top AER publishing institutions and countries? Which are the top AER papers based on citation success? How frequently is someone able to publish in AER? How equally is citation success distributed? Who are the top AER publishing authors? What is the level of cooperation among the authors? What drives the alphabetical name ordering? What are the individual characteristics of the AER authors, editors, editorial board members, and referees? How frequently do women publish in AER? What is the relationship between academic age, publication performance, and citation success? What are the paper characteristics? What influences the level of technique used in articles? Do connections have an influence on citation success? Who receives awards? Can awards increase the probability of publishing in AER at a later stage?American Economic Reviewpublishing economicsrankingscooperationauthorseditorsboard membersrefereesconnectionsawardspaper characteristicseconomic historyhistory of economic thoughtapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6h59v4m6publicationoai:escholarship.org:ark:/13030/qt1vc0j5x52011-07-04T02:53:00Zqt1vc0j5x5Negligent Misrepresentation as ContractGergen, Mark P2011-02-28application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/1vc0j5x5publicationoai:escholarship.org:ark:/13030/qt8gf0b1cj2011-07-04T02:40:30Zqt8gf0b1cjThree Essays On Tax Salience: Market Salience and Political SalienceGamage, DavidShanske, Darien2011-02-15This Article analyzes the behavioral economics literatures on how individuals understand taxation (i.e., tax salience). We evaluate how taxpayers respond to different presentations of tax prices both in their roles as market participants and as voters. We aim to combat several naïve notions about tax salience that currently exert a pernicious influence on tax lawmaking. In particular, we argue that it is normatively desirable for governments to reduce tax salience with respect to market decision making, and that there is nothing normatively objectionable about governments also reducing tax salience with respect to political decision making.EconomicsLaw and EconomicsPoliticsTaxationTaxation-Federal Incomeapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/8gf0b1cjpublicationoai:escholarship.org:ark:/13030/qt5dp3q0332011-07-03T23:31:36Zqt5dp3q033Antitrust in two-sided markets: Is competition always desirable?Fiedler, Ingo C2010-10-25The main objective of antitrust interventions is to assure competition in markets to benefit consumers. This paper challenges this common approach by examining the case of a satellite broadcasting network with monopoly power. First, satellite TV is identified as a two-sided market. It is then analyzed in the framework of the canonical model for two-sided markets developed by Rochet & Tirole (2004). The main finding is that the satellite network maximizes his profits by choosing a price formation which maximizes the overall welfare of all market participants. Even if the satellite network uses his monopoly power to introduce a fee to receive satellite TV, it would do so only until the semi-elasticity of the amount of consumers in regard to the per-interaction-price equals the one of the TV stations – exactly the point where welfare is maximized. It is therefore concluded that antitrust cases have to take a more in-depth look at two-sided markets before deciding that competition is best for consumers.Antitrusttwo-sided marketsbroadcastingwelfareapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5dp3q033publicationoai:escholarship.org:ark:/13030/qt3636t2642011-07-03T23:27:36Zqt3636t264In Search of Copyright’s Lost Ark: Interpreting the Right to Distribute in the Internet AgeMenell, Peter S2010-10-08Prior to the emergence of peer-to-peer technology, the Copyright Act’s distribution right was largely dormant. Most enforcement actions were premised upon violations of the reproduction right. The relatively few cases invoking the distribution right involved arcane scenarios. During the past several years, direct enforcement of the Copyright Act against file sharers has brought the scope of the distribution right to center stage. Whereas the 1909 Act expressly protected the rights to “publish” and “vend,” the 1976 Act speaks of a right to “distribute.” Interpreting “distribute” narrowly, some courts have held that copyright owners must prove that a sound recording placed in a peer-to-peer share folder was actually downloaded to establish violation of the distribution right. Other courts hold that merely making a sound recording available violates the distribution right. The ramifications for copyright enforcement in the Internet age are substantial. Under the narrow interpretation, the relative anonymity of peer-to-peer transmissions in combination with privacy concerns make enforcement costly and difficult. A broad interpretation exposes millions of peer-to-peer users to potentially crushing statutory damages. Drawing upon the historical development of copyright law and the legislative history of the Copyright Act of 1976, this article explains why Congress selected the term “distribute” in its last omnibus revision of copyright law, shows unequivocally that Congress intended to encompass broadly the 1909 Act rights to “publish” and “vend” within the right to distribute, and rejects the position that Congress required proof of “actual distribution” to prove violation of the distribution right. This critical legislative history has been notably absent from treatise accounts and briefing on the liability standard in the file sharing cases, leaving courts without a compass to navigate this statutory terrain. This article traces the origins of the key legislative terms to elucidate the scope of the distribution right in the Internet age.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3636t264publicationoai:escholarship.org:ark:/13030/qt3rk4j0nk2011-07-03T23:12:49Zqt3rk4j0nkExperimental Evidence of Tax Framing Effects on the Work/Leisure DecisionGamage, DavidHayashi, AndrewNakamura, Brent K2010-06-18The choice between a set of alternatives often depends on how those alternatives are described, as well as their actual economic costs and benefits. We report results from an experiment designed to evaluate the impact of different descriptions of the after-tax wage on both (1) subjects’ willingness to perform a work task rather than an alternative leisure option, and (2) the amount of work performed by those subjects selecting the work task. Utilizing an experimental design that facilitates both within and between-subject comparisons, we find that that subjects’ willingness to work varies with the framing of the after-tax wage and that, in particular, subjects are much less willing to work when the returns to work are framed as a low wage plus a bonus than when the returns are described as a high wage minus a tax. Along the intensive margin we find suggestive evidence that subjects stop working just before their wage becomes subject to a significantly higher marginal tax rate, but we do not observe similar clustering when gross wages become subject to an equivalent wage decrease that is not described as a tax increase.ExperimentFramingLabor SupplyTaxationapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3rk4j0nkpublicationoai:escholarship.org:ark:/13030/qt9h8845nh2011-07-03T22:05:29Zqt9h8845nhPooh-Poohing Copyright Law’s “Inalienable” Termination RightsMenell, PeterNimmer, David2010-03-15From its earliest manifestations, copyright law has struggled to deal with the equitable and efficient division of value and control between creators and the enterprises that distribute their works. And for almost as long as copyright has existed, there has been concern about creators getting the short end of the stick in their dealings with distributors. Since 1909, Congress has sought to protect authors and their families by allowing them to grant their copyrights for exploitation and then, decades later, to recapture those same rights. After judicial interpretation of the 1909 Act frustrated this intent by upholding advance assignments of renewal terms, Congress spoke unambiguously in 1976: “Termination of the grant may be effected notwithstanding any agreement to the contrary . . . .” Yet recent decisions in the Ninth and Second Circuits have eviscerated that clear Congressional command by permitting a grantee to renegotiate the terms of the grant so as to frustrate recapture by the author’s family. After critically analyzing these decisions, this article provides a comprehensive framework for restoring the integrity and clarity of the termination of transfer provisions.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9h8845nhpublicationoai:escholarship.org:ark:/13030/qt4g06p3vm2011-07-03T22:05:20Zqt4g06p3vmInefficiencies in the Information Thicket: A Case Study of Derivative Disclosures During the Financial CrisisBartlett, Robert P., III2010-03-15application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/4g06p3vmpublicationoai:escholarship.org:ark:/13030/qt2174x6x72011-07-03T21:40:12Zqt2174x6x7Fixing Failed StatesYoo, John2010-02-13Failed states pose one of the deepest challenges to American national security and international peace and stability. Finding a comprehensive and effective solution to the challenges of terrorism, human rights violations, or poverty and economic development requires some understanding of how to restore failed states. The response of the United States and its allies has remained the same: to rebuild the institutions of state control, and, if lucky, to plant a working democracy and a market economy within existing state borders. But many international law scholars remain openly dubious about the ability of states to rebuild – the problem is not failed states but the nation-state as the primary actor in international relations. This paper argues that both American and U.N policy on the one hand, and the conventional academic wisdom on the other hand, are mistaken. Building a normal nation-state with full sovereignty on every territory in the world, without changing any borders, fails to understand why some states are failing in the first place. Viable states simply do not align with the borders recognized by the United Nations or created during the period of rapid decolonization in the decades after World War II. Academics who see in failed states the rise of alternatives to the nation-state have no practical solutions that do not depend on the political, economic, and military resources of strong nation-states. Without them, supra-national governments, trusteeships, or non-governmental organizations have shown little ability to fix failed states. This paper argues that powerful nations can help by performing the more modest role of promoting and guaranteeing power-sharing agreements between competing groups within failed states. It concludes by illustrating the thesis with the outcome of the surge in Iraq.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2174x6x7publicationoai:escholarship.org:ark:/13030/qt74c709qr2011-07-03T18:19:15Zqt74c709qrScarcity of Ideas and R&D Options: Use it, Lose it, or Bank itErkal, NisvanScotchmer, Suzanne2009-05-01We investigate optimal rewards in an R&D model where substitute ideas for innovation arrive to random recipients at random times. By foregoing investment in a current idea, society as a whole preserves an option to invest in a better idea for the same market niche, but with delay. Because successive ideas may occur to different people, there is a conflict between private and social optimality. We investigate the optimal policy when the social planner learns over time about the arrival rate of ideas, and when private recipients of ideas can bank their ideas for future use. We argue that private incentives to create socially valuable options can be achieved by giving higher rewards where "ideas are scarce."Scarce ideasimaginationinnovationreal optionssearch modelsrewards to R unknown hazard rateapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/74c709qrpublicationoai:escholarship.org:ark:/13030/qt33s1x1jz2011-07-03T18:18:32Zqt33s1x1jzSeawalls Are Not Enough: Climate Change & U.S. InterestsFreeman, JodyGuzman, Andrew2009-03-13application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/33s1x1jzpublicationoai:escholarship.org:ark:/13030/qt7j44n7wf2011-07-03T18:18:18Zqt7j44n7wfHope and Despair in the Magic Kingdom: In Re Walt Disney Company Derivative LitigationCox, James D.Talley, Eric2008-05-01application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/7j44n7wfpublicationoai:escholarship.org:ark:/13030/qt0x2520bb2011-07-03T18:17:31Zqt0x2520bbJapanese Corporate Governance: The Hidden Problems of the Corporate Law and Their SolutionsShishido, Zenichi1999-09-07It has long been said that the Japanese corporate governance does not pay sufficient attention toshareholders as the owners of the corporation. An yet, despite this seeming lack of shareholder ownership,Japanese firms have performed quite well until recently. This paper seeks to solve this conundrum bydeveloping the "Company Community" concept as a positive model of the Japanese corporate governance. Thismodel is used to illustrate how the Japanese system of corporate governance solves the hidden problems of thecorporate law. These hidden problems of corporate law are common to all developed economies and consist ofthe dual problems of balancing between monitoring and autonomy of management and balancing betweenmoney capital and human capital.The company community concept solves these problems through an intricate system of monitoringconsisting of three levels. The first level is the in-house monitoring by core employees who are quasi-residualclaimants and monitor management as a participant in the Community. The second level is the monitoring bycross-shareholders in the firm, the main bank in particular. Cross-shareholding also has the effect of stabilizingthe management position against outside control. The third level is the monitoring by exit of the outsideshareholders. These multiple levels of monitoring have the effect of stabilizing management yet upholdingshareholder ownership as the end game norm.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/0x2520bbpublicationoai:escholarship.org:ark:/13030/qt9w9661142011-07-03T18:17:18Zqt9w966114Independent Directors and Board Control in Venture FinanceBroughman, Brian2008-05-01The financial contracting literature treats control as an indivisible right held either by a firm’s entrepreneurs or by its investors. In contrast, data from VC-backed firms shows that board control is typically shared, with a third-party independent director holding the tie-breaking board seat (‘ID-arbitration’). In this article I use a bargaining game similar to final offer arbitration to model a firm’s choice of action under ID-arbitration. I show that ID-arbitration can reduce holdup by moderating each party’s ex post threat position. Consequently, ID-arbitration can lead to the efficient outcome in circumstances where alternative governance arrangements – entrepreneur control, investor control, or state-contingent control – are either unavailable or likely to lead to suboptimal results. This project has implications for the literature on financial contracting and the theory of the firm.G24G32G34. K12K22M13application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9w966114publicationoai:escholarship.org:ark:/13030/qt0x3780rb2011-07-03T18:16:45Zqt0x3780rbVoting as a Rational ChoiceEdlin, AaronGelman, AndrewKaplan, Noah2008-04-07For voters with ‘social’ preferences, the expected utility of voting is approximately independent of the size of the electorate, suggesting that rational voter turnouts can be substantial even in large elections. Less important elections are predicted to have lower turnout, but a feedback mechanism keeps turnout at a reasonable level under a wide range of conditions. The main contributions of this paper are: (1) to show how, for an individual with both selfish and social preferences, the social preferences will dominate and make it rational for a typical person to vote even in large elections; (2) to show that rational socially motivated voting has a feedback mechanism that stabilizes turnout at reasonable levels (e.g.,50% of the electorate); (3) to link the rational social-utility model of voter turnout with survey findings on socially motivated vote choice.electionsturnoutsociotropic votingrational choiceapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/0x3780rbpublicationoai:escholarship.org:ark:/13030/qt77j316zw2011-07-03T18:16:24Zqt77j316zwThe Myth of International DelegationGuzman, Andrew T.Landsidle, Jennifer2008-04-07There is a growing and misinformed sense in some quarters that the United States and other countries have engaged (and continue to engage) in delegations to international institution that involve a significant threat to domestic sovereignty. Concerns about such delegations come from academics (John Yoo: “Novel forms of international cooperation increasingly call for the transfer of rulemaking authority to international organizations”), prominent politicians (Bob Barr: “Nary a thought is given when international organizations, like the UN, attempt to enforce their myopic vision of a one-world government upon America, while trumping our Constitution in the process. Moreover, many in our own government willfully or ignorantly cede constitutionally guaranteed rights and freedoms to the international community;” Jesse Helms: “The American people see the UN aspiring to establish itself as the central authority of a new international order of global laws and global government.”); and senior government officials (John Bolton: “For virtually every area of public policy, there is a Globalist proposal, consistent with the overall objective of reducing individual nation-state autonomy, particularly that of the United States”). In our view the perspective evidenced by the above quotes is almost wholly a myth. But it is a myth that persists and continues to attract attention. This Essay seeks to bring forward a more realistic and accurate view of international institutions and engagement. We demonstrate that meaningful delegations of sovereignty are extremely rare and even when they do exist they are carefully cabined. Decision-making authority in all areas remains firmly in the hands of national governments.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/77j316zwpublicationoai:escholarship.org:ark:/13030/qt3qr876552011-07-03T18:13:14Zqt3qr87655Tax Morale after the Reunification of Germany: Results from a Quasi-Natural ExperimentFeld, Lars P.Torgler, Benno2007-01-22This paper provides a comparison of tax morale between inhabitants of East and West Germany in its post-reunification period, using three World Values Survey/European Values Survey waves between 1990 and 1999. German reunification is particularly interesting for the analysis of tax morale as it is close to a natural experiment. Many factors can be controlled because they are similar, as, e.g., a common language, similar education systems and a shared cultural and political history prior to the separation after the Second World War. As a consequence, an East-West comparison has a methodological advantage compared to cross-country studies. Our findings show higher tax morale in East than in West Germany. However, in only 9 years after reunification, tax morale values strongly converged, especially due to a strong change in the level of tax morale in the East. We suggest that this convergence in tax morale between East and West Germany, despite efforts of the federal government to increase deterrence, indicates that tax morale is more strongly driven by other factors than deterrence.Tax MoraleTax EvasionDeterrenceQuasi-Natural Experimentapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3qr87655publicationoai:escholarship.org:ark:/13030/qt4441r9r12011-07-03T18:10:30Zqt4441r9r1Anti-Sharing as a Theory of Partnerships and FirmsKirstein, RolandCooter, Robert D2006-12-24Anti-Sharing may improve the efficiency of teams. The Anti-Sharer collects a fixed payment from all team members; he receives the actual output and pays out its value to them. However, if a team members assumes the role of an "internal" Anti-Sharer, he will be unproductive in equilibrium. Hence, internal Anti-Sharing fails to yield the first-best outcome. External Anti-sharing may induce the team members to choose efficient effort. The paper presents possible applications of Anti-Sharing: while internal Anti-Sharing may provide an explanation for the existence of senior (or managing) partners, external Anti-Sharing leads to a new theory of the incorporated firm.D23L23C72application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/4441r9r1publicationoai:escholarship.org:ark:/13030/qt6rn0f1gb2011-07-03T16:34:39Zqt6rn0f1gbPost-Siliconix Freeze-Outs: Theory, Evidence & PolicySubramanian, Guhan2004-04-01At approximately the same time that the Sarbanes-Oxley Act increased the costs associated with being a public company, important Delaware case law created a difference in the standard of judicial review for the two basic methods of freezing out minority shareholders. While a freeze-out executed as a statutory merger is subject to stringent "entire fairness" review, the Delaware Chancery Court held in In re Siliconix Shareholders' Litigation that a freeze-out executed as a tender offer is not. This paper presents the first systematic empirical evidence on post-Siliconix freeze-outs. Using a new database of all freeze-outs executed during the current doctrinal regime, I find that a controlling shareholder pays less to the minority shareholders, on average, when it uses a tender offer compared to a merger. This difference between tender offers and mergers seems to increase with the size of the controller's pre-deal stake. These findings introduce a puzzle as to why more than two-thirds of post-Siliconix freeze-outs still proceed through the traditional merger route. I present some evidence that controllers are more likely to choose a merger when they hold a relatively small controlling stake, in order to avoid supermajority approval from the minority that would be required in a tender offer. I also present some evidence that a freeze-out is more likely to be executed as a tender offer when the controller's outside counsel has substantial M&A experience. These findings bolster arguments for convergence in judicial standards of review between tender offer and merger freeze-outs, and provide guidance on how such convergence might best be achieved.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6rn0f1gbpublicationoai:escholarship.org:ark:/13030/qt48r8474j2011-07-03T15:04:03Zqt48r8474jJudicial Corruption in Developing Countries: Its Causes and Economic ConsequencesBuscaglia, Edgardo1999-03-01None availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/48r8474jpublicationoai:escholarship.org:ark:/13030/qt0n7132w52011-07-03T15:03:43Zqt0n7132w5A Network Effects Analysis of Private OrderingAviram, Amitai2003-04-15not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/0n7132w5publicationoai:escholarship.org:ark:/13030/qt1ht651hk2011-07-03T15:03:24Zqt1ht651hkMixed equilibria are unstable in games of strategic complementsEchenique, FedericoEdlin, Aaron S.2004-10-16In games with strict strategic complementarities, properly mixed Nash equilibria - equilibria that are not in pure strategies - are unstable for broad class of learning dynamics.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/1ht651hkpublicationoai:escholarship.org:ark:/13030/qt3rd3f9822011-07-03T15:03:19Zqt3rd3f982Tax Morale and Conditional CooperationFrey, Bruno S.Torgler, Benno2006-12-04Why so many people pay their taxes, even though fines and audit probability are low, is a central question in the tax compliance literature. Positing a homo economicus having a refined motivation structure sheds light on this puzzle. This paper provides empirical evidence for the relevance of conditional cooperation, using survey data from 30 West and East European countries. We find a high correlation between perceived tax evasion and tax morale. The results remain robust after exploiting endogeneity and conducting several robustness tests. We also observe a strong positive correlation between institutional quality and tax morale.H260H730D640application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3rd3f982publicationoai:escholarship.org:ark:/13030/qt3983136n2011-07-03T15:02:46Zqt3983136nPublic Attitudes toward Corruption and Tax Evasion: Investigating the role of gender over timeTorgler, BennoValev, Neven T2006-12-13In recent years the topics of illegal activities such as corruption or tax evasion have attracted a great deal of attention. However, there is still a lack of substantial empirical evidence about the determinants of compliance. The aim of this paper is to investigate empirically whether women are more willing to be compliant than men and whether we observe (among women and in general) differences in attitudes among similar age groups in different time periods (cohort effect) or changing attitudes of the same cohorts over time (age effect) using data from eight Western European countries from the World Values Survey and the European Values Survey that span the period from 1981 to 1999. The results reveal higher willingness to comply among women and an age rather than a cohort effect.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3983136npublicationoai:escholarship.org:ark:/13030/qt43b7w47c2011-07-03T15:02:40Zqt43b7w47cThe Welfare Losses from Price-Matching PoliciesEdlin, Aaron S.Emch, Eric R.1999-06-01Several recent papers argue that price-matching policies raise equilibrium prices. We add to this literature by considering potential welfare losses, which have two sources: Harberger triangles from high prices and Posner rectangles from over-entry. We compare price-matching markets with entry to monopoly and price-matching markets without entry, and find that price matching with entry creates greater welfare losses than monopoly in markets with a low ratio of fixed to marginal cost. We illustrate this result using parameters from the US wholesale gasoline and air travel markets and relate our model to price matching among NASDAQ market makers.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/43b7w47carticleBerkeley Program in Law & Economics, Working Paper Seriesvol 115, iss 6, 3048-30580001-4966oai:escholarship.org:ark:/13030/qt2tt3c5dr2011-07-03T15:02:27Zqt2tt3c5drWho Should Bear Tax Compliance Costs?Bankman, Joseph2003-04-17Not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2tt3c5drpublicationoai:escholarship.org:ark:/13030/qt3gm7v86m2011-07-03T12:05:12Zqt3gm7v86mAre There Too Many Entrepeneurs? A Model of Client-Based EntrepreneurshipRauch, James E.Watson, Joel2003-04-01Client relationships create value, which employees may try to wrest from their employers by setting up their own firms. Firms counter by inducing workers to sign contracts that prohibit them from competing or soliciting former clients in the event of termination of employment. Society trades off higher effort by self employed workers against the cost of establishing redundant businesses, and local governments compete to attract clients. If clients, firms, and workers can renegotiate restrictive employment contracts and make compensating transfers, the socially optimal level of entrepreneurship will be achieved regardless of government policies regarding enforcement of these contracts. If workers cannot finance transfers to firms, however, firms and workers will sign contracts that are too restrictive and produce too little entrepreneurship, and governments can increase welfare by limiting enforcement of these contracts. With or without liquidity constraints, more entrepreneurial locations will attract more clients and have higher employment and output.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3gm7v86mpublicationoai:escholarship.org:ark:/13030/qt5xh8g9c72011-07-03T12:05:01Zqt5xh8g9c7Rule Based Legal Systems as a Substitute for Human Capital. Should Poor Countries Have a More Rule-Based Legal System?Schaefer, Hans-Bernd2002-04-08Not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5xh8g9c7publicationoai:escholarship.org:ark:/13030/qt7hm4d39g2011-07-03T12:04:56Zqt7hm4d39gThe Use of “Most-Favored-Nation” Clauses in Settlement of LitigationSpier, Kathryn E.2001-10-05Many settlement agreements in lawsuits involving either multiple plaintiffs or multiple defendants include so-called "most-favored-nation" clauses. If a defendant facing multiple claims, for example, settles with some plaintiffs early and settles with additional plaintiffs later for a greater amount, then the early settlers will receive the more favorable terms as well. These MFN provisions have been prominent in the recent MP3.com case, as well as tobacco litigation, class actions, and many antitrust lawsuits. This paper considers a defendant who is facing a large group of heterogeneous plaintiffs. Each plaintiff has private information about the (expected) award that he or she will receive should the case go to trial. MFN clauses are valuable because they commit the defendant not to raise his offer over time. This has two important effects. First, holding overall settlement rate fixed, MFNs encourage earlier settlement. Second, depending upon the distribution of plaintiff types, MFNs can either increase or decrease the overall settlement rate. Social welfare implications are discussed, and alternative theories, including the strategic use of MFNs to extract value from future plaintiffs, are explored.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/7hm4d39gpublicationoai:escholarship.org:ark:/13030/qt2wj7v1j42011-07-03T12:04:41Zqt2wj7v1j4Rotten Apples: An Investigation of the Prevalence and Predictors of Teacher CheatingLevitt, Steven D.2002-12-01We develop an algorithm for detecting teacher cheating that combines information on unexpected test score fluctuations and suspicious patterns of answers for students in a classroom. Using data from the Chicago Public Schools, we estimate that serious cases of teacher or administrator cheating on standardized tests occur in a minimum of 4-5 percent of elementary school classrooms annually. Moreover, the observed frequency of cheating appears to respond strongly to relatively minor changes in incentives. Our results highlight the fact that incentive systems, especially those with bright line rules, often induce behavioral distortions such as cheating. Statistical analysis, however, may provide a means of detecting illicit acts, despite the best attempts of perpetrators to keep them clandestine.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2wj7v1j4publicationoai:escholarship.org:ark:/13030/qt7nf0n65z2011-07-03T12:04:15Zqt7nf0n65zA Legal Options Approach to EC Company LawHertig, GerardMcCahery, Joseph A.2006-02-01In recent years, legal options (ex ante and ex post choices created by law) have gained acceptance in the European Union. Notwithstanding the move toward soft law measures, the EC’s appetite for options or pro-choice company law provisions remains unclear. There are significant barriers to the EC’s ability to promote efficient regulatory choice due to interest group pressures, diffuse control over the agenda-setting process, and a limited capacity to anticipate and meet a wide range of Member State demands.This article shows that bringing options to the forefront of company law reform can reduce costs for small and medium-sized firms and provide clear benefits to companies that differ in their ownership and control structure from most large public corporations. Switching to a company law regime with different sorts of options can have a good effect on stakeholders as well. As a regulatory strategy, we advocate a step-by-step change, beginning with the adoption of a limited number of opt-in provisions.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/7nf0n65zpublicationoai:escholarship.org:ark:/13030/qt57q8284f2011-07-03T12:04:11Zqt57q8284fEnvironmental Regulation, Cost-Benefit Analysis, and the Discounting of Human LivesRevesz, Richard L.1999-03-01Lives Probably the most vexing problem raised by the cost-benefit analysis of environmental regulation is how to deal with the fact that the loss of human life generally does not occur contemporaneously with the exposure to certain contaminants. In some cases, the environmental exposure produces a harm with a latency period whereas in others it produces harms to future generations. The article underscores the extent to which the cases of latent harms and harms to future generations are analytically distinct, even though they have generally been treated as two manifestations of the same problem. In the case of latent harms, one needs to make intra-personal, intertemporal comparisons of utility, whereas in the case of harms to future generations what is needed is a metric against which to compare the utilities of individuals living in different generations. Thus, the appropriateness of discounting would be resolved differently in the two contexts.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/57q8284fpublicationoai:escholarship.org:ark:/13030/qt3587v9sv2011-07-03T12:03:49Zqt3587v9svTruth-Bonding and Other Truth-Revealing Mechanisms for Courts [technical version]Cooter, Robert D.Emons, Winand2001-04-30In trials witnesses often gain by slanting their testimony. The law tries to elicit the truth from witnesses by cross-examination under threat of criminal prosecution for perjury. As a truth-revealing mechanism, perjury law is crude and ineffective. We develop the mathematical form of a perfect truth-revealing mechanism, which exactly offsets the gain from slanted testimony by the risk of a possible sanction. Implementing an effective truth-revealing mechanism requires a witness to certify accuracy by posting bond. If events subsequently prove that the testimony was inaccurate, the witness forfeits the bond. By providing superior incentives for telling the truth, truth-bonding could combat some distortions by factual witnesses and interested experts, including “junk science”.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3587v9svpublicationoai:escholarship.org:ark:/13030/qt46g5m6z32011-07-03T12:03:26Zqt46g5m6z3The Uninvited Guest: Patents on Wall StreetMerges, Robert P2003-03-01Not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/46g5m6z3publicationoai:escholarship.org:ark:/13030/qt6t80b57r2011-07-03T12:03:16Zqt6t80b57rDo the Merits Matter More? Class Actions under the Private Securities Litigation Reform ActJohnson, Marilyn F.Nelson, Karen K.Pritchard, Adam C.2002-09-01Congress passed the Private Securities Litigation Reform Act of 1995 in an attempt to discourage meritless securities fraud class actions. This paper uses damages, accounting, insider trading and governance variables to explain the incidence of securities fraud litigation both before and after the passage of the PSLRA. Using a matched sample of sued and non-sued firms from the computer hardware and software industries, we find that accounting and insider trading, which did not correlate with the incidence of litigation prior to the passage of the PSLRA, are significant after the passage of PSLRA. This finding is confirmed by our analysis of allegations and outcomes. Our accounting variables do not explain the incidence of pre-PSLRA accounting allegations, but they become significant after the passage of PSLRA. Similarly, insider trading variables do not explain insider trading allegations before the PSLRA, but net sales by insiders correlate with such allegations after its enactment. Finally, we find no correlation between lawsuit outcomes and our accounting variables before the PSLRA, but accounting variables are significant after its enactment. Abnormal insider sales correlate with outcomes before the PSLRA, but not after. Overall, we interpret our finding as evidence that the PSLRA has furthered Congress' goal of discouraging frivilous securities fraud lawsuits.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6t80b57rpublicationoai:escholarship.org:ark:/13030/qt4wr4j18z2011-07-03T10:42:33Zqt4wr4j18zThe Political Economy of Litigation and Settlement at the WTOGuzman, Andrew2003-02-24In 1995, following the Uruguay Round of trade talks, the World Trade Organization (WTO) came into being. Included in the infrastructure of the WTO was the Dispute Settlement Understanding (DSU), a mandatory dispute resolution system. From its inception in 1995 through July 2002, the DSU handled 262 cases and affected the content of international trade obligations.Despite its central role in the trading system, however, we are only just beginning to understand how the DSU affects state behavior and litigation patterns. Of particular note, we do not have a coherent model of litigation and settlement at the WTO that can explain why some cases settle while others do not. This paper provides such a model.In the domestic context, models of litigation and settlement turn on informational asymmetries. At the WTO, however, the informational assumptions required to explain the observed pattern of settlement are unrealistic, so an alternative approach must be explored. The relevant costs and benefits for a state involved in WTO litigation are political in nature. As such, benefits enjoyed by one party are unlikely to equal the costs borne by the other. This is true of both the impact of a panel ruling, and the impact of the delay that is built into the WTO system. Both of these factors affect the payoffs received by a state's political leaders. This paper show how these asymmetric political payoffs affect the pool of cases that proceeds to a panel. Of the 82 cases that have generated a panel ruling, 90% have resulted in a complainant win. Combining this remarkably high win rate with the theory developed in this article allows us to draw inferences about the political costs and benefits facing states as they decide whether to settle or proceed to a panel.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/4wr4j18zpublicationoai:escholarship.org:ark:/13030/qt27j9b28n2011-07-03T10:42:22Zqt27j9b28nDecreasing Liability ContractsCooter, Robert D.Porat, Ariel2003-07-17Like constructing a building, performance on many contracts occurs in phases. As time passes, the promisor sinks more costs into performance and less expenditure remains. For phased performance, we show that optimal liability for the breaching party decreases as the remaining costs of completing performance decrease. In brief, efficiency requires a decreasing liability contract. To implement such a contract, we recommend deducting past expenditure on incomplete performance from liability. We show that progress payment contracts, which are commonplace in some industries, are materially equivalent to decreasing liability contracts. Our analysis should prove useful for elucidating progress payment conracts and for drafting and litigating phased contracts.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/27j9b28npublicationoai:escholarship.org:ark:/13030/qt6h51g5xv2011-07-03T09:48:57Zqt6h51g5xvParticipation in Environmental Organizations: An Empirical AnalysisTorgler, BennoGarcía-Valiñas, Maria A.2006-05-01The literature on volunteering has strongly increased over the last few years. However, there is still a lack of substantial empirical evidence on the determinants of environmental participation. This empirical study analyses a cross-section of individuals using micro-data from the World Values Survey wave III (1995-1997), which covers 38 countries, to investigate this question. The results suggest that individuals’ active participation in environmental organizations is influenced not only by socio-demographic and socio-economic factors, but also by political attitudes. Furthermore, we observe regional differences. Interestingly, environmental participation seems to be a more important channel for action in developing countries, where weak and dysfunctional states make people pursue their goals through non-governmental sector activities. We also find that a higher level of perceived corruption promotes participation in environmental organizations, which shows that individuals take action when they feel that the government is corrupt.EnvironmentEnvironmental ParticipationInternational PerspectivePolitical InterestSocial Capitalapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6h51g5xvpublicationoai:escholarship.org:ark:/13030/qt2gx715nd2011-07-03T09:48:25Zqt2gx715ndCriminal Law and Behavioral Law and Economics: Observations on the Neglected Role of Uncertainty in Deterring CrimeHarel, AlonSegal, Uzi1999-09-01Criminal sanctions are usually public, stable and predictable. In contrast, the practices governing the determination of the probability of detection and conviction reinforce uncertainty. We invoke psychological insights to illustrate that criminals prefer a scheme in which the size of the sentence is uncertain while the probability of detection and conviction is certain. Consequently, the choice to increase certainty with respect to the size of the sentence and to decrease certainty with respect to the probability of detection and conviction can be justified on the grounds that such a scheme is disfavored by criminals and consequently has better deterrent effects.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2gx715ndpublicationoai:escholarship.org:ark:/13030/qt4qr081sg2011-07-03T06:32:22Zqt4qr081sgPolicy Levers in Patent LawBurk, Dan L.Lemley, Mark2003-06-01Not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/4qr081sgpublicationoai:escholarship.org:ark:/13030/qt98z174x02011-07-03T06:32:17Zqt98z174x0The Conspirator Dilemma: Introducing the “Trojan Horse” Enforcement StrategyYadlin, Omri2002-04-02application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/98z174x0publicationoai:escholarship.org:ark:/13030/qt1467f53t2011-07-03T06:32:12Zqt1467f53tImproving the Legal Environment for Start-Up Financing by Rationalizing Rule 144Ganor, Mira2004-07-01Private Equity is a crucial form of financing for start-ups and, therefore, important for economic innovation and growth. The securities laws have an enormous impact on the ability of start-ups to obtain private equity investment. One of the most important of these laws is the SEC's Rule 144. Surprisingly, there has been little academic analysis on the efficacy of this rule. This paper shows that Rule 144 is likely to impair and distort the financing of start-ups. The paper also explains how Rule 144 can be modified to reduce these costs without interfering with any of the functions for which it was designed.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/1467f53tpublicationoai:escholarship.org:ark:/13030/qt5hk0k89w2011-07-03T06:32:02Zqt5hk0k89wPrivacy and Information Acquisition in Competitive MarketsTaylor, Curt2004-05-19Personal privacy is studied in the context of a competitive product (or labor) market. Firms initially post prices (or wages) they promise to charge (or pay) individuals whose applications are ultimately approved. Contracts are incomplete because the amount of information firms acquire about applicants cannot be observed. When information acquisition corresponds to searching for bad news, firms search too hard in equilibrium. Consumers can ameliorate this by demanding inefficiently small levels of output. If economic characteristics differ across groups of applicants and price discrimination is prohibited, then members of the high-risk group are subjected to more scrutiny and suffer disproportionately high rejection rates. When information acquisition corresponds to searching for good news, firms acquire too little information about their applicants in equilibrium. Finally, if rejected applicants remain in the market and continue to apply to dfferent firms, then the resulting adverse selection may be so severe that all parties would be better off if no information was collected at all.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5hk0k89wpublicationoai:escholarship.org:ark:/13030/qt2216c2632011-07-03T06:31:58Zqt2216c263Institutional Innovations, Theories of the Firm, and the Formation of the East India CompanyHarris, Ron2004-02-01Noneapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2216c263publicationoai:escholarship.org:ark:/13030/qt13d8s2qs2011-07-03T06:31:33Zqt13d8s2qsGatekeeper Failure and Reform: The Challenge of Fashioning Relevant ReformsCoffee, John C.2004-03-01Noneapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/13d8s2qspublicationoai:escholarship.org:ark:/13030/qt77z9v9c62011-07-03T06:31:02Zqt77z9v9c6Monitoring, Incentives, and Cooperation: The Strategy Behind the Organizational GameShishido, Zenichi1998-10-29The simple view of joint ventures and venture businesses is that both partners will cooperate to maximize their equity value. In reality, however, there is no guaranty that each partner always behaves to maximize the value of the equity, because partners may have conflicting interests. The unpredictability that the fellow partner will not cooperate will distort your own incentive to cooperate. The combination of equity and monitoring contracts are used to reduce this unpredictability. The goal of this paper is to describe the game between the partners and to outline good business planning. The straightforward way to reduce the unpredictablity about cooperation of your partner is to obtain the residual right of the corporation. In this scenario you could exclude your partner if he fails to cooperate. The problem will not, however, be solved because a substitute for your partner is usually costly in joint ventures and venture businesses. The threat of exclusion will distort your partners incentive to cooperate. To encourage cooperation, you must minimize both your own unpredictability and your partner's unpredictability. Partners use "monitoring contracts" such as vetoes, to modify the situation where one partner has complete residual right and to share the unpredictability. The optimal way of sharing the unpredictability depends on which partner provides more critical human capital, how strong the bargaining power of each partner is, and how the reputational bond will work for each partner. In this paper, I describe the organizational game of allocating the unpredictability to cooperate. The game is played as follows. The relative value of human capital, the bargaining power of each partner, and the reputational bond are given. The partners negociate the mixture of equity sharing and monitoring contracts under the given conditions. Each partner tends to minimize his own unpredictability too much and, as a consequence, does not maximize his long-term interest. I conclude by describing how the outcome of negotiation could be improved.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/77z9v9c6publicationoai:escholarship.org:ark:/13030/qt10f1q78d2011-07-03T06:30:57Zqt10f1q78dLegislative IntentRodriguez, Daniel B.1997-09-29A perennial issue in the debate over legislative interpretation concerns what authority, if any, to accord to the preferred intent of the legislature. A fundamental precept of most normative theories of statutory interpretation is that the essential enterprise of the interpreter, be it a judge, an administrative agency, or any citizen potentially subject to the legislation, is to discern what the legislature intended with its enactment of a particular statutory provision. there is substantial disagreement concerning the appropriate methods of discerning legislative intent, supposing that such intent is relevant to legislative interpretation. The economic analysis of law has made important contributions to these spirited debates. In particular, the contributions of public choice theory and positive political theory continue to bring important insights to the literature on legislative interpretation and, also, on the relationship among legislatures, courts, executive officials, and regulatory agencies.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/10f1q78dpublicationoai:escholarship.org:ark:/13030/qt9pq4m8ts2011-07-03T06:30:52Zqt9pq4m8tsCommodifying LiabilityCooter, Robert D.1997-09-29In recent years, ingenious entrepreneurs have invented new commodities by bundling contingent claims and marketing them. A liability right can be viewed as a contingent claim and analyzed like stock options or commodity futures. Since law prohibits markets for liability rights, no one knows how they would work. I assume no legal impediments to unbundling, packaging, and selling liability rights. I then predict how a competitive market would price liability rights. I use such an ideal market to critique the actual system of tort liability. Competition can solve many of the problems attributed by courts to contracts that reallocate tort liability.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9pq4m8tspublicationoai:escholarship.org:ark:/13030/qt5dj8m2kf2011-07-03T06:30:42Zqt5dj8m2kfModels of Morality in Law and Economics: Self-Control and Self-Improvement for the "Bad Man" of HolmesCooter, Robert D.1998-10-29Holmes commended scholars to analyze law from the viewpoint of a "bad man." If Holmes had in mind everyday wrongdoing, and not a lofty evil, then he prescribed the research strategy of law and economics. The virtuous prefer good, villains prefer bad, and rational actors in economics prefer themselves. Instead of obeying or disobeying the law for its own sake, the rational actor in economics treats law as an obstacle or an instrument, not a value. The success of the economic analysis of law proves the fruitfulness of this research strategy. Instead of praise, however, this paper offers critique and extension. As the social complexity that law regulates increases, economists typically prescribe decentralization. Decentralized law works best when spontaneous obedience and private enforcement supplement state coercion. Internalized morality prompts spontaneous obedience and perfects private enforcement. Thus minimizing state coercion maximizes reliance upon internalized morality. Developing a theory of morality to anchor decentralized law requires extending models beyond the bad man. This paper develops two fundamental ideas of morality: self-control and self-improvement. I will explain how law harnesses and strengthens self-control, and also how the law changes people by creating opportunities for self-improvement.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5dj8m2kfpublicationoai:escholarship.org:ark:/13030/qt50n5z1z02011-07-03T06:30:37Zqt50n5z1z0The Essential Role of Organizational LawHansmann, HenryKraakman, Ranier1999-04-29The Role and Structure of Organizational Law In every society, the law establishes a set of standard legal entities. In the United States, these entities include the business corporation, the cooperative corporation, the nonprofit corporation, the municipal corporation, the limited liability company, the general partnership, the limited partnership, the private trust, the charitable trust, and marriage. In important respects, the number and nature of these entities is often strikingly similar from one jurisdiction to another, but at the same time, there are conspicuous variations, even among jurisdictions with similar economies. In this essay, we focus on two questions: What are the common features shared by legal entities, and to what extent do these features require specialized legal rules? Our thesis is that the essential feature of organizational law is asset partitioning -- that is, the provision of a mechanism by which creditors of the firm obtain a priority claim in the firm's assets over individual creditors of the firm's managers or HBIs. The idea that partitioning a fixed pool of assets can reduce overall costs of credit by reducing monitoring costs is already familiar. In large part, however, the existing literature focuses on devices for asset partitioning other than organizational law (for example, security interests). Our contribution here is to demonstrate the close relationship between asset partitioning and organizational law.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/50n5z1z0publicationoai:escholarship.org:ark:/13030/qt98g8s06r2011-07-03T06:30:33Zqt98g8s06rRights Eroding by Past BreachBen-Shahar, Omri1999-01-03Legal rights may erode as a result of past, uncontested, breach. In light of ongoing violations, the rightholder's enforcement may result in the loss of the entitlement. The doctrines, of course, of performance in contract law and adverse possession in property law are prominent examples of this widespread erosion phenomenon. In analyzing the effects of such laws, the Article confronts two conflicting intuitions. On the one hand, the "license" to continue breach prospectively encourages opportunism. On the other hand, the risk of erosion may reinforce the rightholder's motivation to take anti-erosion measures, bolstering the credibility of the threat to enforce, thus better preserving the entitlement. The article proves that these two effects of erosion rules always balance out. The same amount of value will be extracted from the right holder irrespective of the law's erosion doctrine. The article also demonstrates the limits of this "irrelevance" claim and the factors that may lead to its collapse. It applies the analysis to offer new perspectives on various prominent legal rules.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/98g8s06rpublicationoai:escholarship.org:ark:/13030/qt2gh1r30h2011-07-03T06:30:23Zqt2gh1r30hThe Deterrence Effect of Prison: Dynamic Theory and EvidenceMcCrary, JustinLee, David S.2009-07-31Using administrative, longitudinal data on felony arrests in Florida, we exploit the discontinuous increase in the punitiveness of criminal sanctions at 18 to estimate the deterrence effect of incarceration. Our analysis suggests a 2 percent decline in the log-odds of offending at 18, with standard errors ruling out declines of 11 percent or more. We interpret these magnitudes using a stochastic dynamic extension of Becker's (1968) model of criminal behavior. Calibrating the model to match key empirical moments, we conclude that deterrence elasticities with respect to sentence lengths are no more negative than -0.13 for young offenders.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2gh1r30hpublicationoai:escholarship.org:ark:/13030/qt0t6420jb2011-07-03T06:11:24Zqt0t6420jbThe Misperception of Norms: The Psychology of Bias and the Economics of EquilibriumCooter, Robert DFeldman, MichaelFeldman, Yuval2006-12-26Our perceptions of what other people do often affect what we do. In these situations, perceptual biases can affect what everyone does. By combing the psychology of bias and the economics of equilibrium, we construct a model to predict how individual biases affect aggregate behavior. Psychologists have found at least two systematic biases in the perception of social and legal norms. Empirical studies often find a general tendency to over-estimate how much other people violate social norms – a bias toward moral pessimism. We show that persistence of this bias causes more people to violate the norm than if the bias were corrected. In addition, this bias increases the probability that behavior will settle into a "bad" equilibrium with many wrongdoers, instead of settling into a “good” one with few wrongdoers. Empirical studies also find that a person often over-estimates how many other people act the same as he does – a bias towards social projection. We show that persistence of this bias does not change the number of people who violate the norm. Pessimism thus undermines conformity to social norms, whereas social projection leaves aggregate conformity unchanged. We apply these predictions, and some others, to empirical studies in psychology. We conclude that researchers who found false pessimism with respect to protection of trade secrets, tax compliance, alcohol abuse, and water conservation are right to predict that this bias will cause more people to do wrong, whereas researchers who found social projection bias with respect to water conservation, smoking, and drugs were wrong to predict that this bias will cause more people to do wrong.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/0t6420jbpublicationoai:escholarship.org:ark:/13030/qt2kc0f6mq2011-07-03T06:11:00Zqt2kc0f6mqThe Intrinsic Value of Obeying a Law: Economic Analysis of the Internal ViewpointCooter, Robert D2006-12-04Economic theory distinguishes sharply between what a person wants and what he can have. “Preferences” describe what a person wants, and “constraints” describe the limits of what he can have. The collision of preferences and constraints yields the choices that economists study. The meaning of both terms is broad and flexible. Preferences and constraints help to distinguish between the internal and external viewpoints that H. L. A. Hart made famous. The internal viewpoint concerns preferences to perform legal obligations. A person who prefers to obey a law is willing to give up something to perform his legal obligation. The preference is intrinsic, not an instrument for securing something else of value. Conversely, a person who is indifferent to a legal obligation takes a purely instrumental approach towards obedience—he obeys only when doing so secures something else of value. What explains the distribution of preferences among people to obey a law? I will sketch part of the answer that emerges from economic and psychological studies. Finding an answer is important because when laws are reasonably just and many citizens intrinsically prefer to obey them, government is easier, and life is better than when most citizens are indifferent towards obeying the law.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2kc0f6mqpublicationoai:escholarship.org:ark:/13030/qt6pn2360j2011-07-03T06:10:56Zqt6pn2360jThe Law of Duress and the Economics of Credible ThreatsBar-Gill, OrenBen-Shahar, Omri2003-06-01This paper argues that enforcement of an agreement, reached under a threat to refrain from dealing, should be conditioned solely on the credibility of the threat. When a credible threat exists, enforcement of the agreement promotes both social welfare and the interests of the threatened party. If agreements backed by credible threats were not enforceable, the threatening party would not bother to extract them, and would simply refrain from dealing - to the detriment of the threatened party. The doctrine of duress, which predominantly controls such agreements, only hurts the "coerced" party. By denying enforcement in cases where a credible threat exists, duress doctrine precludes the threatened party from making the commitment that is necessary to reach agreement and reduces incentives to invest. The analysis in this paper suggests that, in dealing with agreements reached under threats to breach, courts should replace the duress methodology with a credibility inquiry. It discusses factors that would be relevant under such inquiry. Finally, it demonstrates some of the applications of this approach in the context of leading contract modification cases.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6pn2360jpublicationoai:escholarship.org:ark:/13030/qt1dh3j8qj2011-07-03T06:10:51Zqt1dh3j8qjCorporate Law, Social Norms and Belief SystemsEisenberg, Melvin1999-03-01None availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/1dh3j8qjpublicationoai:escholarship.org:ark:/13030/qt7796m4sc2011-07-03T06:07:44Zqt7796m4scExplaining Soft LawGuzman, Andrew T.Meyer, Timothy L.2009-03-13application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/7796m4scpublicationoai:escholarship.org:ark:/13030/qt3643q82b2011-07-03T06:07:35Zqt3643q82bA New Approach to Valuing Secured Claims in BankruptcyBebchuk, Lucian A.fried, jesse m2001-04-01In many business bankruptcies in which the firm is to be preserved as a going concern, one of the most difficult and important problems is that of valuing the assets that serve as collateral for secured creditors. Valuing a secured creditor’s collateral is needed to determine the amount of the creditor’s secured claim, which in turn affects the payout that must be made to the creditor. Such valuation has generally been believed to require either litigation or bargaining among the parties, which in turn give rise to uncertainty, delay, and deviations from parties’ entitlements. This paper puts forward a new approach to valuing collateral that involves neither bargaining nor litigation. Under this approach, a market-based mechanism would determine the value of collateral in such a way that no participant in the bankruptcy would have a basis for complaining that secured creditors are either over- or under-compensated. Our approach would considerably improve the performance of business bankruptcy and could constitute an important element of any proposal for bankruptcy reform.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3643q82bpublicationoai:escholarship.org:ark:/13030/qt28h0q82w2011-07-03T06:07:30Zqt28h0q82wBeliefs, Fears, & Feelings of Guilt in Securities InvestingHuang, Peter H.2002-04-02This Article studies how beliefs about strategic behavior interact with such emotions as guilt and fear in securities investment. Most investors lack the inclination, knowledge, or time to actively manage their investments full-time. Instead, most investors hire a financial professional to manage their portfolios. There are well-known incentive and behavioral problems with such a principal-agent relationship. This Article focuses on some novel emotional consequences of the fiduciary investing relationship. This Article applies psychological games of trust and herd-like behavior to explain how the duties of loyalty and care alter beliefs about strategic behavior, emotions that depend on those beliefs, and strategic behavior itself. This Article also discusses the applicability of such models to corporate law and other fiduciary settings.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/28h0q82wpublicationoai:escholarship.org:ark:/13030/qt37k785qq2011-07-03T06:07:24Zqt37k785qqNotional Defined Contribution Pension Systems in a Stochastic Context: Design and StabilityAuerbach, Alan J.Lee, Ronald D2007-01-02Around the world, Pay-As-You-Go (PAYGO) public pension programs face serious long-term fiscal problems due primarily to actual and projected population aging, and most appear unsustainable as currently structured. Some have proposed the replacement of such plans with systems of fully funded private or personal Defined Contribution (DC) accounts, but the difficulties of transition to funded systems have limited their implementation. Recently, a new variety of public pension program known as ìNotional Defined Contributionî or ìNon-financial Defined Contributionî (NDC) has been created, with the objectives of addressing the fiscal instability of traditional plans and mimicking the haracteristics of funded DC plans while retaining PAYGO finance. Using different versions of the system recently adopted in Sweden, calibrated to US demographic and economic parameters, we evaluate the success of the NDC approach in achieving fiscal stability in a stochastic context. (In a companion paper, we will consider other aspects of the performance of NDC plans in comparison to traditional PAYGO pensions.) We find that the basic NDC scheme is effective at preventing excessive debt accumulation, but does little to prevent significant asset accumulation along many trajectories and on average. With adjustment, however, the NDC approach can be made more stable.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/37k785qqpublicationoai:escholarship.org:ark:/13030/qt26s710z82011-07-03T06:07:20Zqt26s710z8Shadow Economy, Tax Morale, Governance and Institutional Quality: A Panel AnalysisTorgler, BennoSchneider, Friedrich2007-01-22This paper analyses how governance or institutional quality and tax morale affect the shadow economy, using an international country panel and also within country data. The literature strongly emphasizes the quantitative importance of these factors to understand the level and changes of shadow economy. However, the limited number of investigations use cross-sectional country data with a relatively small number of observations, and hardly any paper has investigated tax morale and provides evidence using within country data. Using more than 25 proxies that measure governance and institutional quality we find strong support that its increase leads to a smaller shadow economy. Moreover, an increase in tax morale reduces the size of the shadow economy.Shadow economytax moralegovernance qualitygovernment interventioncorruption.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/26s710z8publicationoai:escholarship.org:ark:/13030/qt9z00731z2011-07-03T06:07:15Zqt9z00731zEnvironmental Remedies: An Incomplete Information Aggregation GameRausser, Gordon C.Simon, Leo K.Zhao, Jinhua2000-05-11The burden of resolving an environmental problem is typically shared among several responsible parties. To clarify the nature and extent of the problem, these parties must provide information to the regulator. Based on this information, the regulator will instigate an investigation of the problem, to determine an appropriate remedy. This paper investigates the incentives facing agents to promote excessive investigation and postpone remediation. Our incomplete information game-theoretic model may be of general interest to game theorists: we apply a new theorem guaranteeing pure-strategy equilibria and introduce a class of games called " aggregation games" which have interesting properties and are widely applicable.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9z00731zpublicationoai:escholarship.org:ark:/13030/qt8sv0k59c2011-07-03T06:07:11Zqt8sv0k59cSocial Captial and Relative Income Concerns: Evidence from 26 CountriesFischer, Justina A. V.Torgler, Benno2007-01-22Research evidence on the impact of relative income position on individuals’ attitudes and behaviour is sorely lacking. Therefore, using the International Social Survey Programme 1998 data from 26 countries this paper investigates the impact of relative income on 14 measurements of social capital. We find support for a considerable deleterious positional concern effect of persons below the reference income. This effect is more sizeable by far than the beneficial impact of a relative income advantage. Most of the results indicate that such an effect is non-linear. Lastly, changing the reference group (regional versus national) produces no significant differences in the results.Relative incomepositional concernssocial capitalsocial normshappinessapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/8sv0k59cpublicationoai:escholarship.org:ark:/13030/qt6sm713kb2011-07-03T06:07:05Zqt6sm713kbPower and Payouts in the Sale of StartupsFried, JesseBroughman, Brian2007-01-09Researchers have extensively analyzed VCs’ cash flow rights in venture-backed startups, including the right to be paid liquidation preferences ahead of common shareholders when the startup is sold. However, common shareholders have various ways of impeding these preference-triggering transactions, and may use their holdup power to capture part of the VCs’ preferences. Little is known about VCs’ cash flow outcomes: whether VCs receive their full liquidation preferences when startups are sold. Using a hand-collected dataset of VC-backed startups, we find that VCs frequently “carve out” part of their preferences for common shareholders. We also find that the expected value of these carveouts is larger when the common have more holdup power. For example, carveouts are more likely to occur and larger when VCs do not control the board and when the corporate law governing the firm gives common more leverage over the VCs. Our study highlights the distinct role of common shareholders in late-stage startup governance, and shows how VCs’ control rights and cash flow rights interact to affect VCs’ cash flow outcomes. Our results also suggest that the choice of corporate law in private companies matters.G24G32G33G34K12K20K22M13application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6sm713kbpublicationoai:escholarship.org:ark:/13030/qt5rz3w67b2011-07-03T06:07:00Zqt5rz3w67bAgency Costs of Venture Capitalist Control in StartupsFried, Jesse M.Ganor, Mira2006-05-08Venture capitalists investing in U.S. startups typically receive preferred stock and extensive control rights. Various explanations for each of these arrangements have been offered. However, scholars have failed to notice that these arrangements, when combined, often lead to a highly unusual corporate governance structure: one where preferred shareholders, rather than common shareholders, control the board and therefore the firm itself. The purpose of this Article is threefold: (1) to highlight the unusual governance structure of these VC-backed startups; (2) to show that preferred shareholder control can give rise to potentially large agency costs; and (3) to suggest legal reforms that may help VCs and entrepreneurs reduce these agency costs and improve corporate governance in startups.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5rz3w67bpublicationoai:escholarship.org:ark:/13030/qt15d402t12011-07-03T06:06:55Zqt15d402t1A Damage-Revelation Rationale for Coupon RemediesPolinsky, A. MitchellRubinfeld, Daniel L.2006-03-01This article studies optimal remedies in a setting in which damages vary among plaintiffs and are difficult to determine. We show that giving plaintiffs a choice between coupons to purchase units of the defendant’s product at a discount and cash — a coupon-cash remedy — is superior to cash alone. The optimal coupon-cash remedy offers a cash amount that is less than the value of the coupons to plaintiffs who suffer relatively high harm. Such a remedy induces these plaintiffs to choose coupons, and plaintiffs who suffer relatively low harm to choose cash. Sorting plaintiffs in this way leads to better deterrence because the costs borne by defendants (the cash payments and the cost of providing coupons) more closely approximate the harms that they have caused.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/15d402t1publicationoai:escholarship.org:ark:/13030/qt2w81s2772011-07-03T06:06:39Zqt2w81s277Optimal Penalties in ContractsEdlin, Aaron S.2003-06-01application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2w81s277publicationoai:escholarship.org:ark:/13030/qt20s614dt2011-07-03T06:06:34Zqt20s614dtPrice Discrimination in the Market for Corporate LawKahan, MarcelKamar, Ehud2000-03-01This Article shows how Delaware uses its power in the market for incorporations to increase its profits through price discrimination. Price discrimination entails charging different prices to different consumers according to their willingness to pay. Two features of Delaware law constitute price discrimination. First, Delaware's uniquely structured franchise tax schedule assesses a higher tax to public than to nonpublic firms and, among public firms, to larger firms and firms more likely to be involved in future acquisitions. Second, Delaware's litigation-intensive corporate law effectively price discriminates between firms according to the level of their involvement in corporate disputes. From the perspective of social welfare, price discrimination between public and nonpublic firms is likely to enhance efficiency (although the efficiency effect of franchise tax price discrimination among public firms is indeterminate). By contrast, price discrimination through litigation-intensive corporate law is likely to reduce efficiency.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/20s614dtpublicationoai:escholarship.org:ark:/13030/qt1zn810kq2011-07-03T06:06:30Zqt1zn810kqCopyright as a Rule of EvidenceLichtman, Douglas2001-06-30Not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/1zn810kqpublicationoai:escholarship.org:ark:/13030/qt5272236p2011-07-03T06:06:24Zqt5272236pWhat Statutes Mean: Positive Political Theory Perspectives on Legislation and its InterpretationRodriguez, Daniel B2004-04-01Noneapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5272236ppublicationoai:escholarship.org:ark:/13030/qt4t02053b2011-07-03T06:06:20Zqt4t02053bThe End of End-to-End: Preserving the Architecture of the Internet in the Broadband EraLemley, Mark A.Lessig, Lawrence2000-04-01application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/4t02053bpublicationoai:escholarship.org:ark:/13030/qt4650s8nz2011-07-03T06:06:14Zqt4650s8nzNew Estimates of the Budget Outlook: Plus Ca Change, Plus C'est la Meme ChoseAuerbach, Alan J.Gale, William G.Orszag, Peter R.2006-02-15application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/4650s8nzpublicationoai:escholarship.org:ark:/13030/qt5kq9x5ms2011-07-03T06:06:10Zqt5kq9x5msLiability FailureGrady, Mark F.Yahya, Moin2003-10-22Negligence liability is our most basic form of safety regulation. It creates accident prevention and, as an unavoidable incident, insurance. When the insurance becomes too unmanageable, courts have eliminated negligence liability. The result is a gap in accident prevention.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5kq9x5mspublicationoai:escholarship.org:ark:/13030/qt7vw694sk2011-07-03T06:06:05Zqt7vw694skImplementing the First Best in an Agency Relationship with Renegotiation: A CorregendumEdlin, Aaron S.Hermalin, Benjamin E.2001-09-01The insect antennal lobe is the first brain structure to process olfactory information. Like the vertebrate olfactory bulb the antennal lobe is substructured in olfactory glomeruli. In insects, glomeruli can be morphologically identified, and have characteristic olfactory response profiles. Local neurons interconnect glomeruli, and output (projection) neurons project to higher-order brain centres. The relationship between their elaborate morphology and their physiology is not understood. We recorded electrophysiologically from antennal lobe neurons, and iontophoretically injected a calcium-sensitive dye. We then measured their spatio-temporal calcium responses to a variety of odours. Finally, we confocally reconstructed the neurons, and identified the innervated glomeruli. An increase or decrease in spiking frequency corresponded to an intracellular calcium increase or decrease in the cell. While intracellular recordings generally lasted between 10 and 30 min, calcium imaging was stable for up to 2 h, allowing a more detailed physiological analysis. The responses indicate that heterogeneous local neurons get input in the glomerulus in which they branch most strongly. In many cases, the physiological response properties of the cells corresponded to the known response profile of the innervated glomerulus. In other words, the large variety of response profiles generally found when comparing antennal lobe neurons is reduced to a more predictable response profile when the innervated glomerulus is known.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/7vw694skarticleBerkeley Program in Law & Economics, Working Paper Seriesvol 190, iss 1, 21-380340-7594oai:escholarship.org:ark:/13030/qt42z3f7z02011-07-03T06:05:57Zqt42z3f7z0Lesson from Fiascos in Russian Corporate GovernanceFox, MerrittHeller, Michael2000-03-01None availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/42z3f7z0publicationoai:escholarship.org:ark:/13030/qt8nc108512011-07-03T06:05:51Zqt8nc10851The Donation RegistryCooter, Robert D.2003-11-08To redistribute income, charitable giving must supplement progressibe taxes. One person can sometimes observe another's donations to specific charities, but one person cannot observe another's total donations to all charities. Consequently, people do not have enough information to know whether each person is doing his fair share of charitable giving. In these circumstances, the social norm concerning how much people ought to give remains inchoate and redistribution is deficient. To remedy this problem, I propose various means to publicize donations, ultimately leading to a donation registry.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/8nc10851publicationoai:escholarship.org:ark:/13030/qt5jv4560j2011-07-03T06:05:46Zqt5jv4560jFederalism with Two LanguagesCooter, Robert D.2003-10-16Not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5jv4560jpublicationoai:escholarship.org:ark:/13030/qt6vn9877z2011-07-03T06:05:36Zqt6vn9877z"Third Party Contingency" contracts in settlement and litigationKirstein, RolandRickman, Neil2002-10-23We present, for the first time, a model of recent institutional developments in litigation funding across several European jurisdictions. Recognizing the financing constraints that British cost rules may impose on litigants, these new contractual arrangements combine contingency fees with third party cover for cost in the event of losing the case: we call these "Third Party Contingency" (TPC) contracts. Signing a TPC contract can make filing a suit credible and may increase settlement amounts. This does not, however, increase the likelihood of going to trial, since TPC contracts are only of mutual benefit to the plaintiff and the third party when the case settles out of court. We also find that the mere availability of TPC's may generate the above strategic effect.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6vn9877zpublicationoai:escholarship.org:ark:/13030/qt1x24r7st2011-07-03T06:05:28Zqt1x24r7stExecutive Compensation in America: Optimal Contracting or Extraction of Rents?Bebchuk, Lucian AryeFried, Jesse M.Walker, David I.2001-11-01This paper develops an account of the role and significance of rent extraction in executive compensation. Under the optimal contracting view of executive compensation, which has dominated academic research on the subject, pay arrangements are set by a board of directors that aims to maximize shareholder value by designing an optimal principal-agent contract. Under the alternative rent extraction view that we examine, the board does not operate at arm’s length; rather, executives have power to influence their own compensation, and they use their power to extract rents. As a result, executives are paid more than is optimal for shareholders and, to camouflage the extraction of rents, executive compensation might be structured sub-optimally. The presence of rent extraction, we argue, is consistent both with the processes that produce compensation schemes and with the market forces and constraints that companies face. Examining the large body of empirical work on executive compensation, we show that the picture emerging from it is largely compatible with the rent extraction view. Indeed, rent extraction, and the desire to camouflage it, can better explain many puzzling features of compensation patterns and practices. We conclude that extraction of rents might well play a significant role in U.S. executive compensation; and that the significant presence of rent extraction should be taken into account in any examination of the practice and regulation of corporate governance.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/1x24r7stpublicationoai:escholarship.org:ark:/13030/qt2kz8r3j12011-07-03T06:05:23Zqt2kz8r3j1Aligning the Interests of Lawyers and ClientsPolinsky, A. MitchellRubinfeld, Daniel L.2001-08-01The potential conflict of interest between lawyers and clients is well known. If a lawyer is paid for his time regardless of the outcome of the case,the lawyer may wish to bring the case even when it is not in the best interest of the client, may spend more hours working on the case than the client would want, and may reject a settlement when the client would be better off if it were accepted. Alternatively, if the lawyer is compensated according to the conventional contingent fee arrangement — under which he is paid a fraction of any trial award or settlement but bears all of the cost of litigation — the lawyer may have an insufficient incentive to bring the case, may spend too little time working on it if it is brought, and may encourage a settlement when the client would be better off going to trial. In this article we propose a method of compensating lawyers that overcomes the conflict of interest between the lawyer and the client. Our system is a variation of the conventional contingent fee system, but, in contrast to that system, we would have the lawyer bear only a fraction of the cost of litigation — the same fraction that the lawyer obtains of the award or settlement. We demonstrate that when the fraction of the cost that the lawyer bears equals the fraction of the award or settlement that he obtains, he will have an incentive to do exactly what a knowledgeable client would want him to do with respect to accepting the case, spending time on the case, and settling the case. Under our modified contingent fee system, a third party would compensate the lawyer for a certain fraction of his costs, in return for which the lawyer would pay that party an up-front fee. In this way, the client would not bear any costs, even if the case is lost, just as under the conventional contingent fee system.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2kz8r3j1publicationoai:escholarship.org:ark:/13030/qt3xq7p9xw2011-07-03T06:05:18Zqt3xq7p9xwThe Myth of State Competition in Corporate LawKahan, MarcelKamar, Ehud2002-04-22Not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3xq7p9xwpublicationoai:escholarship.org:ark:/13030/qt9pb7v82f2011-07-03T06:05:14Zqt9pb7v82fFlexible Citizenship for a Global SocietyFrey, Bruno S.2001-08-30States are ill equipped to meet the challenges of a globalized world. The concept of citizenship with its rights and obligations, including the allegiance owed, is too narrowly defined to exist only between individuals and a state. Today, people identify with, and pay allegiance to, many organizations beyond the state. This paper suggests that citizenship could be extended further and be possible between individuals and quasi-governmental organizations, as well as non-governmental organizations, such as churches, clubs, interest groups, functional organizations and profit firms. Due to the larger set of types of citizenship individuals could choose from, their preferences would be better fulfilled and, due to the competition for citizens induced among organizations, the efficiency of public activity would be raised.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9pb7v82fpublicationoai:escholarship.org:ark:/13030/qt444479wh2011-07-03T06:05:09Zqt444479whTax Reform in the 21st CenturyAuerbach, Alan J.2006-05-06application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/444479whpublicationoai:escholarship.org:ark:/13030/qt6wk0z35c2011-07-03T06:04:48Zqt6wk0z35cFairness, Character, and Efficiency in FirmsCooter, Robert D.Eisenberg, Melvin2000-04-01Agency problems beset firms and prompt opportunistic behavior by employees. Opportunistic behavior redistributes value, whereas cooperative behavior creates value. Firm-specific fairness norms typically promote the firm’s efficiency by increasing cooperation and decreasing opportunism. Firm-specific fairness norms best promote efficiency when supported by reputation effects and when the firm’s agents internalize the norms. People who internalize norms acquire good character. We will develop the concept of “good agent character,” by which we mean agent character that serves the firm’s profitability by embodying the firm’s fairness norms. Good agent character conveys an advantage to superiors and subordinates in forming cooperative relations with other people who can read character.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6wk0z35cpublicationoai:escholarship.org:ark:/13030/qt80r0k6422011-07-03T06:04:44Zqt80r0k642International Antitrust and the WTO: The Lesson from Intellectual PropertyGuzman, Andrew T.2000-11-07International antitrust issues have become important in current debates regarding international trade and international regulation. This Article addresses one of the central questions about international antitrust – the appropriate forum for negotiations. The Article argues that the combination of domestic antitrust policy and international trade makes a substantive multilateral agreement unlikely unless transfers are made from states that gain from such a deal to those that lose. The Article advocates bringing the issue of international antitrust within the WTO because that forum is the best suited to accommodate such transfers. The experience of efforts to negotiate an agreement in intellectual property (IP) is offered as a demonstration of the advantages offered by the WTO. Like antitrust, the realities of IP made an agreement without transfers virtually impossible. In the case of IP, the difficulty was that developing countries had little to gain from such an agreement. Once negotiations were brought within the WTO, however, an agreement was reached because developing countries were granted trade concessions in exchange for accepting the Trade Related Aspects of Intellectual Property (TRIPs) agreement. Like international IP, international antitrust needs to be negotiated in a forum that allows for transfers, making the WTO the best available forum.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/80r0k642publicationoai:escholarship.org:ark:/13030/qt6vb0q3r92011-07-03T06:04:39Zqt6vb0q3r9The Controversial Choice of Remedies to Cope with the Anti-Competitive Behavior of MicrosoftLeveque, Francois2000-10-01The remedy stage of USA vs. Microsoft Corporation has raised three main controversies: - Conduct vs. structural remedies. Certain parties (SIIA, 1999; Salop and Romaine, 1999; Lenard, 2000) asked for structural remedies, such as a break-up, whereas others (Gassée, 1999) called for restrictions on Microsoft behaviour by mandatory rules of conduct. Even among plaintiffs a disensus appeared. The states of Illinois and Ohio voiced doubt about the use of structural reliefs (Ryan and Montgomery, 2000). They proposed to test in a first step whether conduct remedies would alone be sufficient to restore competition. - Horizontal divestiture vs. full divestiture. The Department of Justice proposed that the U.S. District Court break up Microsoft horizontally by separating the operating systems business and applications business. During the remedy hearings, the District Judge, Thomas Penfield Jackson, asked the Assistant Attorney General, Joël Klein, whether an additional separation of Internet browser business would not be also appropriate. He mentioned an amici curiae brief (CCIA and SIIA, 2000) as supporting this option. In another amici curiae brief (Litan et alii, 2000) submitted to Judge Jackson, a full divestiture including the break-up of the Windows monopoly in three identical parts was recommended. - Beneficial vs. harmful effects to consumers of the operating systems/applications separation. Following the recommendations of the Antitrust Division, the District Court of Columbia ordered the horizontal separation of Microsoft. According to the Antitrust Division, such a divestiture promises to have significant benefits for competition in general and innovation in particular (US DoJ, 2000). Some columnists (Financial Times, April 29 2000) remained more skeptical pointing out that a price increase is likely to result from the replacement of one monopoly by two vertical monopolies. The paper is aimed at casting light on these controversies in using economic analysis. It is divided into 4 sections, one for each controversy, and a conclusive section. Section 1 argues that the key economic distinction to introduce amongst antitrust remedies is between economic remedies based on incentives and command-and-control remedies rather than between behavioral and structural remedies. Section 2 compares different solutions to break-up Microsoft using the maximising of the consumers’ welfare as a yardstick. It points out that the horizontal divestiture dominates the other choices only under a restrictive set of ad hoc hypotheses (e.g., the expected costs of Windows’ fragmentation is higher than the benefits provided by vertical integration). Section 3 examines to what extent the chosen remedy, that is the horizontal divestiture, is not worse than the evil it is supposed to cure. It establishes that the horizontal divestiture is welfare decreasing for consumers in several plausible circumstances (e.g., the two new entities do not compete to each other).application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6vb0q3r9publicationoai:escholarship.org:ark:/13030/qt6g74z9p52011-07-03T06:04:34Zqt6g74z9p5International Tribunals: A Rational Choice AnalysisGuzman, Andrew T.2008-04-07In well-functioning domestic legal systems, courts provide a mechanism through which commitments and obligations are enforced. A party that fails to honor its obligations can be hauled before a court and sanctioned through seizure of person or property. The international arena also has courts or, to expand the category somewhat, tribunals. These institutions, however, lack the enforcement powers of domestic courts. How, then, do they work, and how might they work better or worse? The first objective of this Article is to establish that the role of the tribunal is to promote compliance with some underlying substantive legal rule. This simple yet often overlooked point provides a metric by which to measure the effectiveness of tribunals. But a tribunal does not operate in isolation. The use of a tribunal is one way to resolve a dispute, but reliance on diplomacy and other traditional tools of international relations is another. Furthermore, even if a case is filed with a tribunal, there may be settlement prior to a ruling and, even if there is a ruling the losing party may refuse to comply. To properly understand international tribunals, then, requires consideration of the entire range of possible outcomes to a dispute, including those that do not involve formal litigation. The second goal of the Article is develop a rational choice model of dispute resolution and tribunals that takes this reality into account. The third goal is to explore, based on the above model, various features of international tribunals and identify those that increase effectiveness and those that reduce it. Finally, the article applies the analysis to help us understand two prominent tribunals, the World Trade Organization’s Appellate Body and the United Nations Human Rights Committee.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6g74z9p5publicationoai:escholarship.org:ark:/13030/qt2bn166qw2011-07-03T06:04:23Zqt2bn166qwShould Courts Deduct Non-Legal Sanctions from Damages?Cooter, Robert D,Porat, Ariel2000-12-03When legal and social norms regulate the same behavior, an act can trigger both legal and non-legal sanctions. Should courts deduct the non-legal sanction suffered by the wrongdoer from damages owed to the victim? We provide the answer for a legal system that seeks to minimize social costs. Non-legal sanctions typically harm the wrongdoer and benefit other people. In principle, courts should avoid over-deterring wrongdoers by deducting the benefit of the non-legal sanction from compensatory damages. In practice, instead of deducting the benefit of the non-legal sanction to other people, courts should deduct the burden on the wrongdoer. Deducting the burden of the non-legal sanction from compensatory damages typically improves the incentives of wrongdoers and victims. We make practical suggestions for courts to implement our proposal that would significantly reduce damages in torts and contracts.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2bn166qwpublicationoai:escholarship.org:ark:/13030/qt83c0k3wc2011-07-03T06:04:17Zqt83c0k3wcThe Virtuous Circle of Distrust: A Mechanism to Deter Bribes and Other Cooperative CrimesCooter, RobertGaroupa, Nuno2000-11-07Some crimes involve the cooperation of two or more criminals for mutual gain. Instead of deterring these crimes, the state can prevent them by creating distrust among criminals. The state should offer amnesty and a bounty to the criminal who first secures punishment of the other participant in a cooperative crime. We especially focus on bribes, which occur when someone pays an agent to violate a duty owed to the principal. To prevent bribes, the principal offers amnesty and a bounty to the debtor or agent who secures the other party’s punishment. Under certain conditions, the game’s equilibrium changes from cooperation to non-cooperation (prisoner’s dilemma), so bribes disappear.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/83c0k3wcpublicationoai:escholarship.org:ark:/13030/qt3wh5v8j92011-07-03T06:04:12Zqt3wh5v8j9The Questionable Ascent of Hadley v. BaxendaleAdler, Barry E.1999-07-01The venerable case of Hadley v. Baxendale serves as the prototype for default rules designed to penalize, and thus encourage disclosure by, an undesirable contractual counterpart. Penalty-default analysis is now widely accepted as a plausible approach to the issues presented by incomplete contracts. The ambition of this article is to challenge and refine the accepted wisdom. The article demonstrates that the structure of penalty-default theory as derived from Hadley rests on a faulty implicit premise. The premise is that damages from breach of contract are certain. In fact, damages are stochastic. Consequently, the standard penalty-default model of Hadley overlooks the potential incentive of a party to conceal information even though the party is subject to a penalty-default rule. This incentive, which is shown to exist in other contexts, may greatly complicate the evaluation of a default rule’s efficacy. Thus, a lawmaker may have reason to be skeptical of her ability to identify an efficient penalty-default rule, the seeming simplicity of Hadley notwithstanding.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3wh5v8j9publicationoai:escholarship.org:ark:/13030/qt5np4s6qq2011-07-03T06:04:07Zqt5np4s6qqCorruption and Regulatory StructuresOgus, Anthony2003-08-01Not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5np4s6qqpublicationoai:escholarship.org:ark:/13030/qt6179d3nw2011-07-03T06:04:02Zqt6179d3nwThe Accident Externality from DrivingEdlin, Aaron S.Karaca-Mandic, Pinar2007-01-11We estimate auto accident externalities (more specifically insurance externalities) using panel data on state-average insurance premiums and loss costs. Externalities appear to be substantial in traffic-dense states: in California, for example, we find that the increase in traffic density from a typical additional driver increases total statewide insurance costs of other drivers by $1,725–$3,239 per year, depending on the model. High–traffic density states have large economically and statistically significant externalities in all specifications we check. In contrast, the accident externality per driver in low-traffic states appears quite small. On balance, accident externalities are so large that a correcting Pigouvian tax could raise $66 billion annually in California alone, more than all existing California state taxes during our study period, and over $220 billion per year nationally.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6179d3nwpublicationoai:escholarship.org:ark:/13030/qt13d1h8352011-07-03T06:03:57Zqt13d1h835The Pricing of Academic JournalsMcCabe, Mark J.Nevo, AvivRubinfeld, Daniel L.2006-11-17In this paper we investigate the claim that academic journals are too expensive. We estimate library demand for academic journals and ask if short run profit maximization by publishers can explain observed prices. Libraries purchase a portfolio of journals so to estimate demand we extend the standard discrete choice model, and estimation methods, to allow for a choice consisting of a subset of a larger set of journals. Unlike the discrete choice model, the model allows for both positive and negative cross-price effects. We estimate the model using library holdings data and find that on average prices in the industry are lower than what static pricing models predict. Furthermore, we simulate the effects of mergers and find that the likely unilateral effect of a merger is to lower prices.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/13d1h835publicationoai:escholarship.org:ark:/13030/qt9cm5h0qr2011-07-03T06:03:53Zqt9cm5h0qrCharity, Publicity, and the Donation RegistryCooter, Robert DBroughman, Brian2005-08-11Many Americans donate little or nothing to charity. Our social environment is the cause, not human nature. Experiments show that people are generous when their contributions are observable by others. Taking advantage of this fact, we propose a small policy change to increase transparency and elicit generosity. Specifically, we propose that the IRS establish a voluntary donation registry to publicize the proportion of income that individuals donate to charity. Although participation would be voluntary, it would be subject to social pressure. The disclosure created by the registry should significantly increase funds for social goods without increasing taxes.charitycharitiesdonationscontributionspublicityinformationdonation registrysocial normssocial goods.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9cm5h0qrpublicationoai:escholarship.org:ark:/13030/qt9xm920bv2011-07-03T06:03:47Zqt9xm920bvChaos, Direct Democracy and the Single Subject RuleCooter, Robert D.Gilbert, Michael D.2006-06-17application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9xm920bvpublicationoai:escholarship.org:ark:/13030/qt5mq9x0rs2011-07-03T06:03:39Zqt5mq9x0rsAdapt or Optimize? The Psychology and Economics of Rules of EvidenceCooter, Robert D2005-12-01In civil disputes, the plaintiff must prove his case by the preponderance of the evidence. To reach this standard, the plaintiff accumulates evidence by combining facts. I compare two models of this process. Decision makers can adapt their behavior for improved results, as assumed in some psychological models. Adaptive models predict that court practice will allow the plaintiff to combine facts according to relatively simple rules. Alternatively, decision makers can optimize their behavior for best results, as assumed in most economic models. Optimization models predict that court practice will require the plaintiff to combine facts in ways that conform to the laws of probability theory. The two predictions contradict each other when simple, adaptive rules violate the laws of probability theory. I show that actual practice in a California court allows the plaintiff to combine facts according to relatively simple rules that sometimes violate the laws of probability theory. Adaptation is, consequently, a better descriptive theory than optimization. Procedures that violate the laws of probability theory, however, are vulnerable to withering criticism. Given that trials proceed with deliberate speed under expert guidance, suboptimal adaptations are irrational. Optimization, consequently, is a better normative theory than adaptation.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5mq9x0rspublicationoai:escholarship.org:ark:/13030/qt2wc1p9pw2011-07-03T06:03:33Zqt2wc1p9pwForward Discount Bias, Nalebuff's Envelope Puzzle, and the Siegel Paradox in Foreign ExchangeEdlin, Aaron S.2002-06-01The bias of forward exchange rates as a predictor of future spot rates is typically explained or decomposed as (1) a risk premium and (2) a convexity term which accounts for the fact that, when there is stochastic inflation, nominal gains from forward currency speculation are higher than real ones and correspondingly losses are smaller. We use Nalebuff's envelope puzzle to explain a third source of bias which involves real profits from foreign exchange speculation. Both the "real profit" bias and stochastic inflation bias arise from convexity of g(s)=1/s and so derive from Jensen's inequality as observed by Siegel (1972).application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2wc1p9pwpublicationoai:escholarship.org:ark:/13030/qt41j4z7sc2011-07-03T06:03:28Zqt41j4z7scAccommodation Mandates and Antidiscrimination LawJolls, Christine2000-11-01Legal requirements that employers provide specified benefits, such as workers' compensation and family leave, to their workers as a whole are virtually omnipresent in modern employment law and date back to the early part of the twentieth century. Newer mandates, however, often are directed to discrete groups of workers, such as the disabled. Since these mandates, intended to accommodate the unique needs of a group of workers, regulate a market relationship--that of employer and employee--an obvious set of questions involves how such mandates affect the wages and employment levels of employees. While there is an accepted economic framework for analyzing the effects of mandates directed to workers as a whole, accommodation mandates raise distinct issues. Central among these is the way in which antidiscrimination law interacts with them. While many commentators suggest that accommodation mandates are fundamentally distinct from antidiscrimination law (so that, for example, a requirement to provide special accommodation for disabled workers is fundamentally distinct from a requirement not to "discriminate against" these workers), this Article argues that the economic analysis of the two forms of legal intervention supports the view that they are similar rather than distinct.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/41j4z7scpublicationoai:escholarship.org:ark:/13030/qt2ch8w0t42011-07-03T06:03:19Zqt2ch8w0t4The Cost of Compensation: Revisiting Contract Remedies in Repeat Play SettingsBen-Shahar, Omri1999-09-29Legal rights may erode as a result of past, uncontested, breach. In light of ongoing violations, the rightholder's enforcement may result in the loss of the entitlement. The doctrines, of course, of performance in contract law and adverse possession in property law are prominent examples of this widespread erosion phenomenon. In analyzing the effects of such laws, the Article confronts two conflicting intuitions. On the one hand, the "license" to continue breach prospectively encourages opportunism. On the other hand, the risk of erosion may reinforce the rightholder's motivation to take anti-erosion measures, bolstering the credibility of the threat to enforce, thus better preserving the entitlement. The article proves that these two effects of erosion rules always balance out. The same amount of value will be extracted from the right holder irrespective of the law's erosion doctrine. The article also demonstrates the limits of this "irrelevance" claim and the factors that may lead to its collapse. It applies the analysis to offer new perspectives on various prominent legal rules.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2ch8w0t4publicationoai:escholarship.org:ark:/13030/qt1fk9b8g82011-07-03T06:03:02Zqt1fk9b8g8Lesson from Fiascos in Russian Corporate GovernanceFox, Merritt B.Heller, Michael A.1999-09-29Noneapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/1fk9b8g8publicationoai:escholarship.org:ark:/13030/qt5st0133z2011-07-03T06:02:57Zqt5st0133zCorporate Law's Current-Owner BiasFried, Jesse M.2006-06-02Academics studying public firms' choice of governance arrangements have largely assumed that stock prices accurately reflect the effect of these arrange¬ments on firm value. As a result, firms going public generally have an incentive to seek arrangements that maximize shareholder value, and states seeking incor¬porations have an incentive to offer such arrangements. Oddly, this literature has ignored the considerable evidence that stock prices are frequently "noisy" ¬deviating significantly from fundamental value. This Article systematically ana¬lyzes the effect of noisy stock prices on firms' choice of governance arrangements. It demonstrates that stock price noisiness leads firms to seek - and states to of¬fer - arrangements with a current-owner bias - that is, arrangements favoring both insiders and current public shareholders at the expense of future public shareholders and long-term corporate value. Current-owner bias can explain many features of (and gaps in) state corporate law as well as the governance ar¬rangements chosen by public firms. The problem of current-owner bias also has important normative implications for the desirability of the market for corporate charters, the proper relationship between mandatory federal securities regula¬tion and state corporate law, and the wisdom of recent proposals to "empower" firms to choose their own securities regime.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5st0133zpublicationoai:escholarship.org:ark:/13030/qt9z88z4th2011-07-03T06:02:44Zqt9z88z4thDoes Confidential Proxy Voting Matter?Romano, Roberta2002-09-01Confidential voting in corporate proxies is a principal recommendation in activist institutional investors' guidelines for corproate governance reforms. This paper examins the impact of the adoption of confidential corporate proxy voting on proposal outcoms through a panel data set of shareholder and management proposals submitted from 1986-98 to the 130 firms that adopted confidential voting in those years. Institutional investors promoting confidential voting maintain that private sector institutions have conflicts of interest that prevent them from voting against management even though to do so would maximize the value of their shares; they contend that anonymous ballots will enable such investors to vote their true interest, and thereby anticipate reduced support for management proposals and increased support for shareholder proposals. The paper finds, contrary to confidential voting advocates' expectations, that adoption of confidential voting has no significant effect on voting outcomes. voting outcomes are best explained by proposal type; neither institutional nor insider ownership, nor prior performance, significantly affect the level of support a proposal receives. Moreover, the conflict of interest hypothesis is not supported in the data, as private institutional holdings post-adoption of the voting reform do not affect the support level for proposals. Confidential voting also does not affect firm's stock performance. The results suggest that institutional investor initiatives directed at confidential voting are not a fruitful allocation of investors' resources.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9z88z4thpublicationoai:escholarship.org:ark:/13030/qt05s924dk2011-07-03T06:02:38Zqt05s924dkA Damage-Revelation Rationale for Coupon RemediesPolinsky, A. MitchellRubinfeld, Daniel L2007-10-01This article studies optimal remedies in a setting in which damages vary among plaintiffs and are difficult to determine. We show that giving plaintiffs a choice between coupons to purchase units of the defendant's product at a discount and cash - a coupon-cash remedy - is superior to cash alone. The optimal coupon-cash remedy offers a cash amount that is less than the value of the coupons to plaintiffs who suffer relatively high harm. Such a remedy induces these plaintiffs to choose coupons, and plaintiffs who suffer relatively low harm to choose cash. Sorting plaintiffs in this way leads to better deterrence because the costs borne by defendants (the cash payments and the cost of providing coupons) more closely approximate the harms that they have caused.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/05s924dkpublicationoai:escholarship.org:ark:/13030/qt9j50z2gz2011-07-02T23:29:54Zqt9j50z2gzThe Political Economy of Intellectual Property TreatiesScotchmer, Suzanne2003-01-02Intellectual property treaties have two main types of provisions: national treatment of foreign inventors, and harmonization of protections. I address the positive question of when countries would want to treat foreign inventors the same as domestic inventors, and how their incentive to do so depends on reciprocity. I also investigate an equlibrium in which regional policy makers choose IP policies that serve regional interests, conditional on each other's policies, and investigate the degree to which "harmonization" can redress the resulting inefficiencies.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9j50z2gzpublicationoai:escholarship.org:ark:/13030/qt81g9f6d82011-07-02T23:29:44Zqt81g9f6d8Why Are Delaware and New York Reorganizations Failing?LoPucki, Lynn M.Doherty, Joseph W.2002-09-13Not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/81g9f6d8publicationoai:escholarship.org:ark:/13030/qt9gn734nz2011-07-02T23:29:36Zqt9gn734nzRisk Taking and Gender in HierarchiesScotchmer, Suzanne2009-05-01In a labor market hierarchy, promotions are affected by the noisiness of information about the candidates. I study the hypothesis that males are more risk taking than females, and its implications for rates of promotion and abilities of survivors. I de…fine promotion hierarchies with and without memory, where memory means that promotion depends on the entire history of success. In both types of hierarchies, the surviving risk takers will have lower average ability whenever they have a higher survival rate. Further, even if more risk takers than non risk takers are promoted in the beginning of the hierarchy, that will be reversed over time. The risk takers will eventually have a lower survival rate, but higher ability. As a consequence of these differences, the various requirements of employment law cannot simultaneously be satisfi…ed. Further, if promotion standards are chosen to maximize profit, the standards will reflect gender in ways that are difficult to distinguish from discriminatory intent.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9gn734nzpublicationoai:escholarship.org:ark:/13030/qt2x8658zd2011-07-02T23:29:32Zqt2x8658zdManagers' Fiduciary Duty Upon the Firm's Insolvency: Accounting for Performance CreditorsChaver, AlonFried, Jesse M.2002-10-16Corporate managers generally owe a fiduciary duty exclusively to shareholders --a duty interpreted as requiring the managers to maximize shareholder value. When the firm is solvent, the duty to maximize shareholder value tends to give managers an incentive to act efficiently that is, in a way that increases total value. But when the firm is insolvent, this duty might give managers an incentive to run the firm in a way that reduces the value of debt more than it increases the value of equity and, therefore, is inefficient. The leading view among corporate law scholars is that an insolvent firm's managers should therefore maximize the sum of the values of all financial claims both those held by shareholders and those held by creditors against the firm. This Article points out a previously unrecognized problem with this "financial value maximization" ("FVM") approach. What FVM proponents have overlooked is that an insolvent firm is likely to have two types of creditors: (1) "'payment creditors" parties owed cash, who hold financial claims against the firm; and (2) "performance creditors" parties owed contractual performance, who hold claims for performance against the firm. The FVM approach requires managers to take into account the effect of their actions on one type of creditor payment creditors but not on the other performance creditors. We show that FVM's failure to account for performance creditors might cause an insolvent firm's managers to act in a way that harms performance creditors more than it benefits those with financial claims against the firm and, therefore, is inefficient. Our analysis indicates that an insolvent firm's managers should be obligated to maximize the sum of the values of all claims against the firm, both claims for cash and claims for performance. This approach, we show, would eliminate the distortions associated with the FVM approach and actually make shareholders better off ex ante.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2x8658zdpublicationoai:escholarship.org:ark:/13030/qt8h8452622011-07-02T23:29:26Zqt8h845262On the Performance and Use of Government Revenue ForecastsAuerbach, Alan Jeffrey1999-07-20Noneapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/8h845262publicationoai:escholarship.org:ark:/13030/qt34v756hb2011-07-02T23:29:22Zqt34v756hbThe Determinants of Political Discussion: How important are audit courts and local autonomy?Torgler, BennoSchaltegger, Christoph A2006-12-13The intention of this paper is to analyse how audit courts and local autonomy affect political discussion, controlling in a multivariate analysis for a broad variety of potential factors focusing on Switzerland, due to its variety of audit court competences and its strong decentralised structure. With data from the World Values Survey 1995-1997 (Swiss data 1996) evidence has been found that a higher audit court competence and a lower level of centralization is correlated with a higher level of political discussion. Thus, the results in Switzerland suggest that such institutions help improve citizens’ willingness to acquire information costs and discuss political matters.D720H410application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/34v756hbpublicationoai:escholarship.org:ark:/13030/qt35h389gd2011-07-02T23:27:52Zqt35h389gdCorruption and Optimal Law EnforcementPolinsky, Mitchell1999-04-29This article analyzes corruption of law enforcement agents: payment of bribes to agents so that they will not report violations. Corruption dilutes deterrence because bribe payments are less than sanctions. The statemay not be able to offset this effect of bribery by raising sanctions for the underlying offense. Thus, it may be optimal to expend resources to detect and penalize corruption. At the optimum, however, corruption may not be deterred. Nonetheless, it may be desirable to attempt to control corruption in order to raise the offender's costs - the sum of the bribe payment and the expected sanction for bribery - and thereby increase deterrence of the underlying violation.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/35h389gdpublicationoai:escholarship.org:ark:/13030/qt6239g0gb2011-07-02T23:27:32Zqt6239g0gbFederalism and South Africa's Democratic Bargain: The Zuma ChallengeInman, Robert P.Rubinfeld, Daniel2009-06-08South Africa’s transition from apartheid to democracy stands as one of the past century’s most important political events. The major hurdle to the transition was for the poor majority ANC to provide a credible promise not to exploit the full economic resources of the then ruling economic elite. The new constitution adopted a form of federal governance that has the potential to provide such protections by specifying an annual policy game where the new majority and the minority elite each control one policy instrument of importance to the other. Provided the majority is sufficiently patient and not “too demanding” in their preferences for redistribution the game has a stable equilibrium with less than maximal redistributive taxation. Our analysis makes these restrictions on preferences precise. The new, more radical ANC and the Zuma presidency challenge this equilibrium.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6239g0gbpublicationoai:escholarship.org:ark:/13030/qt9bc674vm2011-07-02T22:54:01Zqt9bc674vmProperty, Contract, and Verifiability: Understanding the Law's Restrictions on Divided RightsHansmann, Henry2001-07-01application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9bc674vmpublicationoai:escholarship.org:ark:/13030/qt5746q7pj2011-07-02T22:53:57Zqt5746q7pjCorporate law and Residual ClaimantsBlack, Bernard1999-03-01Common shareholders are not the only important residual claimants on a firm's income. Instead, other claimants, including employees,creditors, preferred shareholders, option holders, suppliers, customers, and the government (as tax collector) also often gain substatially whenthe firm does well, and suffer when the firm does badly. The conventional contractarian explanation for why only common shareholders vote - thatthey are the firm's principal residual claimants - thus fails to fit the facts.I propose a refraiming of the question - why do only common shareholders vote - as several related questions. In a world where commonshareholders, employees, creditors, preferred shareholders, and others are all important residual claimants, why do common shareholdersreceive voting control rights, some creditors receive default-based and nonpayment-based control rights, other creditors receive onlynonpayment-based control rights, preferred shareholders receive weak, situation-limited voting rights, and employees, suppliers, customers,and the government receive no formal control rights (unless they happen to also own common shares)?In answering these interrelated questions, the emphasis shifts from explaining why residual claimants receive control rights to explaining whythey often do not. Why are residual interests so much more widely distributed than formal control rights? Why do employees, suppliers,customers, and the government receive no formal control rights even though they are often major residual claimants? Why do preferredshareholders receive voting rights that are almost uselessly weak? Why do trade creditors receive only nonpayment rights while banks receivestronger default rights, when standard contractarian theory - in which formal control flows from residual interest - would predict the oppositeoutcome? The article sketches some possible approaches to answering these questions.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5746q7pjpublicationoai:escholarship.org:ark:/13030/qt6g6118kk2011-07-02T22:53:52Zqt6g6118kkProxy Issue Proposals: Impact of the 1992 Proxy SEC Proxy ReformsChoi, Stephen J.2000-01-01This article assesses the impact of the 1992 SEC reforms that enhanced the ability of shareholders to communicate during a proxy contest. Utilizing a sample of 361 share-holder-sponsored corporate governance issue proposals from 1991 to 1995, the article finds that the mean percentage of total outstanding votes cast in favor of an issue proposal declined significantly post-reform. As explanation, the article furnishes evidence that certain sponsors interested in their own private agenda rather than general shareholder welfare exploited more fully the proxy mechanism post-reform; controlling for the com-position of sponsors, the proxy reforms generated no significant change in the for-vote outcome of issue proposals. The article concludes instead that the reforms resulted in a shift in the composition of issue proposals targets toward companies relatively less vul-nerable to such proposals pre-reform.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6g6118kkpublicationoai:escholarship.org:ark:/13030/qt7h38w3072011-07-02T22:53:41Zqt7h38w307Punitive Damages, Social Norms, and Economic AnalysisCooter, Robert D.1999-02-01Law and morality forbid acts that cause uncompensable harms or create unreasonable risks. When people intentionally commit such acts, courts express anger and indignation at the wrongdoer through speech and punishment. In a system of social norms with multiple equilibria, expressions of emotion signal commitment and coordinate expectations. In a system of social norms with a unique, stable equilibrium, legal sactions deter marginally. Social norms, however, provide a better guide to the need for punitive damages than to their extent. Courts make a serious error in asking jurors to assign punitive damages without providing detailed instructions on their computation. The court in a typical case should impose the minimum punishment required to deter wrongdoing.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/7h38w307publicationoai:escholarship.org:ark:/13030/qt8674f59q2011-07-02T22:53:36Zqt8674f59qThe Questionable Empirical Basis of Article 2's Incorporation Approach: A Preliminary StudyBernstein, Lisa E.1999-01-20Note availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/8674f59qpublicationoai:escholarship.org:ark:/13030/qt5m48w44j2011-07-02T22:53:17Zqt5m48w44jKeeping Imports Safe: A Proposal for Discriminatory Regulation of International TradeBamberger, Kenneth a.Guzman, Andrew T.2008-04-07The benefits of overseas outsourcing have come at a cost. Americans enjoy unprecedented levels of safety and security in the domestically-produced goods they use, food and drugs they ingest, and services they employ. Yet as U.S. firms increase the efficiency of their production, become more competitive globally, and offer better price-quality combinations to their customers by contracting with foreign companies for the production of goods and the provision of services, the mix of economic, legal, and societal forces that serve to protect consumers changes. Widespread revelations of Chinese-manufactured toxic toys and toothpaste, tainted food and drugs from abroad, and the failure of foreign call centers to protect the privacy of U.S. consumer data all illustrate the challenge for domestic governance. Though international trade in goods and services provides clear economic benefits, it can also frustrate consumer protection efforts. This paper provides a conceptual framework for understanding the mix of regulatory elements that govern domestic production of goods and services, and for understanding the ways in which international trade changes that mix. Specifically, it distinguishes between two types of domestic regulation—the first targeting the process by which goods are produced and services provided, and the second mandating particular outcomes. Foreign production disables the first type of regulation and weakens the second. Protecting domestic consumers in a globalized market, then, will frequently require the development of “substitutes” – including regulation by foreign governments and private regulators — for domestic forms of governance that are ineffective abroad. We propose a novel and necessary solution for addressing the threat posed by the foreign production of goods and provision of services to consumer welfare. Specifically, we make the case that the best “substitute” for domestic regulation will often be oversight of safety issues by U.S. partners in global trade. To provide incentives to domestic firms U.S. regulators should make those firms legally accountable for harmful products that make it to the United States Furthermore, they regulations should discriminate between domestic and foreign activity in regulation requiring safe outcomes, imposing higher penalties for violations of safety norms when production has taken place abroad.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5m48w44jpublicationoai:escholarship.org:ark:/13030/qt2nt4k6vj2011-07-02T22:53:12Zqt2nt4k6vjDividend Taxes and Firm Valuation: New EvidenceAuerbach, Alan J.Hassett, Kevin A.2006-01-02application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2nt4k6vjpublicationoai:escholarship.org:ark:/13030/qt8x6082cn2011-07-02T22:53:03Zqt8x6082cnInformed Trading and False Signaling with Open Market RepurchasesFried, Jesse M.2005-10-01Public companies in the United States and elsewhere increasingly use open market stock buybacks, rather than dividends, to distribute cash to shareholders. Academic commentators have emphasized the possible benefits of such repurchases for shareholders. However, little attention has been paid to their potential drawbacks. This Article explains that managers currently are able to use open market repurchases and misleading repurchase announcements to enrich themselves at public shareholders’ expense. Managers, aware their stock is underpriced, frequently use repurchases to indirectly buy stock for themselves at a bargain price. Managers have also been able to boost stock prices by announcing repurchase programs they did not intend to execute, perhaps to unload their own shares at a high price. Such bargain repurchases and inflated-price sales systematically transfer significant amounts of value from one set of shareholders (public investors) to another (managers). Low-price buybacks are also likely to reduce aggregate shareholder value by distorting managers’ payout and investment decisions, further reducing public shareholder returns. The Article concludes by proposing a new approach to regulating open market repurchases: requiring managers to disclose specific details of the firm’s buy orders in advance. This pre-repurchase disclosure rule would undermine managers’ ability to use repur- chases for informed trading and false signaling, thereby reducing the resulting distortions and costs to shareholders. Moreover, it would achieve these objectives without eroding any of the potential benefits of repurchases. Previously circulated under the title “Share Repurchases and Managerial Opportunism”.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/8x6082cnpublicationoai:escholarship.org:ark:/13030/qt6943s2kd2011-07-02T22:52:57Zqt6943s2kdThe Deadweight Loss of Coupon Remedies for Price OverchargesPolinsky, A. MitchellRubinfeld, Daniel L.2006-10-01Consumers injured by price overcharges often are awarded coupons that can be used for a limited period of time to purchase the good at a price below that which prevails after the overcharge has been eliminated. Coupon remedies cause a deadweight loss by inducing excessive consumption by consumers with relatively low demand during the remedy period. The magnitude of the loss can be comparable to that caused by the price overcharge. As demand variability goes to zero, the deadweight loss from coupon remedies goes to zero. Eliminating the expiration date for the use of coupons does not eliminate the loss.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6943s2kdpublicationoai:escholarship.org:ark:/13030/qt7qp9q1js2011-07-02T22:52:53Zqt7qp9q1jsBeyond Outcomes: Measuring Procedural UtilityFrey, Bruno S.Stutzer, Alois2002-04-29People not only obtain utility from actual outcomes but also from the conditions which lead to these outcomes. Procedural utility and outcome utility and outcome utility can be distinguished and empirically measured. People gain procedural utility from participating in the political decision-making process itself, irrespective of the outcome. Nationals enjoy both outcome and process utility, while foreigners are excluded from political decision-making and therefore cannot enjoy the corresponding procedural utility. Utility is measured by individuals' reported subjective well-being. We find that participation rights provide more procedural utility in terms of a feeling of self-determination and influence than actual participation.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/7qp9q1jspublicationoai:escholarship.org:ark:/13030/qt3jq4m7tj2011-07-02T22:52:48Zqt3jq4m7tjContracts in CyberspaceFriedman, David2000-05-04application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3jq4m7tjpublicationoai:escholarship.org:ark:/13030/qt36h9c7gq2011-07-02T22:52:44Zqt36h9c7gqRegulating Investors Not Issuers: A Market Based ProposalChoi, Stephen J.2000-03-01The present securities regulatory regime in the United States focuses on the protection investors. Investor protection, in turn, leads to a robust capital market. The federal government accomplishes its goal of investor protection through the registration and direct regulatory control of issuers, intermediaries, and self-regulatory organizations in the securities markets. The Article contends that this regulatory approach is ill advised. Rather, the Article argues that regulators should instead regulate investors. Al-though against current wisdom, a securities regime that regulated investors would allow regulators to take a more market-driven approach toward in-vestor protection, resulting in a less paternalistic regime. For those inves-tors with good information on issuers in the market, for example, no mandatory regulations are necessary. Rather investors will contract for desired protections; those market participants failing to provide valued protections will receive less for their securities or services. As a result, market participants will voluntarily provide desired protections. The pa-per, therefore, proposes to classify investors based on their informational resources. Such classification frees those investors able to protect them-selves to engage in a wide variety of investments while allowing regulators to focus their resources on investors less well equipped.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/36h9c7gqpublicationoai:escholarship.org:ark:/13030/qt9pw748fm2011-07-02T22:52:26Zqt9pw748fmContracts in CyberspaceFriedman, David2001-06-01Not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9pw748fmpublicationoai:escholarship.org:ark:/13030/qt6331x6vz2011-07-02T22:52:21Zqt6331x6vzWith or Against the People? The Impact of a Bottom-Up Approach on Tax Morale and the Shadow EconomyTorgler, BennoSchneider, FriedrichSchaltegger, Christoph A.2007-01-23Policymakers often propose strict enforcement strategies to fight the shadow economy and to increase tax morale. However, there is also a bottom-up approach: decentralizing the political power to those who are close to the problems and give them a direct political say. This paper analyses the impact of direct democracy and local autonomy on tax morale and the size of the shadow economy. We use two different data sets on tax morale at the individual level (World Values Survey and International Social Survey Programme), and macro data of the size of the shadow economy to systematically analyse the effects of institutions in Switzerland, a country where participation rights and the degree of federalism vary across different cantons. The findings suggest that direct democratic rights and local autonomy, have a significantly positive effect on tax morale and the size of the shadow economy.Tax MoraleShadow EconomyTax ComplianceTax EvasionDirect DemocracyLocal Autonomyapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6331x6vzpublicationoai:escholarship.org:ark:/13030/qt3xr1v1x22011-07-02T22:51:32Zqt3xr1v1x2Do Good Laws Make Good Citizens? An Economic Analysis of Internalizing Legal ValuesCooter, Robert2000-04-01How important is the internalization of values by citizens to the effectiveness of the state? Civic acts by citizens help the state to overcome potentially crippling agency problems. Law influences the behavior of citizens through expression, deterrence, and internalization. Distinguishing these effects shows the importance of each, and also shows why the state can express and deter more easily than it can induce citizens to internalize values. In a rational, self-interested theory of the internalization of values, people change their preferences to increase their opportunities for cooperation with others. Since officials have remote relationships with citizens in modern states, the state lacks the information needed to reward virtuous citizens. Instead of promoting civic virtue directly, the state must rely on families, friends, and colleagues to encourage civic virtue. To achieve this goal, the state must first align law with the social norms that facilitate private cooperation.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3xr1v1x2publicationoai:escholarship.org:ark:/13030/qt65g3f4sz2011-07-02T22:51:28Zqt65g3f4szUsing Inside Information to Abstain from TradingFried, Jesse M.2002-10-16Rule 10b 5 of the Securities Exchange Act of 1934, the primary instrument for regulating insider trading, prohibits insiders from trading on material inside information. However, Rule 10b 5 does not prohibit insiders from using inside information to abstain from trading. For example, a CEO who learns that good news will emerge shortly is permitted to postpone an intended sale until after the good news has emerged and boosted the stock price. Because of this "abstention problem," legal commentators both those opposed to Rule 10b 5 and those favoring it have concluded that even when insiders are prevented from trading on inside information, they still retain an unerodable advantage over public shareholders. This paper shows that, contrary to the received wisdom, insiders who are prevented from trading while in possession of inside information cannot out perform public shareholders in their trading even if they are free to use such information to abstain from trading. In fact, insiders who could neither trade nor abstain while in possession of inside information would be systematically worse off than public shareholders. After Examining the distributional effects of insider abstention, the paper considers the efficiency effects of insider abstention namely, its effect on managerial incentives and the cost of capital. The paper explains that while insider trading has the potential to distort managerial incentives and increase the cost of capital, insider abstention does not. The paper concludes by examining the implications of the analysis for various issues in insider trading regulation including the long standing "use vs. possession" debate under Rule 10b 5 and Rule 10b5 1(c), the SEC regulation that provides a safe harbor from Rule 10b 5 liability.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/65g3f4szpublicationoai:escholarship.org:ark:/13030/qt3t30h66q2011-07-02T22:50:36Zqt3t30h66qA Christmas WarningEdlin, Aaron2007-12-22Microsoft continues to profit at its users expense by creating incompatibilities. Think twice before asking Santa for a new Windows machine with Vista and Office 2007.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3t30h66qpublicationoai:escholarship.org:ark:/13030/qt9q85f6qz2011-07-02T22:50:32Zqt9q85f6qzThe Choice between Income and Consumption Taxes: A PrimerAuerbach, Alan J.2006-05-06application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9q85f6qzpublicationoai:escholarship.org:ark:/13030/qt90v904062011-07-02T22:50:27Zqt90v90406The Future of Capital Income TaxationAuerbach, Alan J.2006-09-04application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/90v90406publicationoai:escholarship.org:ark:/13030/qt4437v1xw2011-07-02T22:50:04Zqt4437v1xwMerger Analysis and the Treatment of Uncertainty: Should We Expect Better?Shelanski, Howard AKatz, Michael L.2005-10-19Life is uncertain. So is merger analysis. There is a well-developed set of tools to deal with decision making under uncertainty. Experience suggests that the federal antitrust agencies and the courts have yet to take full advantage of those tools. This chapter suggests ways that decision theory could be applied to merger analysis to improve enforcement and its impacts on consumer welfare.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/4437v1xwpublicationoai:escholarship.org:ark:/13030/qt98x711qg2011-07-02T22:49:58Zqt98x711qgTotal Liability for Excessive HarmCooter, Robert D.Porat, Ariel2005-08-26The harm that each individual causes others is unverifiable in some circumstances where the total harm caused by everyone is verifiable. For example, the environmental agency can often measure the total harm caused by pollution much easier than it can measure the harm caused by each individual polluter. In these circumstances, implementing the usual liability rules or externality taxes is impossible. We propose a novel solution: Hold each participant in the activity responsible for all of the excessive harm that everyone causes. By “excessive harm” we mean the difference between the total harm caused by all injurers and the optimal total harm. We call this rule “total liability for excessive harm.” We show that total liability for excessive harm creates incentives for efficient precaution and activity level. Consequently, actual harm is not excessive and actual liability is nil. For example, the environmental agency can set a target for clean air and announce that each factory is liable for pollution by all factories that exceeds the target. Since the liability rule causes the factories to hit the target, they pay no damages. Thus the environmental agency gains control over emissions without having to monitor individual polluters, and the polluters do not have to pay damages or conform to bureaucratic regulations.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/98x711qgpublicationoai:escholarship.org:ark:/13030/qt4hd374nq2011-07-02T22:49:53Zqt4hd374nqLaw, Information, and the Poverty of NationsCooter, Robert D.2005-02-10Sustained growth occurs in developing nations through improvements in markets and organizations. These entrepreneurial innovation resembles a biological mutation that is unpredictable before it occurs and understandable afterwards. It is unpredictable because it begins with the innovator possessing private information by which he earns extraordinary profits. It is understandable because its ends with the public figuring out the innovation and profits approaching the ordinary rate of return. These characteristics of innovation have important consequences for law and policy to foster economic growth. Specifically, government officials who rely on public information cannot predict which firms or industries will experience rapid growth. Consequently, industrial policies that promote growth are unlikely to succeed. Proponents of industrial policy today make the same mistake as the mercantilists whose interventions Adam Smith attacked as a cause of national poverty. In contrast, secure property and contract rights, and effective business law (especially the laws regulating financial markets), create conditions under which competition naturally produces entrepreneurial innovation and nations become rich.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/4hd374nqpublicationoai:escholarship.org:ark:/13030/qt92s8h65w2011-07-02T22:49:47Zqt92s8h65wStopping Above-Cost Predatory PricingEdlin, Aaron S.2001-12-11application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/92s8h65wpublicationoai:escholarship.org:ark:/13030/qt74m8n14z2011-07-02T22:48:46Zqt74m8n14zInsider Signaling and Insider Trading with Repurchase Tender OffersFried, Jesse M2000-03-01Cash distributed to public shareholders is distributed through three mechanisms: dividends, open market repurchases (OMRs), and repurchase tender offers (RTOs). The leading explanation for why a corporation would distribute cash through an RTO rather than an OMR or a dividend is the "signaling theory"-that managers use RTOs to signal that the stock is underpriced. The Article has three main purposes: (1) to challenge the signaling theory, by exposing a flaw in one of its key assumptions and presenting empirical data suggesting that the theory cannot account for most RTOs; (2) to show that the same empirical data are consistent with insiders using RTOs to engage in insider trading with public shareholders; and (3) to propose that insiders be (a) required to disclose their tendering decision before the close of the RTO and (b) forbidden from selling stock outside of the RTO until six months after the announcement date. The Article explains how this "disclose/delay" rule would substantially reduce insiders' ability to use RTOs for insider trading, without interfering with the use of RTOs for any other purpose (including signaling).application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/74m8n14zpublicationoai:escholarship.org:ark:/13030/qt53m6v36j2011-07-02T22:48:34Zqt53m6v36jThe Law and Economics of Internet NormsLemley, Mark1999-03-12Private ordering is in vogue in legal scholarship. Nowhere is this clearer than on the Internet. Legal scholars who study the Internet talk freely about new forms of governance tailored to the specific needs of the Net. Only rarely are these "governance" models ones that involve a significant role for government as classically envisioned. Some scholars see international law, with its emphasis on political and moral suasion rather than legal authority, as the appropriate way to govern what is after all an international phenomenon. Many others, though, look to contracts as the preferred model for governing cyberspace. These models generally rely in the final analysis on a supreme legal authority to establish the initial property entitlements and enforce the contracts that govern the Net. The property-contract model is perhaps better thought of, then, as quasi-private ordering. But the common goal of these quasi-private ordering advocates is to decentralize governance and return control to the people, or at least the people who write the contracts. Contemporaneous with the rise of contracts as a mechanism for Internet governance, another group of legal scholars has explored the existence of what might be thought of as true private ordering: the social relationships that individuals and groups form that operate outside of the law. In this essay, I take a skeptical look at the idea that law should give deference to private norms on the Net and suggest a number of reasons why one might prefer public to private ordering on the Net.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/53m6v36jpublicationoai:escholarship.org:ark:/13030/qt4q2588922011-07-02T22:48:23Zqt4q258892Who Gets On Top in Democracy? Elections as FiltersCooter, Robert D.2002-11-15Economic models of politics usually assume that all politicians maximize their narrow self-interest, so the constitution and other laws should be designed to constrain the worst people. In contrast, I assume that different politicians have different traits of character, so the constitution and other laws should be designed to promote the best and demote the worst. Successful filtering of politicians partly determines whether a country enjoys good or bad government. In my model, each election serves as a filter, so, up to a point, more elections filter better. Countries that suffer bad government do so partly because politicians face too few elections for the citizens to identify the worst characters and remove them from office. These countries, however, should not necessarily shorten the term of office in order to have more frequent elections. Rather, these countries should reduce the depth of administration and create a federal structure with more elected governments. Similarly, these countries should tilt influence towards voters and away from party leaders by favoring winner-take-all elections.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/4q258892publicationoai:escholarship.org:ark:/13030/qt00p599hk2011-07-02T22:48:19Zqt00p599hkThe Impact of Legalized Abortion on CrimeDonohue, John J.Levitt, Steven D.2000-03-01We offer evidence that legalized abortion has contributed significantly to recent crime reductions. Crime began to fall roughly 18 years after abortion legalization. The 5 states that allowed abortion in 1970 experienced declines earlier than the rest of the nation, which legalized in 1973 with Roe v. Wade. States with high abortion rates in the 1970s and 1980s experienced greater crime reductions in the 1990s. In high abortion states, only arrests of those born after abortion legalization fall relative to low abortion states. Legalized abortion appears to account for as much as 50 percent of the recent drop in crime.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/00p599hkpublicationoai:escholarship.org:ark:/13030/qt4ts4k8gc2011-07-02T22:48:14Zqt4ts4k8gcThe Value of the Freezeout OptionGoshen, ZoharWiener, Zvi2000-03-01The value of the freezeout option is critical in many legal policy issues concerning corporate law. In this article, we present, for the first time, a method for determining the value of the minority stock and the freezeout option. We price the freezeout option with two different sets of assumptions regarding the controlling shareholder informational advantage, using both an exogenous and endogenous stock prices in our pricing. The result of our model indicates that the freezeout option has a low value and the minority stock is only slightly discounted. This result implies that the use of publicly known information, including market prices, in determining a fair value for minority stocks will not cause expropriation of minority shareholders and will not lead to inefficiency in corporate and controlling owners’ decisions. Empirical studies support this view.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/4ts4k8gcpublicationoai:escholarship.org:ark:/13030/qt2vz8x3102011-07-02T22:47:39Zqt2vz8x310A Note on Settlements under the Contingent Fee Method of Compensating LawyersPolinsky, A. MitchellRubinfeld, Daniel L.2001-09-01It is commonly thought that a lawyer working under a contingent fee arrangement has an excessive motive — relative to his client’s interest — to settle the case, leading to a lower-than-desirable settlement amount and a high settlement rate. The conventional analysis that generates this conclusion omits an important consideration — that if the case were to go to trial, the lawyer would spend an inadequate amount of time on it. We demonstrate that once this effect is taken into account, the lawyer could have an insufficient motive to settle, the opposite of what is usually believed. Specifically, the lawyer’s settlement demand could be too high and the resulting settlement rate too low.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2vz8x310publicationoai:escholarship.org:ark:/13030/qt8rm9358c2011-07-02T22:45:06Zqt8rm9358cThe Effect of Electoral Institutions on Tort AwardsHelland, EricTabarrok, Alex2002-04-02Politicians are not neutral maximizers of the public good, they respond to incentives just like other individuals. We apply the same reasoning to those politicians in robes called judges. We argue that elected judges, particularly partisan elected judges, have an incentive to redistribute wealth from out of state defendants (non voters) to instate plaintiffs (voters). The partisan electoral hypothesis is tested first using data on 75,000 tort awards from across the states. We control for differences in injuries, state incomes, poverty levels, selection effects and other factors that may cause awards to differ across the states. One difference which appears difficult to control for is that each state has its own body of tort law. We take advantage of a peculiar aspect of American Federalism to make this distinction. In cases involving citizens of different states, aptly called diversity of citizenship cases, Federal judges apply state law to decide disputes. Diversity of citizenship cases allow us to test whether differences in awards are caused by differences in electoral systems or differences In state law. The evidence from the cross state regressions and from the diversity of citizenship cases, strongly supports the partisan election hypothesis. In cases involving out of state defendants and in state plaintiffs the average award (conditional on winning) is 42% higher in partisan than in non partisan states; approximately 2/3 rds of the larger award is due to a bias against out of state defendants and the remainder due to generally higher awards against businesses in partisan states.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/8rm9358cpublicationoai:escholarship.org:ark:/13030/qt7fv8k94q2011-07-02T22:38:59Zqt7fv8k94qLong Shot Class ActionsSchwartz, Warren F.1999-07-01This paper considers the question whether plaintiffs, whose claims pose an important common issue, and are thought to be unlikely to prevail on this issue, should be permitted to maintain a class action in which this issue will be resolved or be required to litigate their claims in individual suits. The paper takes as its point of departure an opinion of Judge Richard Posner offering a novel and complex theoretical justification for requiring plaintiffs to proceed individually. This justification rests on ideas with respect to how claims thought to be unlikely to prevail should be viewed, how the risks created by legal uncertainty should be distributed and how decision making should be structured to take account of the different verdicts various juries might render with respect to identical cases. These ideas have very general and important implications. The paper concludes that Judge Posner's opinion suppresses important issues implicated by his analysis and that consideration of these issues leads to a view much more inclined to permit the class action to go forward than the one advanced by Judge Posner.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/7fv8k94qpublicationoai:escholarship.org:ark:/13030/qt4t56m5b82011-07-02T22:38:53Zqt4t56m5b8Valuing Research Leads: Bioprospecting and the Conservation of Genetic ResourcesRausser, Gordon C.Small, Arthur A.2000-09-01Bioprospecting has been touted as a source of finance for biodiversity conservation. Recent work has suggested that the bioprospecting value of the "marginal unit" of genetic resources is likely to be vanishingly small, creating essentially no conservation incentive. This result is shown to flow specifically from a stylized description of the research process as one of brute-force testing, unaided by an organizing scientific framework. Scientific models channel research effort towards leads for which the exepected productivity of discoveries is highest. Leads of unusual promise then command information rents, associated with their role in reducing the costs of search. When genetic materials are abundant, information rents are virtually unaffected by increases in the profitability of product discovery, and decline as technology improvements lower search costs. Numerical simulation results suggest that, under plausible conditions, the bioprospecting value of certain genetic resources could be large enough to support market-based conservation of biodiversity.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/4t56m5b8publicationoai:escholarship.org:ark:/13030/qt2sg2h2qx2011-07-02T22:09:44Zqt2sg2h2qxThe Optimal Number of Governments for Economic DevelopmentCooter, Robert D.1999-03-29In the private sector, many small firms imply shallow hierarchy and narrow product lines. Similarly, in the public sector many small governments imply shallow hierarchy and narrow governments. This paper explains when replacing broad, deep governments with shallow, narrow governments increases stability and reduces corruption. My general conclusion is that developing nations plagued by instability and corruption probably have too few elections and too few democratic governments.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2sg2h2qxpublicationoai:escholarship.org:ark:/13030/qt1jc275p22011-07-02T22:07:40Zqt1jc275p2Government Accountability and Fiscal Discipline: A panel analysis using Swiss dataSchaltegger, ChristophTorgler, Benno2006-12-01Government accountability through electoral engagement, involvement and participation in the political debate can affect government performance. Using data for the full sample of Swiss cantons over the 1981–2001 period, this paper provides empirical evidence that government accountability is crucial for fiscal discipline. Specifically, in cantons with high levels of government accountability, the level of indebtedness is significantly lower, indicating that accountability supports fiscal discipline. To obtain a useful approximation for government accountability between citizens and their representatives, we use information from direct voter participation in political decisions (initiatives and public referenda) in Swiss state (cantonal) governments. Electoral support of government proposals reveals an important aspect of accountability in a real world setting.Z130H110O170D720E620application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/1jc275p2publicationoai:escholarship.org:ark:/13030/qt8dz4q3vd2011-07-02T14:19:04Zqt8dz4q3vdEnergy Regulation, Roll Call Votes and Regional Resources: Evidence from RussiaGrigoriadis, Theocharis NTorgler, Benno2007-01-22This paper investigates the relative impact of regional energy production on the legislative choices of Russian Duma deputies on energy regulation between 1994 and 2003. We apply Poole’s optimal classification method of roll call votes using an ordered probit model to explain energy law reform in the first decade of Russia’s democratic transition. Our goal is to analyze the relative importance of home energy on deputies’ behavior, controlling for other factors such as party affiliation, electoral mandate, committee membership and socio-demographic parameters. We observe that energy resource factors have a considerable effect on deputies’ voting behavior. On the other hand, we concurrently find that regional economic preferences are constrained by the public policy priorities of the federal center that continue to set the tone in energy law reform in post-Soviet Russia.Energy regulationenergy roll law reformenergy resourcesroll callapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/8dz4q3vdpublicationoai:escholarship.org:ark:/13030/qt3c6690w52011-07-02T14:18:21Zqt3c6690w5Choice of Law: New FoundationsGuzman, Andrew2000-09-01This Article develops a new approach to choice of law. Founded on economic principles rather than thenotions of sovereignty that are typically used by choice of law scholars, it seeks to build new foundations forchoice of law scholarship. The analysis in the Article makes it possible to discuss alternative choice of law rulesin terms of their impact on the well-being of individuals. In other words, it makes it possible to considerquestions of efficiency within a choice of law discussion.The Article traces how the self-interested behavior of nations is at odds with globally efficient rules, andshows how choice of law rules can impact the incentives of countries. The analysis yields eight “choice of lawlessons” that help explain the impact of choice of law rules. From these lessons emerge several policies thatprovide countries with an incentive to regulate more efficiently.The Article then applies its analysis to several specific substantive law topics – bankruptcy, securities, andantitrust – demonstrating how the framework of the Article can be applied in particular cases. The role ofinternational institutions is also examined. It is shown that they represent an effective tool to facilitatenegotiations over choice of law issues in certain cases, but not in others. This discussion informs a variety ofcurrent issues. For example, it explains why negotiations over international competition policy and environmentalpolicy should be carried out within the WTO rather than in a separate forum.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3c6690w5publicationoai:escholarship.org:ark:/13030/qt35j9s08h2011-07-02T14:17:43Zqt35j9s08hTruth-Bonding and Other Truth-Revealing Mechanisms for CourtsCooter, Robert D.Emons, Winand2000-03-01In trials witnesses often gain by slanting their testimony. The law tries to elicit the truth from witnesses by cross-examination under threat of criminal prosecution for perjury. As a truth-revealing mechanism, perjury law is crude and ineffective. We develop the mathematical form of a perfect truth-revealing mechanism, which exactly offsets the gain from slanted testimony by the risk of a possible sanction. Implementing an effective truth-revealing mechanism requires a witness to certify accuracy by posting bond. If events subsequently prove that the testimony was inaccurate, the witness forfeits the bond. By providing superior incentives for telling the truth, truth-bonding could combat some distortions by factual witnesses and interested experts, including “junk science”.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/35j9s08hpublicationoai:escholarship.org:ark:/13030/qt4x1456p32011-07-02T14:17:38Zqt4x1456p3Kaplow and Shavell on the Content of FairnessCraswell, Richard2002-09-05Noneapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/4x1456p3publicationoai:escholarship.org:ark:/13030/qt9bn436k92011-07-02T14:17:34Zqt9bn436k9Per-Mile Premiums for Auto InsuranceEdlin, Aaron S.2002-08-30Most insurance premiums are only weakly linked to mileage, and have largely lump-sum characteristics. The probable result is too many accidents and too much driving from the standpoint of economic efficiency. This paper develops a model of the relationship between driving and accidents that formalizes Vickrey's [1968] central insights about the accident externalities of driving. We use it to estimate the driving, accident, and congestion reduc- tions that could be expected from switching to other insurance pricing systems. Under a competitive system of per-mile premiums, in which insurance companies quote risk-classified per-mile rates, we estimate that the reduction in insured accident costs net of lost driving benefits would be $9.8 -$12.7 billion in the U.S., or $58-$75 per insured vehicle. When congestion reductions are considered, the net benefits rise to $15-$18 billion, exclusive of monitoring costs. The total benefits of per-mile premiums with a Pigouvian tax to account for accident externalities would be $19-$25 billion, or $111-$146 per insured vehicle, ex- clusive of monitoring costs. Accident externalities may go a long way toward explaining why most insurance companies have not switched to per-mile premiums despite these large potential social benefits.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9bn436k9publicationoai:escholarship.org:ark:/13030/qt7sc9w7t02011-07-02T14:17:23Zqt7sc9w7t0The Death of the Securities Regulator: GlobalizationCox, James D.2002-04-01Not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/7sc9w7t0publicationoai:escholarship.org:ark:/13030/qt6th0728d2011-07-02T14:17:18Zqt6th0728dTaming the Animal Spirits of the Stock Market: A Behavioral Approach to Securities RegulationLangevoort, Donald2002-04-15None availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6th0728dpublicationoai:escholarship.org:ark:/13030/qt0pf2q49z2011-07-02T14:17:03Zqt0pf2q49zCopyright as a Rule of EvidenceLichtman, Doug2003-12-01This paper has been published in the Duke Law Journal. The Citation is 52 Duke L.J. 683 (2003).Many copyright doctrines serve to exclude from the copyright regime cases particularly prone to evidentiary complexity. The implicit logic is that for these cases the social costs of litigation would likely outweigh the social benefits derived from offering copyright protection in the first place. Doctrines that serve this evidentiary function include some doctrines where an evidentiary purpose is readily apparent, for example the requirement that eligible works be fixed in tangible form, and some where the link is quite subtle, for example the rule against protecting work that lacks creativity. Understanding these doctrines in this light helps to refine their proper scope and application. It also makes clear a problem facing copyright law more generally: the increasing divergence between the logical justifications for various copyright doctrines and their actual use by courts and commentators.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/0pf2q49zpublicationoai:escholarship.org:ark:/13030/qt32f064242011-07-02T14:16:58Zqt32f06424Economic Implications of State Sovereign Immunity from Infringement of Federal Intellectual
Property RightsMenell, Peter S.2001-03-19application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/32f06424publicationoai:escholarship.org:ark:/13030/qt5h6970h82011-07-02T14:16:54Zqt5h6970h8Expressive Law: Framing or Equilibrium Selection?Bohnet, IrisCooter, Robert2001-03-09Law deters, educates, and coordinates. Economists typically focus on deterrence and sociologists often focus on education. Since deterrence causes marginal changes and education confronts relatively stable preferences, economists and sociologists may overlook law’s largest effects on behavior. We hypothesize that law’s largest effects come from coordination. Normative systems have multiple equilibria, so announcing a new law can change expectations and cause behavior to jump from one equilibrium to another. To demonstrate this possibility, we ran games with interdependent payoffs in which we simulated a law by telling experimental groups that choosing Left will result in a “penalty” ten percent of the time. We set the penalty too small to change the equilibria among rationally self-interested actors, thus eliminating deterrence effects. First we ran a PD game in which the penalty does not affect the uniquely dominant strategy of each player. In these circumstances, any change in behavior caused by announcing the penalty must result from more people acting morally and renouncing self-interest. In fact, announcing the penalty did not change the number of moral actors. Next we repeated the experiment in a crowding game with a uniquely dominant strategy for each player and obtained the same results as in the PD game. Finally, we ran a coordination game with multiple equilibria. Announcing the penalty caused jumps in behavior from one equilibrium to another. The power of the penalty to coordinate increased as the proportion of actors decreased whose cooperation was needed to tip the system to a Pareto-superior equilibrium.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5h6970h8publicationoai:escholarship.org:ark:/13030/qt5hp695m32011-07-02T14:16:34Zqt5hp695m3Is Stock Manipulation Bad? A Theoretical Note with an Empirical SupportYadlin, Omri1999-09-01Not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5hp695m3publicationoai:escholarship.org:ark:/13030/qt9hc6n6ds2011-07-02T14:16:29Zqt9hc6n6dsExclusion or Efficient Pricing? The "Big Deal" Bundling of Academic JournalsEdlin, Aaron S.Rubinfeld, Daniel L.2004-08-01Not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9hc6n6dspublicationoai:escholarship.org:ark:/13030/qt2x90s8bc2011-07-02T14:16:10Zqt2x90s8bcInvestor Sentiment and Antitrust Law as Determinants of Corporate Ownership Structure: The great Merger Wave of 1897 to 1903Cheffins, Brian R.2002-12-15A great merger wave occurring in the United States between 1897 and 1903 was the single most important event in a process that yielded the pattern of managerial control and dispersed share ownership which currently distinguishes America's corporate economy from arrangements in most other countries. This paper examines the turn of the century consolidation movement in order to offer lessons on how patterns of ownership and control become configured. The United States constitutes the central reference point for analysis but the paper also considers events occurring in Germany.One theme the paper develops is that mergers matter with respect to the evolution of systems of ownership and control. Events occurring in the U.S. and Germany indicate that different patterns of acquisition activity in the two countries had important consequences for the evolution of business forms that persist to the present day. A second topic the paper deals with is the process by which a country's investors become sufficiently comfortable owning publicly traded shares to permit a transition from concentrated to dispersed share ownership. The merger wave of 1897 to 1903 illustrates that surges in demand for shares founded upon optimistic investor sentiment is a potentially important variable. A third theme the paper emphasizes is antitrust law's significance. The experience in the U.S. and Germany suggests that the legal status of anticompetitive alliances is a potentially important determinant of corporate ownership structures.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2x90s8bcpublicationoai:escholarship.org:ark:/13030/qt7c2364ds2011-07-02T14:15:49Zqt7c2364dsThe Effect of Offer-of-Settlement Rules on the Terms of SettlementBebchuck, Lucian AyreChang, Howard F.1997-01-01Under an "offer-of-settlement" rule, if a party to a lawsuit makes a formal offer to settle which the other party rejects, the offer nonetheless becomes part of the record, and thus may affect the allocation of litigation costs. If the parties litigate to judgement, the allocation of litigation costs may depend on how the judgement compares with the formal offer. This paper examines the effect that such rules have on the terms of settlement. The analysis first sets forth a general principle that identifies the settlement amount under any such rule. We then apply this principle to derive the settlement terms under the most important of these rules, and we identify a large set of seemingly different rules that produce identical settlements. The analysis has substantial policy implications; in particular, it shows how offer-of-settlement rules can be designed, when deemed desirable, to ensure that settlement terms not deviate from but rather mimic the expected judgement.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/7c2364dspublicationoai:escholarship.org:ark:/13030/qt4nq311nx2011-07-02T14:14:47Zqt4nq311nxThe Informational Effect of an Offshore Securities Offering: Evaluating the Risk to U.S. InvestorsChoi, Stephen J.2000-02-14Examining a sample of 701 offshore securities offerings under Regulation S of the Securities Act from 1993 to 1997, the article tests whether foreign investors expect to resell Regulation S securities into the United States ahead of the U.S. secondary market reaction to news of the offering. The article provides evidence from an event study that the secondary market reaction to a Regulation S offering is negative and statistically significant. Foreign investors able to resell into the United States ahead of the secondary market reaction, therefore, may act as conduits for issuers attempting to sell overvalued securities into the United States to the detriment of U.S. investors. To the extent managers seek to benefit pre-offering shareholders, they will negotiate to give foreign investors as small an offering discount as possible. In contrast, where foreign investors are unable to resell prior to the secondary market negative reaction to news of the offering, foreign investors will demand a greater discount in compensation for the entire expected market reaction. Without such a discount, Regulation S offerings result in a transfer in value from foreign investors to U.S. investors; rational foreign investors will choose not to participate in such offerings. Controlling for other factors that may affect the offering discount, the article furnishes evidence on the offering discount consistent with the hypothesis that foreign investors were in fact unable to engage in resales ahead of the U.S. secondary market reaction to a Regulation S offering.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/4nq311nxpublicationoai:escholarship.org:ark:/13030/qt3q79x5232011-07-02T14:14:37Zqt3q79x523Liberal NationalismBuckley, Frank2000-03-06The recent Supreme Court decision in Saenz v. Roe struck down a California welfare law that imposed residency requirements on recent arrivals to the state. Invindicating the mobility rights of migrants, the Court breathed new life into the Fourteenth Amendment’s Privileges or Immunities Clause. This Article suggests that,however misconceived the decision might appear from the perspective of welfare law, it usefully serves to promote a common American identity on which nationalistsentiments crucially depend. The core nationalist symbol for Americans is the idea of constitutionally-protected liberties that I call liberal nationalismA liberal nationalist understanding of the Privileges or Immunities Clause has four implications for constitutional interpretation. First, it suggests that the mobilityrights the Saenz court upheld deserve the high degree of protection they received in that case. Second, the argument from nationalism offers an explanation for caseswhere the Supreme Court has been faulted for failing to protect national symbols such as the flag. More than the flag, constitutional liberties are a national symbol forAmericans, and in upholding the right to deface the flag on free speech grounds, the Court has merely preferred one patriotic symbol to another. Third, a nationalistperspective suggests that basic liberties should enjoy constitutional protection at the national level and should not be entirely returned to the states. But for the argumentfrom nationalism, a strong case could be made for a very thin set of national constitutional liberties, or even for state opt-out rights. Finally, nationalist concerns suggest aneed for caution before removing contentious issues from political deliberation by turning them into constitutional rights. In politics, there are only winners and losers, andthere is no great shame in being a loser; but in American constitutional law the losers can be faulted for a want of loyalty to core American values, and this must weakenAmerican nationalism.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3q79x523publicationoai:escholarship.org:ark:/13030/qt3w34j60j2011-07-02T14:14:14Zqt3w34j60jExpressive Law and EconomicsCooter, Robert1998-01-01This article develops an economic theory of expressive law. By expressing social values, law can tip a system of social norms into a new equilibrium. This process can create or destroy a social norm without changing individual values. In addition, law can change the individual values of rational people. Internalizing a social norm is a moral commitment that attaches a psychological penalty to a forbidden act. A rational person internalizes a norm when commitment conveys an advantage relative to the original preferences and the changed preferences. I call such a commitment a Pareto self-improvement. By creating opportunities for Pareto self-improvements, law induces rational people to change their preferences. Inducing change in this way respects individual preferences, rather favoring a particular moral theory.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3w34j60jpublicationoai:escholarship.org:ark:/13030/qt6h24b1vt2011-07-02T14:14:09Zqt6h24b1vtSurviving the Titantic Disaster: Economic, Natural and Social DeterminantsFrey, Bruno SSavage, David ATorgler, Benno2009-02-01The sinking of the Titanic in April 1912 took the lives of 68 percent of the people aboard. Who survived? It was women and children who had a higher probability of being saved, not men. Likewise, people traveling in first class had a better chance of survival than those in second and third class. British passengers were more likely to perish than members of other nations. This extreme event represents a rare case of a well-documented life and death situation where social norms were enforced. This paper shows that economic analysis can account for human behavior in such situations.Decision under PressureTragic Events and DisastersSurvivalQuasi-Natural ExperimentAltruismapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6h24b1vtpublicationoai:escholarship.org:ark:/13030/qt23b9n6bp2011-07-02T14:13:59Zqt23b9n6bpThe U.S. Tax System in International Perspective: A Review of the 2006 Economic Report of the Presidentís Tax ChapterAuerbach, Alan J.2006-04-12application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/23b9n6bppublicationoai:escholarship.org:ark:/13030/qt07z8m8wm2011-07-02T14:13:53Zqt07z8m8wmSharing and Anti-Sharing in TeamsKirstein, RolandCooter, Robert D2006-12-29Compared to budget-balanced Sharing contracts, Anti-Sharing may improve the efficiency of teams. The Anti-Sharer collects a fixed payment from all team members; he receives the actual output and pays out its value to them. If a team members becomes Anti-Sharer, he will be unproductive in equilibrium. Hence, internal Anti-Sharing fails to yield the first-best outcome. Anti-Sharing is more likely to yield a higher team profit than Sharing, the larger the team, the curvature of the production function, or the marginal effort cost. Sharing is more likely to be better, the greater the marginal product, the cross-partials of the production function, or the curvature of the effort cost.Budget-breakersupermodularityconstrained efficiencyapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/07z8m8wmpublicationoai:escholarship.org:ark:/13030/qt1tc166q22011-07-02T14:13:45Zqt1tc166q2Rational Ignorance at the Patent OfficeLemley, Mark2000-06-01It is common to assert that the Patent and Trademark Office does a bad job of examining patents, and that it should spend more time and money weeding out bad patents. In this article, Professor Lemley challenges that conventional wisdom. Using available data regarding the cost and incidence of patent prosecution, litigation, licensing and other uses of patents, he demonstrates that strengthening the examination process is not cost effective. The core insight is that very few patents are actually litigated or licensed; most simply sit on a shelf unused, or are used only for noncontroversial purposes like financing. Because of this, society would be better off spending its resources in a more searching judicial inquiry into validity in those few cases in which it matters than paying for a more protracted examination of all patents ex ante. In economic terms, the patent office is "rationally ignorant" of the objective validity of the patents it issues.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/1tc166q2publicationoai:escholarship.org:ark:/13030/qt4sg5191h2011-07-02T14:13:32Zqt4sg5191hA Proposal to Restrict Manipulative Strategy in Auction IPO'sGanor, Mira2004-07-01Book-building, the prevailing method for IPO's, is widely considered flawed, because it results in stock under-pricing. Auction-IPO, on the other hand, is considered, by conventional wisdon, an alternative method that will eliminate the under-pricing. This paper shows how, contrary to customary belief, auction-IPO's may well result in under-pricing. In auction-IPO's, the under-pricing of the stock price is induced by undetected investors' manipulative strategic behavior. I analyze the requirements for such strategic behavior in a linear model. To reduce investors' incentive to manipulate their bid in the auction, this paper proposes to restrict auction participants from trading in the aftermarket immediately following the IPO.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/4sg5191hpublicationoai:escholarship.org:ark:/13030/qt2s5174q82011-07-02T14:12:44Zqt2s5174q8The Independent-Invention Defense in Intellectual PropertyScotchmer, suzanne1998-10-29Patents differ from other forms of intellectual property in that independent invention is not a defense to infringement. We argue that the patent rule is inferior. First, the threat of entry by independent invention would induce patentholders to license the technology, lowering the market price. Provided independent invention is as costly as the original cost of R&D, the market price will still be high enough to cover the patentholder's costs. Second, a defense of independent invention would reduce the wasteful duplication of R&D effort that occurs in patent races. In either case, the threat of independent invention creates a mechanism that limits patentholders' profits to levels commensurate with their costs of R&D.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2s5174q8publicationoai:escholarship.org:ark:/13030/qt0dh221jq2011-07-02T14:12:38Zqt0dh221jqDamages and Injunctions in the Protection of Proprietary Research ToolsScotchmer, SuzanneSchankerman, Mark1999-03-29Profit on proprietary research tools is determined partly by the remedies for infringement, such as damages and injunctions. We investigate how damages under a liability rule and the opportunity for injunctions under a property rule can affect the incentives to develop research tools. We show that the prevailing legal doctrine of damages under the liability rule, called lost profit or reasonable royalty, suffers from a logical circularity which leads to an indeterminacy in permissible damages. This can create insufficient incentives to develop research tools. Incentives can be improved either by a property rule with injunctions or by a liability rule under the doctrine of unjust enrichment.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/0dh221jqpublicationoai:escholarship.org:ark:/13030/qt2db3b43m2011-07-02T14:12:22Zqt2db3b43mLiability Under Uncertainty: Evidential Deficiency and the Law of TortsPorat, Ariel1999-06-29ecause factual uncertainty distorts the allocation of civil liability, this article argues that the law should impose liability for uncertainty. Justified on both corrective justice and economic efficiency grounds, this liability should be imposed upon any person who negligently aggravates the uncertainty of a civil case by making its evidential base deficent. Because "evidence" belongs to the world of inferences rather than things, evidential damage may be inflicted in a variety of ways, far beyond destruction of documents and other physical tampering with evidence. Through adoption and refinement of this insight, the Article diagnoses the presence of evidential damage in many legally important settings, such as mass torts, medical malpractice, exposure to risk and employment discrimination. It also identifies a number of legal doctrines that handle the evidential damage problem indirectly and thus attempt to resolve it within the narrow scope of their application. As underdeveloped forms of liability for evidential damage, these doctrines are urged to be replaced by an explicit and comprehensive liability.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2db3b43mpublicationoai:escholarship.org:ark:/13030/qt1m16k7w32011-07-02T14:11:37Zqt1m16k7w3Valuable PatentsAllison, John R.Lemley, MarkMoore, Kimberly A.Trunkey, Derek2003-06-01None availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/1m16k7w3publicationoai:escholarship.org:ark:/13030/qt9w99h2vd2011-07-02T14:11:29Zqt9w99h2vdMerger Simulation with Brand-Level Margin Data: Extending PCAIDS with NestsRubinfeld, Daniel L.Epstein, Roy J.2003-08-20We present a method to calibrate empirically the demand parameters in a merger simulation model by using brand-level profit margin data. While the approach can be generalized, we develop these ideas within a particular framework — the PCAIDS (proportionality-calibrated AIDS) model. We show that the brand-level margins effectively define product “nests” (products that are especially close substitutes) and substantially increase the flexibility of PCAIDS for modeling critical own- and cross-price elasticities. The model is particularly valuable for transactions at the wholesale level (where scanner data do not exist) and for geographic markets that span national borders (where comparable data may not be available), since other methods to derive elasticities, particularly those based on econometric estimation, may not be possible or may not be reliable.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9w99h2vdpublicationoai:escholarship.org:ark:/13030/qt86v5k15t2011-07-02T14:11:04Zqt86v5k15tTreating Yourself Instrumentally: Internalization, Rationality and LawCooter, Robert D.2003-06-01Economics, which has greatly advanced deterrence theory, has made no contribution to understanding how law changes peoples’ values. I combine economics and psychology to offer the framework for such a theory. Rational self-development involves treating yourself as the means to achieve your ends. Pursing ends changes objective opportunities and subjective values. The theory of cognitive dissonance predicts how changing opportunities changes values. If the connection between opportunities and values is strong enough, one choice may dominant the alternatives. A dominant choice is preferred when evaluated by using any likely values. I call a choice that is better with respect to the likely values of a decision-maker a “Pareto self-improvement.” By creating opportunities for Pareto self-improvement, law changes peoples’ values. Law’s ability to change behavior by changing values, however, occurs slowly, whereas law changes behavior quickly by other means such as deterrence.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/86v5k15tpublicationoai:escholarship.org:ark:/13030/qt30v1j39r2011-07-02T14:10:57Zqt30v1j39rDead Hand and No Hand Pills: Precommitment Strategies in Corporate LawBainbridge, Stephen M2003-02-10Corporations frequently, make use of precommitment strategies. Examples include such widely used devices as negative pledge covenants and change of control clauses in bond indentures fair price shark repellents, no shop and other exclusivity provisions , in merger agreements, mandatory indemnification bylaws, and so on. This paper argues that poison pills also can be understood as a form of precommitment, by which the board of directors commits to a policy, intended either to negotiate a high acquisition price or to maintain the corporation's independence.In Quickturn Design Sys., Inc. v. Mentor Graphics Corp., the Delaware supreme court invalidated a no hand poison pill on grounds that a board of directors lacks authority to adopt such devices. In doing so, the court misinterpreted relevant Delaware law. It's unjustifiably called into question the validity of a host of corporate precominitment strategies. Finally, and perhaps most troublingly, it called into question the central tenet of Delaware corporate law; namely, the plenary authority of the board of directors.This article argues that the Delaware supreme court's decision was wrong both as a doctrinal and a policy matter. There simply is no firebreak between the sorts of board self disablement deemed invalid by Quickturn and the host of other precommitment strategies routinely used by corporate boards of directors. The Delaware supreme court's conclusion that the former are invalid for lack of statutory authority thus threatens to invalidate all of the latter. The article concludes by arguing that the Delaware supreme court should have analyzed the no hand pill under standard fiduciary d4ty principles rather than creating a new prophylactic ban on precommitment strategies.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/30v1j39rpublicationoai:escholarship.org:ark:/13030/qt414773mr2011-07-02T14:10:35Zqt414773mrClass Actions: Aggregation, Amplification and DistortionEpstein, Richard2003-01-15Not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/414773mrpublicationoai:escholarship.org:ark:/13030/qt9c5508x42011-07-02T14:10:29Zqt9c5508x4Credence Goods MonopolistsEmons, Winand1997-01-03With a credence good, consumers are never sure about the extent of the good that they actually need. Experts such as doctors and lawyers, as well as auto mechanics and appliance service-persons (the sellers) not only provide the services, but also act as the expert in determining the customer's requirements. This information asymmetry between buyers and the seller creates strong incentives for the seller to cheat. We analyze whether the market mechanism may induce non-fraudulent seller behavior.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9c5508x4publicationoai:escholarship.org:ark:/13030/qt73b274rn2011-07-02T14:10:24Zqt73b274rnLaw and Economics from a Moderate Islamic perspective (LEMI)Dadgar, Yadollah2009-09-01application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/73b274rnpublicationoai:escholarship.org:ark:/13030/qt6w3720762011-07-02T13:36:07Zqt6w372076Why Have Corporate Tax Revenues Declined? Another LookAuerback, Alan J.2007-01-02The relative constancy of nonfinancial corporate tax revenues as a share of U.S. GDP masks offsetting trends in the ratio of corporate profits to GDP (declining) and the average tax rate (increasing). The average tax rate rose steadily between 1996 and 2003, an increase largely attributable to the importance of tax losses. This rise casts some doubt on the role of tax planning activities in reducing corporate taxes. So, too, does the relative stability of the rate of profit (relative to net assets), which might be expected to have declined had the understatement of profits for tax purposes been increasing.corporate profitstax shelterstax lossesapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6w372076publicationoai:escholarship.org:ark:/13030/qt08s076vr2011-07-02T10:44:41Zqt08s076vrControlling Organized Crime and Corruption in the Public SectorBuscaglia, Edgardovan Dijk, Jan2005-01-25Organized crime and corruption are shaped by the lack of strength of the control mechanisms of the State and civil society. The results presented in the present article attest to the links between the growth of organized crime and that of corruption in the public sector in a large number of countries. The two types of complex crime reinforce each other. To identify and isolate the influential factors behind the growth of corruption in the public sector and organized crime, the present article presents and analyses qualitative and quantitative information on a large sample of countries and territories representing worldwide diversity stratified by level of socio-economic development.** The study reported here aimed at identifying the institutional patterns that determine a country’s vulnerability to complex crimes. Being policy-oriented, the report includes a set of evidence-based policy recommendations.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/08s076vrpublicationoai:escholarship.org:ark:/13030/qt6zn9p98b2011-07-02T10:44:34Zqt6zn9p98bThe Demand for Currency Approach and the Size of the Shadow Economy: A Critical AssessmentAhumada, HildegartAlvaredo, FacundoCanavese, Alfredo J.2006-06-02A commonly used approach to measure the size of the shadow economy, known as "the monetary method", is based on econometric estimates of the demand for currency. These estimates are used to get the currency held by economic agents in excess of the amount they need to finance registered transactions. This excess of currency multiplied by the income-velocity of circulation (assumed to be equal in the registered and shadow economies) gives a measure of the hidden GDP. This paper shows that the monetary method only produces coherent estimates if the income-elasticity of the demand for currency is one and suggests a way to correct the estimated size of the shadow economy when such elasticity is not one. The correction is applied to existent measures for different countries.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/6zn9p98bpublicationoai:escholarship.org:ark:/13030/qt5q14k3wr2011-07-02T10:44:29Zqt5q14k3wrWhat Shapes Attitudes Toward Paying Taxes? Evidence from Multicultural European CountriesTorgler, BennoSchneider, Friedrich G.2006-12-04Considerable evidence suggests that enforcement efforts cannot fully explain the high degree of tax compliance. To resolve this puzzle of tax compliance several researchers have argued that citizens’ attitudes toward paying taxes defined as tax morale helps to explain the high degree of tax compliance. However, most studies have treated tax morale as a black box without discussing which factors shape it. Additionally, the tax compliance literature provides little empirical research that investigates attitudes toward paying taxes in Europe. Thus, this paper is unique in its examination of citizen tax morale within three multicultural European countries, Switzerland, Belgium and Spain, a choice that allows far more detailed examination of the impact of culture and institutions using datasets from the World Values Survey and the European Values Survey.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5q14k3wrpublicationoai:escholarship.org:ark:/13030/qt2xs8t7wg2011-07-02T10:44:18Zqt2xs8t7wgThe Choose-Your-Charity Tax: A Way to Incentivize Greater GivingEdlin, Aaron S2005-11-01Why don't people give more to charity? One reason is that the problems will be there whether individuals give or not. Here is a policy - inspired by the matching grants that charities use so effectively - that could actually make a real difference.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/2xs8t7wgpublicationoai:escholarship.org:ark:/13030/qt1p98q41d2011-07-02T10:44:13Zqt1p98q41dDo IPO Charters Maximize Firm Value? Antitakeover Protection in IPOsDaines, RobertKlausner, Michael1999-09-01Not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/1p98q41dpublicationoai:escholarship.org:ark:/13030/qt9zc280fb2011-07-02T10:43:23Zqt9zc280fbTowards a Theory of Adjudicatory Decisions in Public Administrationvon Wangenheim, georg1999-04-20In many countries administrative procedures have been identified as a major obstacle to private investments and economic growth. Without overtly questioning the substantive aspects of government regulations, critics of the current state of administrative procedure challenge its complicated details and the time that applications and their decisions consume. Some of the literature dealing with administration as the agent of politics picks up the question of how public administrations and administered individuals interact strategically in the administrative process. Most often this line of research concentrates on regulated utilities and government procurement. However, there is hardly any theoretical economic basis for the study of one of the most important, if not the most important, aspects of administrative procedure: the adjudication in bulk of applications for permissions or similar (very often dichotomous) government decisions. Such decisions en masse often are not made within strategic settings, as is usually—and quite appropriately—assumed in the literature on government regulation of public utilities etc. Instead, with masses of applicants filing applications and many administrators deciding upon them, strategic interaction is unlikely to occur: no single applicant expects to be able to influence the investigative behavior of the administrators, no single administrator expects to influence the behavior of the average applicant. Thus, adaptive behavior prevails on both sides of the interaction. All individuals will adapt to the expected, viz. average, behavior of their counterparts. A model for this side of administrative procedure is missing. It is the goal of this paper to develop a first step in this direction.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9zc280fbpublicationoai:escholarship.org:ark:/13030/qt5rf3f1m22011-07-02T10:42:44Zqt5rf3f1m2Hand Rule Damages for Incompensable LossesCooter, Robert D.2003-05-01Money cannot compensate for some losses, as when parents suffer the death of a child. For incompensable losses, courts should develop theory and practice of damages from the way reasonable people respond to the risk of incompensable losses. Specifically, courts should apply the Hand Rule to find damages based on the reasonable person’s point of indifference between less risk and more expenditure on precaution. Hand Rule Damages are efficient because injurers internalize the risks they impose on others. Hand Rule Damages are also fair in two respects. First, they require injurers to treat others the way a reasonable person treats everyone. Second, a regime of Hand Rule Damages and ideal insurance markets put victims in the same position as a regime that makes people compensate others for exposing them to risk, which is fair by some understandings of the principle of restorative justice. Empirical evidence suggests that Hand Rule Damages are several times higher than the U.S. average for damages in automobile accident cases involving loss of life. Implementing Hand Rule Damages would, consequently, cause a significant increase in damage awards and insurance costs for some important kinds of accidents.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5rf3f1m2publicationoai:escholarship.org:ark:/13030/qt5hx0f0c22011-07-02T08:15:57Zqt5hx0f0c2Environmental Participation and Environmental MotivationTorgler, BennoGarcía-Valiñas, María A.Macintyre, Alison2009-01-01We explore whether environmental motivation affects environmental behavior by focusing on volunteering. The paper first introduces a theoretical model of volunteering in environmental organizations. In a next step, it tests the hypothesis working a large micro data set covering 32 countries from both Western and Eastern Europe using several different proxies to measure environmental motivation. As a robustness test we also explore the relationship at the macro level extending the number of countries investigated. Our results indicate a strong positive relationship between environmental motivation and individuals’ voluntary engagement in environmental organizations.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/5hx0f0c2publicationoai:escholarship.org:ark:/13030/qt1z14v7zt2011-07-02T08:15:14Zqt1z14v7ztThe Power of Positional Concerns: A Panel AnalysisTorgler, BennoSchmidt, Sascha LFrey, Bruno S.2006-12-04Many studies have established that people care a great deal about their relative economic position and not solely, as standard economic theory assumes, about their absolute economic position. However, behavioral evidence is rare. This paper provides an empirical analysis on how individuals’ relative income position affects their performance. Using a unique data set for 1040 soccer players over a period of eight seasons, our analysis suggests that if a player’s salary is below the average and this difference increases, his performance worsens and the productivity decreasing effects of positional concerns are stronger. Moreover, the larger the income differences within a team, the stronger positional concern effects are observable. We also find that the more the players are integrated in a particular social environment (their team), the more evident a relative income effect is. Finally, we find that positional effects are stronger among high performing teams.D000D60082229210L830application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/1z14v7ztpublicationoai:escholarship.org:ark:/13030/qt8h95q5t52011-07-01T07:26:20Zqt8h95q5t5How Does Double Jeopardy Help Defendants?Khanna, V.S.2001-02-23application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/8h95q5t5publicationoai:escholarship.org:ark:/13030/qt9sz547bd2011-07-01T07:23:11Zqt9sz547bdInnovation, Information, and the Poverty of NationsCooter, Robert D2005-04-22Sustained growth occurs in developing nations through improvements in markets and organizations. Entrepreneurial innovation resembles biological mutation that is unpredictable before it occurs and understandable afterwards. It is unpredictable because it begins with an innovator who acquires private information and earns extraordinary profits. It is understandable because its ends with the public figuring out the innovation and all investors earning ordinary profits. These characteristics of innovation have important consequences for law and policy to foster economic growth. Government officials who rely on public information cannot predict which firms or industries will experience rapid growth. Consequently, industrial policies that promote growth are unlikely to succeed. Proponents of industrial policy today make the same mistake as the mercantilists whose interventions Adam Smith attacked as a cause of national poverty. In contrast, secure property and contract rights, and effective business law (especially the laws regulating financial markets), create conditions under which competition naturally produces entrepreneurial innovation and nations become rich. The main obstacle to sustained economic growth in poor countries today is ineffective civil and business law.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/9sz547bdpublicationoai:escholarship.org:ark:/13030/qt8c41q4fm2011-07-01T07:20:40Zqt8c41q4fmDoes Risk to Oneself Increase the Care Owed to Others? Law and Economics in ConflictCooter, Robert D.Porat, Ariel2000-03-01As applied by courts, the Hand Rule balances the injurer's burden of precaution and the victims' reduction in risk. In this application, risk to oneself does not increase the duty owed to others. Economists, however, use the Hand Rule to minimize social costs, which requires balancing the burden of precaution against the reduction in risk to everyone. For economists, risk to oneself counts in determining the duty owed to others. In cases where precaution reduces joint risk (risk to oneself and others), the usual legal interpretation underestimates the reduction in risk relative to the economic interpretation, often by 50%. The consequence is a lower standard of legal care than required to minimize social costs. Judges should reconceptualize the Hand Rule so that risk to oneself increases the care owed to others.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/8c41q4fmpublicationoai:escholarship.org:ark:/13030/qt3hg7323f2011-07-01T07:20:30Zqt3hg7323fTrans-border Bank Insolvency: A Generation LaterBuxbaum, Richard M.2008-03-24Hans-Jochem Lüer’s single most noted participation in the field of international transactions was his role in the Herstatt Bank litigation. Therefore, it seems fitting to honor him with a contribution to the subject of cross-border bank insolvency, especially considering that recent developments in the European Union and in the United States now implicate issues of federal-state relations that were not yet on the horizon a generation ago. This paper will focus in particular on the US side of the issue, even if it is clear that no purely national discussion can or should ignore the EU Directives in the field.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3hg7323fpublicationoai:escholarship.org:ark:/13030/qt3z24c8t12011-07-01T07:20:25Zqt3z24c8t1A Demand-Side Theory of Antitakeover DefensesHannes, Sharon2003-08-01This article develops a demand-and-supply framework to analyze the adoption of antitakeover defenses and constructs a demand-side theory of antitakeover provisions ("ATP's"). The article views the decision to go public without ATP's as a decision to produce an unshielded target and shows that the classic literature focused on the costs of producing such a target but barely accounted for demand-side considerations. The article argues that the more firms there are producing unsheilded targets (and, therefore, the fewer firms adopting ATP's), the lower the price the market is willing to pay for the unshielded product. The reason for this is that not only do ATP's prevent takeovers, they also divert takeover activity to unshielded targets. The combination of existing supply-side explanations with the novel demand-side theory works to explain the findings of recent empirical studies of ATP's at IPO stage firms that have puzzled the corporate finance and corporate law literature.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/3z24c8t1publicationoai:escholarship.org:ark:/13030/qt1gs1g2g22011-07-01T07:14:41Zqt1gs1g2g2REMEDIES FOR PRICE OVERCHARGES: THE DEADWEIGHT LOSS OF COUPONS AND DISCOUNTSPolinsky, A. MitchellRubinfeld, Daniel L.2003-11-01This article evaluates two different remedies for consumers who have been injured by a price overcharge on the sale of a good. Under a coupon remedy, injured consumers are awarded coupons that can be used for a limited period of time to purchase the good at a price below that which prevails after the overcharge has been eliminated, that is, below the competitive price. Under a discount remedy, any consumer, without proof of injury, may purchase the good for a limited period of time at a price that is set below the competitive price. Both remedies generally cause consumers to buy an excessive amount of the good during the remedy period. Under the coupon remedy only a subset of consumers are affected in this way (those holding a relatively high number of coupons), while under the discount remedy all consumers are affected. We show nonetheless that the resulting deadweight loss could be lower under the discount remedy. We also consider how the deadweight loss changes when the length of the remedy period is increased.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/1gs1g2g2publicationoai:escholarship.org:ark:/13030/qt81q3136r2011-07-01T07:09:13Zqt81q3136rExecutive Compensation as an Agency ProblemBebchuk, Lucian A.Fried, Jesse M.2003-05-01This paper provides an overview of the main theoretical elements and empirical underpinnings of a "managerial power" approach to executive compensation. Under this approach, the design of executive compensation is viewed not only as an instrument for addressing the agency problem between managers and shareholders but also as part of the agency problem itself. Boards of publicly traded companies with dispersed ownership, we argue, cannot be expected to bargain at arm's length with managers. As a result, managers wield substantial influence over their own pay arrangements, and they have an interest in reducing the saliency of the amount of their pay and the extent to which that pay is de-coupled from managers' performance. We show that the managerial power approach can explain many features of the executive compensation landscape, including ones that many researchers have long viewed as puzzling. Among other things, we discuss option plan design, stealth compensation, executive loans, payments to departing executives, retirement benefits, the use of compensation consultants, and the observed relationship between CEO power and pay. We also explain how managerial influence might lead to substantially inefficient arrangements that produce weak or even perverse incentives.application/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/81q3136rpublicationoai:escholarship.org:ark:/13030/qt0t46t7052011-07-01T07:08:14Zqt0t46t705Stability and Change in International Customary LawFon, VincyParisi, Francesco2003-10-01Not availableapplication/pdfpubliceScholarship, University of Californiahttps://escholarship.org/uc/item/0t46t705publication