Working Papers

Abstract:

This chapter reviews the law and economics of predatory pricing.  Areeda and Hovenkamp (2006, 323) noted that other areas of the law of monopolization are "in much the same position as the theory of predatory pricing was in the 1970s: no shortage of theories, but a frightening inability of courts to assess them." In the past two decades, scholarship on the economics of predatory pricing has evolved from the relatively settled consensus in which predatory pricing was thought to be irrational, rarely tried, and even more rarely successful, to a point where much less is settled. Recent theoretical work emphasizing strategic theory has shown that predation can be rational, and empirical studies have presented evidence consistent with successful predation. In this sense, the economics of predatory pricing has moved closer to other areas of monopolization.

 

However, the legal response to predatory pricing, a relatively administrable and permissive rule based in part on the assumption that successful predation was rare, has remained relatively intact. While the recent economic literature may have eroded this basis for the adoption of permissive standards for predatory pricing, other reasons for adopting such a rule, based on the benefits of bright line rules that would be administrable by courts, still remain. Thus, even considering the recent advances in economic theory, it is unwise to minimize or ignore this underlying purpose of the Brooke Group rule.

Abstract:

Few doubt that states can provide greater protection for individual rights under state constitutions than is available under the Supreme Court’s interpretation of the federal Constitution.  More difficult issues arise, however, when state courts seek to provide greater protection than the Court requires for federal constitutional rights.  Can state courts impose remedies for violations of federal constitutional rights that are more generous than those required by the federal Supreme Court? That is the issue raised by the Court’s recent decision in Danforth v. Minnesota.  By a 7-2 vote, the Court decided that state courts could indeed provide victims of constitutional rights violations broader remedies than those mandated by federal Supreme Court decisions.  I contend that this outcome is correct, despite the seeming incongruity of allowing state courts to deviate from the Supreme Court’s interpretation of the federal Constitution.  The Supreme Court should establish a floor for remedies below which states cannot fall. But there is no reason for it to also mandate a ceiling.

 

Part I briefly describes the facts and background to Danforth.  In Part II, I provide a doctrinal justification for the Supreme Court’s decision.  It makes sense to allow state courts to provide more generous remedies than those mandated by the federal courts in cases where restrictions on the scope of remedies are not imposed by the Constitution itself, but are instead based on policy grounds.  State courts can legitimately conclude that these policy grounds are absent or outweighed by other considerations within their state systems, even if they are compelling justifications for restricting the scope of remedies available in federal courts.  State courts are in a better position to weigh the relevant tradeoffs in a state legal system than federal courts are.

 

Part III explains the potential policy advantages of allowing interstate diversity in remedies, most importantly inter-jurisdictional competition and an increased ability to provide for diverse citizen preferences and local conditions across different parts of the country.  The optimal remedy for a constitutional rights violation in New York may well be different from the optimal remedy for one that occurs in Mississippi.

Abstract:

In their book The Brethren: Inside the Supreme Court, Bob Woodward and Scott Armstrong tell a small but striking story of the racial insensitivity of Justice Harry A. Blackmun. It happened during the drafting and circulation of opinions in Flood v. Kuhn, the 1972 baseball antitrust case. As the story goes, when Blackmun circulated the first draft of his opinion in Flood, with its famously romantic introductory salute to the good old days of baseball and list of “celebrated … names” from the history of the game, the list of names was as segregated as the Topeka public schools in 1954. Blackmun had excluded African Americans from his list of baseball celebrities. It was only when pressed to do so by Justice Thurgood Marshall that he added black players to the list — Satchel Paige, Jackie Robinson, and Roy Campanella.

 

It has been said that this story from The Brethren “makes no sense,” but that is not enough to make it false. The Brethren accurately reports some pretty nonsensical behavior by people who worked at the Supreme Court during the period covered by the book (1969 to 1976). Moreover, the authors of The Brethren claim there is documentary proof of their story of Blackmun-versus-Marshall in Flood. Nevertheless, the story is false. The document from which the authors quote — Blackmun’s allegedly racially exclusive circulated first draft in Flood — does not exist and never did. Paige, Robinson, and Campanella were present in the first circulated draft and thereafter. And thus Marshall’s objection to the offending draft never occurred either. There was nothing to object to.

Abstract:

Underpaid federal judges have always had ways to increase their income. The first resort (other than quitting for some other, higher-paying job) is a law granting judges a raise. But reputable minds differ on the proper scale and form of judicial pay increases, and raises have been low and slow in coming. Individual judges have occasionally taken the initiative to top off the family budget, albeit with mixed results. Judges are, however, not the only ones who have stepped up. Members of the bar have sometimes professed a willingness to contribute to the sustenance of the bench. Which brings us to the Taney Fund. When Chief Justice Roger Taney died in 1864 he left a tiny estate and two daughters who were still his dependants. In February 1871, Taney's former colleagues noticed that his daughters had fallen on hard times. They held a meeting of the bar of the Supreme Court at which a committee was formed to raise funds to support the daughters. But the main purpose of the meeting probably was to build support for judicial salary increases, and it seems to have worked. In March 1871, a big salary increase for federal judges became law. Which brings us to the Judiciary Fund. According to the American Bar Association, judges are in bad shape these days - seemingly as bad as they were in 1871: Judicial pay has reached such levels of inadequacy that it threatens the quality of justice in our nation. In the spirit of '71, the modern bar should come to the aid of our federal judiciary. $44 million is the rough price of increases Congress is looking at now. The money is there. All that remains is a commitment to support the judiciary and a way to channel the money to the judges.

Abstract:

This chapter surveys the legal and economic literatures on the antitrust analysis of tying arrangements and exclusive dealing contracts.  We review the analytical framework applied under U.S. antitrust law to tying, bundling and exclusive dealing arrangements as well as the existing theoretical and empirical literatures.

Abstract:

In the months that preceded President Clinton’s impeachment trial, observers in the media breathlessly reported the so-called “death struggle” between the President and Kenneth Starr. Distinguished academic commentators, such as Ronald Dworkin and Arthur Schlesinger, Jr., were equally overheated in their rhetoric, predicting that the President’s impeachment would shred the American constitutional fabric. Of course, Clinton was impeached, with no discernible unraveling of the regime. The immediate political stakes were high, to be sure, and both sides fought with energy—as a minor participant in the struggle, I can attest to that. But no lives, and very few persons’ liberty, were ever in jeopardy and, contra Dworkin and Schlesinger, the U.S. Constitution was safe throughout the ordeal. The impeachment trial of a sitting president is always a “crisis,” at least in the sense that it may herald a transfer of power. But in that sense every presidential election could equally be called a crisis.

 

There are crises, and then there are constitutional crises. For an illustration of the latter, let us retreat to the 1641 impeachment trial of King Charles I’s principal advisor, Thomas Wentworth, the Earl of Strafford. At stake in Strafford’s trial was nothing less than the future of English constitutionalism and limited monarchy: Would the Stuart kings enlarge the powers of the monarchy along French lines or would Parliament preserve, and even expand, its own powers and privileges? And, on a more personal level, whose head would fall—Strafford’s or that of his principal antagonist in the House of Commons, John Pym?

 

It was the stuff of riveting drama: The King attended every day of the month-long trial, crowds gathered each day to witness Strafford’s arrival in Westminster, and the city erupted in violence. Contrast this with the waning interest in the Lewinsky affair by the time of the Clinton impeachment trial in the United States Senate. One of the first lessons from history is that not every political crisis raises fundamental issues. I think it fair to conclude or simply posit that a constitutional crisis may be expected to excite widespread interest outside the academy. If this is accurate, an impeachment trial that sets off an avalanche of law review articles, but garners fewer than ten million television viewers, is not a constitutional crisis.

Abstract:

There are a several forces pushing on the law and economics (L&E) movement from different directions.  The authors exchanged perspectives on trends in economics, and in particular the increasing mathematical formalization of economics, and their implications for the future of L&E in legal scholarship.  The authors discuss strengths and weaknesses of the modern L&E movement, speculate as to where L&E might be headed in the future, and how potential pitfalls might be avoided.  The exchange between the authors took place at Truthonthemarket.com and the blog posts have been compiled into this essay.

Abstract:

Human dignity has developed into a core value of modern constitutionalism.  In the United States, the Supreme Court has referred to human dignity only sporadically, but several justices and a number of scholars have advocated using the concept of human dignity to modernize American constitutional law and to keep in step with the international community.  I argue in this Article that acceptance of the modern, largely European conception of human dignity would weaken American constitutional protections for individual rights.

 

Human dignity as a constitutional concept has drawn its meaning from a European cultural and social context that emphasizes communitarian values, rather than individual ones.  In practice, modern constitutionalism prefers balancing and harmonizing rights with other political and social needs.  The widespread acceptance of such tradeoffs minimizes the importance of rights because courts review rights as part of a political calculus.  By focusing on values such as human dignity, modern constitutionalism deprives rights of their special force.  The experience from abroad suggests caution before importing the European ideals of human dignity into American constitutional law.

Abstract:

The Roberts Court’s reign at the United States Supreme Court is only in its nascent stages.  Already, however, its antitrust activity level has far exceeded the Court’s single case average prior to the 2003-04 Term by a significant margin.  The recent flurry of antitrust activity and the likely significance the Roberts Court will have on the development of antitrust jurisprudence warrants some reflection and analysis.  I argue that the Roberts Court decisions embrace the Chicago School of antitrust analysis, Transaction Cost Economics, and insights from comparative institutional analysis gleaned from New Institutional Economics.  Despite the rise of Post-Chicago Economics in economics departments and elite journals, the substance of the Roberts Court’s antitrust jurisprudence suggests a significant amount of skepticism is appropriate concerning any prediction of the demise of the Chicago School or Transaction Cost Economics in antitrust in the coming years.

Abstract:

In Credit Suisse v. Billing, the Court held that the securities law implicitly precludes the application of the antitrust laws to the conduct alleged in that case. The Court considered several factors, including the availability and competence of other laws to regulate unwanted behavior, and the potential that application of the antitrust laws would result in “unusually serious mistakes.” This paper examines whether similar considerations suggest restraint when applying the antitrust laws to conduct that is normally regulated by state and other federal laws. In particular, we examine the use of the antitrust laws to regulate the problem of patent hold up of members of standard setting organizations. While some have suggested that this conduct illustrates a gap in the current enforcement of the antitrust laws, our analysis finds that such conduct would be better evaluated under the federal patent laws and state contract laws.

Abstract:

This chapter in the book PIONEERS OF LAW AND ECONOMICS explores the contributions of Benjamin Klein to law and economics. I explore the intellectual foundations of Klein’s pioneering analysis of the hold-up problem, the theory of the firm, vertical restraints, franchising, and the role of contract terms in facilitating self-enforcement of contractual relationships. I also discuss the significant influence of Klein’s work on antitrust law, as well as its implications for contract interpretation. Klein’s pioneering work over the past 30 years has not only provided us with a much greater understanding of contractual arrangements, but also a model for law and economics scholars and economists interested in explaining real world phenomenon rather than merely producing blackboard insights.

Abstract:

More than half a century after Brown v. Board of Education, the Supreme Court is closely and bitterly divided about the meaning of that decision, and about the meaning of the Equal Protection Clause to which it appealed. The first major decision of the Roberts Court, Parents Involved in Community Schools v. Seattle School Dist. No. 1, took a small step away from a constitutional vision that permits racial discrimination by the government whenever courts believe that the effects on society will be salutary.

 

With respect to nonremedial affirmative discrimination, remarkably little has changed since the Bakke decision in 1978.

 

*           At that time four members of the Court would have allowed the government virtually unfettered discretion to practice what they regarded as benign forms of racial discrimination. Three decades later, four members of the Court take essentially the same position, and will clearly not be deterred by any of the contrary precedents that have built up during that period.

 

*           In 1978, four Justices read the Civil Rights Act of 1964 to forbid racial discrimination without regard to the motive for the challenged policy. Today, four members of the Court would give the Fourteenth Amendment (and perhaps also the Civil Rights Act) a roughly similar interpretation, though it is not clear how far they would go in challenging existing precedent.

 

*           In 1978, Justice Powell’s middle position was that racial discrimination practiced for judicially approved diversity purposes is permissible, but that care must be taken to limit its reach and obscure the identity of its victims. Today’s swing Justice has expressly endorsed Powell’s legal formula, although Kennedy’s application of this approach seems less latitudinarian than the one suggested in Powell’s Bakke opinion.

 

How much longer will this equilibrium remain stable? We seem to be one vote away from significant progress toward a relatively robust enforcement of antidiscrimination principles. We are also but one vote away from the opposite approach, which would endorse virtually any kind of discriminatory laws that a court believes were “enacted in good faith for the promotion of the public good, and not for the annoyance or oppression of a particular class.” It is hard to believe that the Court won’t shift in one direction or the other fairly soon. But one might have said the same thing in 1978.

Abstract:

This short review of Gene Healy’s The Cult of the Presidency argues that the powerful modern presidency, for all the perversities it can produce, is not the principal threat to our security or our liberties. The best recent example of the relatively modest presidency envisioned by many of the Constitution’s framers, moreover, has been underappreciated by those most worried about executive imperialism.

Abstract:

In the teaching component of the forthcoming Deadwood Report (see 11 Green Bag 2d 139), we plan to give substantial extra weight to required courses. That is, a professor will receive more credit for teaching a required course than she will for teaching a non-required (aka “elective”) course. The basic reason is that required courses are the most important ones. Why else would a law school force all of its students to take them? And if a course is important enough to be compulsory, then presumably it is important enough for a school to assign one or more of its better teachers to teach it. To do otherwise would be inefficient, unkind, and maybe even a breach of warranty – assuming that the school (a) promises applicants who enroll a good education and (b) treats production of well-educated graduates as one of its core functions. Where does this leave elective courses? In our efforts to measure roughly just how much law professors are contributing to their schools’ core functions, should we treat all elective courses the same way? Or are there some that merit intermediate weighting (less than required courses but more than run-of the-mill elective courses)? Are some electives of greater importance than most to the broad educational and narrower pre-professional and social missions of the law school? Do some impose heavier burdens on instructors? For example, should Evidence or Individual Tax be given the same weight as The Law of the Horse or Directed Readings in Legal History? More weight? Less? There is, it seems to us, one simple answer to all of these questions: Each law school should have some opportunity to take its own stand. And so we are going to invite them to do so, via a survey (reproduced below) we plan to send to the deans at the 25 “Best Law Schools” according to U.S. News & World Report – Yale, Harvard, Stanford, Columbia, NYU, Boalt, Chicago, Penn, Northwestern, Michigan, UVA, Cornell, Duke, Georgetown, Vanderbilt, UCLA, Texas, USC, Wash U (St. Louis), George Washington, Boston U, Emory, Minnesota, Notre Dame, and Washington & Lee. Why those 25? Because the Green Bag’s puny resources preclude studying more than a few schools in our first year (we will get to the rest eventually), and starting with the cream of the crop will let the rest of the schools know where the high and mighty stand. Besides, schools with big reputations and big budgets will recover relatively easily from whatever (probably inconsequential) harms might result if the Deadwood Report turns out to be bad medicine. Please tell us what you think of our survey. Send your critiques and suggestions to us at editors@greenbag.org.

Abstract:

In his controversial 1996 book Slouching Towards Gomorrah, Judge Robert H. Bork argued that we must adopt extensive censorship of violent and sexually explicit media in order to combat social pathologies such as crime, welfare dependency, and illegitimacy. In this brief essay, I argue that Judge Bork’s call for censorship is in tension with his own earlier influential scholarship pointing out the dangers of government economic regulation. Cultural regulation poses many of the same risks that Bork highlighted in his critiques of economic regulation and also some unique dangers of its own. Like economic regulation, cultural regulation is prone to “capture” by interest groups and to overexpansion. In addition, the government will often be tempted to use cultural censorship to promote its own ideology and repress opposition speech. Both American history and modern European experience support these conjectures. Moreover, events since 1996 show that censorship is not necessary to combat the social pathologies that rightly concerned Bork and other conservatives.  Over the last 15 years, there have been great reductions in social pathology without any increase in cultural censorship. In the long run, conservatives and others would do well to rely on private institutions rather than government to promote desirable cultural values.

Abstract:

Much legal debate exists as to whether courts should engage in procedural or substantive review of a committee or board's attempt to control the litigation. Opponents argue that the current regulatory framework is insufficient when it comes to precluding the filing of questionable cases. Meanwhile, those wishing to encourage and expand liability rules as a corporate governance mechanism deem the framework as too constrained. In an attempt to address these viewpoints, this Article will examine the Harhen v. Brown case decision to determine if the result, despite its reversal by the Massachusetts Supreme Judicial Court, can be justified or whether the decision is an unsustainable invitation to the courts to substitute their judgment for that of directors.

This Article begins by attempting to establish a defensible framework for evaluating judicial review. The author does so through reference to the nature of the wrongdoing at issue, utilizing Zapata v. Maldonado, as well as by explicating the nature of the social meaning of derivative suits, including judicial review of efforts by firms to control the litigation; and through the application of law and economics analysis. The Article then examines an earlier case, Houle v. Low, that enlarged the scope of the Massachusetts business judgment rule as it relates to decisions to terminate shareholder derivative suits. The Article next examines the Massachusetts Appeals Court's application of Houle v. Low to its Harhen v. Brown decision.

Finally, the author addresses policy considerations, including an examination of the deterrence and compensatory value of derivative litigation, and law and economics to this Harhen v. Brown holding. The author argues that the decision taken in Harhen was justifiable because it has the potential to reduce firm-specific agency costs by encouraging meritorious claims which vindicate the social meaning of such suits by creating public deterrence effects in addition to providing private relief. The author contends that the rules (however indeterminate) derived from this case should be expanded to encompass all (including settlement) decisions taken by special - either prelitigation or contemporaneous litigation - committees and the courts.

Abstract:

After some two years of deliberations, in July 2006 the SEC released its long-awaited Guidance on the scope of the “soft dollar safe harbor.”  Passed as part of the Securities Acts Amendments in May, 1975, the safe harbor has protected fund advisers and other money managers for over 30 years from criminal actions and civil suits for breach of fiduciary duty when they use client assets to pay more than the lowest available brokerage commissions in exchange for “brokerage and research services.”  During this time the SEC has interpreted and re-interpreted the safe harbor’s scope, largely owing to the public controversy soft dollars engender as a form of illicit “kickback” designed to subvert advisers’ loyalty.  The SEC’s 2006 Guidance attempts to dramatically narrow the permissible use of soft dollars by prescribing a laundry list of protected and unprotected services.  Yet the SEC is now considering further interpretation, and its chairman has petitioned Congress for an outright repeal of the soft dollar safe harbor.  This paper shows that soft dollars are an innovative and efficient form of economic organization that benefits fund investors.  According to economic theory now well-established in antitrust law, the SEC’s Guidance is hopelessly misguided.  Were the Guidance to come under the scrutiny of a federal court, the SEC would very likely experience another in its recent string of embarrassing legal defeats.

Abstract:

This paper relies on the economics of transaction costs to assess the likely effect on investor welfare of the U.S. Securities and Exchange Commission’s (SEC’s) prohibition on an innovative business practice known as directed brokerage.  Its key insight is that the quality of a broker’s execution of portfolio trades is difficult for a mutual fund adviser to assess until it is too late ? that is, execution quality is an “experience good.”  In the meantime, low-quality brokerage can substantially reduce investor returns.  To have the incentive to provide high-quality execution, a broker must expect to receive a stream of premium portfolio commissions in excess of his execution costs, much along the lines of a Klein-Leffler quality-assuring price premium.  Competition between brokers for premium commissions leads them to post a performance bond with advisers equal to the present value of the expected premium stream.  With directed brokerage, the bond takes the form of up-front broker effort devoted to marketing the fund’s retail shares.  Once having posted the bond, any broker that provides low-quality execution will eventually be terminated by the adviser and lose the premium stream that provides a normal return on the up-front bond.  Low-quality brokerage is thus screened out.  Contrary to its intended effect, the SEC’s prohibition on directed brokerage likely reduces investor welfare by failing to recognize the problems inherent in transacting experience goods.

Abstract:

This Article addresses the resolution of mass tort claims in bankruptcy, with a particular emphasis on one important mechanism available under the Bankruptcy Code, Section 157(b). Section 157(b) allows the district court presiding over a bankruptcy case to centralize all related claims for resolution within the bankruptcy proceedings. This is a particularly important procedural tool given the necessity of a centralized resolution of mass tort claims - one that has been increasingly utilized to resolve such claims on a global basis.

The Article discusses the essential aspects of mass tort litigation in the United States, the potential mechanisms for addressing mass tort liability as well as their shortcomings, the tools available within the bankruptcy system for resolution of mass tort claims, and the ability of bankruptcy courts to centralize all related claims for resolution in a single forum through litigation of common threshold issues of liability. The Article concludes that the bankruptcy system may succeed in efficiently and fairly resolving mass tort claims where other mechanisms have failed.

Abstract:

This article addresses the constitutional concerns and costs and benefits associated with civil commitment for sexually violent predators.  In particular, it focuses on Washington’s civil commitment program, the oldest such program in existence in the United States and, indeed, the only program in the nation in which the constitutional parameters of the treatment program have been fully litigated.  From the outset, Washington’s civil commitment program has been the subject of significant litigation and in large measure that litigation has defined the scope of the constitutional rights of civilly committed individuals to constitutionally adequate treatment.  At the same time it has demonstrated many of the problems associated with such programs and provides an important case study in assessing their costs and benefits.  The article concludes that, in addition to the potential constitutional concerns regarding civil commitment, the costs of civil commitment appear to outweigh its benefits and that increasing criminal penalties for crimes of sexual violence may be a superior alternative.