Faculty Working Papers

See also the RSS News feed of working papers as they are released.

Bound print copies of George Mason School of Law’s working paper series on law and economics are available in the Law Library. The bound set often includes initial drafts of papers. Search Mason’s Classic Catalog to locate a working paper.

Recent Working Papers:

Anglo-American Dissent From the European Law of War: A History with Contemporary Echoes

Abstract:

Additional Protocol I to the Geneva Conventions (1977) lays down the “basic rule” that attacks must not be directed at “civilian objects” any more than at “civilians.” Red Cross commentators and others assert that the law of war has embraced this “rule” for many centuries. In fact, the leading commentators in Britain and America disputed this rule in the Nineteenth Century and well into the Twentieth Century. They defended naval seizures of private property as a perfectly reasonable war measure, along with raids on private property of the sort exemplified by General Sherman’s Georgia campaign in the Civil War. Even European commentators, arguing for complete immunity of civilian objects in war, traced the doctrine not to remote tradition but to the mid-18th Century doctrines of Jean-Jacques Rousseau. In the hands of German interpreters, that doctrine was invoked to justify extreme brutality against “resistance” to invading armies. Even today, the “basic rule” does not serve the reasonable claims of humanity in all circumstances.

Opening Pandora’s Black Box: A Coasian 1937 View of Performance Rights Organizations in 2014

Abstract:

This article applies Ronald Coase’s analysis from his 1937 article on the Nature of the Firm to analyze the large music publishers’ recent decisions to withdraw “new media” digital rights to publicly perform musical compositions from the performing rights organizations ASCAP and BMI. The analysis examines how these publishers’ costs and benefits of using ASCAP and BMI have changed over time from technology and from the constraining effects of the 1941 antitrust decrees that govern ASCAP and BMI. Taking the effects of these changes into account, the music publishers’ decisions to use direct market transactions, despite substantial transactions costs savings associated with use of the performing rights organizations, is consistent with the broader comparative and dynamic analysis of the marginal costs and benefits of using these organizations contemplated by Coase in his 1937 paper.

Holmes, Coase & Blackmail

By: Ross Davies

Date Posted: 2014

No.: 14-66

Full text (most current version) on SSRN

Abstract:

From beginning to end, the Holmes-versus-Milverton story is peppered with law. At the start, for example, law determines when Watson can tell the story at all. And it is a legal document that Milverton – an infamous blackmailer – is reading moments before his timely end. The story also features a distinctive type of lawlessness – at least by modern standards – that runs through the “Canon” (the 60 Holmes stories with an Arthur Conan Doyle byline): a blackmailer is almost always confronted by, and is often killed by, a blackmail victim exerting deadly force. Holmes has no objection to victims (at least some of them) killing their blackmailers, as he explains when asked by Inspector Lestrade of Scotland Yard to help search for suspects in the Milverton killing: “Well, I am afraid I can’t help you, Lestrade,” said Holmes. “The fact is that I knew this fellow Milverton, that I considered him one of the most dangerous men in London, and that I think there are certain crimes which the law cannot touch, and which therefore, to some extent, justify private revenge. No, it’s no use arguing. I have made up my mind. My sympathies are with the criminals rather than with the victim, and I will not handle this case.” Holmes is endorsing vigilantism, a dubious stance for a sophisticated proponent of justice. Had he had access to the scholarship of economist-to-be Ronald Coase, and had he been more mindful of judicial opinion about blackmail in his own day, Holmes might have described the Milverton killing differently.

Rational Basis With Economic Bite

By: Steven Menashi Douglas Ginsburg

Date Posted: 2014

No.: 14-65

Full text (most current version) on SSRN

Abstract:

In The Classical Liberal Constitution, Richard Epstein argues that the normative theory of classical liberalism underlies the Constitution and gives life to its guarantees; many constitutional guarantees have been undermined, however, by unduly deferential judicial review that is satisfied if there is a “rational basis,” real or hypothetical, for a law. Yet even the rational basis standard asks whether a law serves a legitimate government purpose, which entails normative assumptions about the ends a government may permissibly pursue. Before the New Deal, the Supreme Court applied a form of rationality review that was deferential but not toothless because the Court had a stronger sense of the proper scope of the police power. The contemporary Court applies more searching “rational basis with bite” but only where it thinks impermissible purposes are at play, particularly where legislation appears to target a vulnerable group. Rational basis review, therefore, is variable depending upon the Court’s normative frame.

Recently, three circuit courts applying rational basis review have held licensing laws that restrict entry into a field of economic activity are unconstitutional. These circuits have concluded that a state’s purpose to protect an interest group from economic competition is illegitimate — and have struck down licensing regulations that served no other purpose. This application of “rational basis with bite” to protect economic rights suggests another normative shift, one involving public disapproval of rent-seeking and special-interest legislation. In the nearly 60 years since the Court adopted its stance of extreme deference to economic legislation in Lee Optical, a deregulation movement has focused attention on the costs of excessive regulation and public choice theory has undermined the confidence expressed by the Court in Carolene Products that democratic political processes will protect the public from undesirable legislation. The occupational licensing laws invalidated in the circuit cases are precisely the sort of special-interest legislation that the political process is unlikely to screen out. Thus, even the modern concern with “clearing the channels of political change” suggests that heightened judicial scrutiny is warranted. Epstein connects that concern with the Madisonian focus on the problem of faction. His discussion suggests other types of economic legislation should be subject to judicial review using the “rational basis with bite” standard.

Same-Sex Marriage and the “Reconceiving” of Children

Abstract:

Historically, the U.S. Supreme Court has consistently highlighted the importance of procreation in its consideration of marriage in constitutional cases. Recently, however, litigants seeking same-sex marriage and judicial decisions sympathetic to their arguments have ignored the language and holdings of this long-standing body of law. Instead, they have focused nearly entirely upon adults’ interests in state marriage recognition. To the extent children are mentioned, it is for the purpose of speculating that children living within same-sex marriage households might indirectly benefit from recognition of adults’ rights to same-sex marriage.

This Article discusses the importance of states’ interests in procreation and child rearing and the Supreme Court’s constant recognition of those interests. Ultimately, this Article argues that judicial decisions recognizing same-sex marriage have marginalized, or “reconceived,” the role of children in marriage, in several important ways, all to the marked disadvantage of children.

Hayek’s Jurisprudence: And Ratnapala’s Hayek

Abstract:

Suri Ratnapala is one of the keenest and most insightful analysts of the thought of the great economist and social thinker F. A. Hayek. Hayek was the leading exemplar of the historical, or evolutionary, theory of law in the latter half of the 20th century, but his jurisprudential thought has been largely neglected by legal scholars. In two articles, Ratnapala outlined the core ideas of Hayek’s legal philosophy and developed their place within Hayek’s larger theory of economics, social thought, and epistemology. This article reviews Ratnapala’s analysis of Hayek’s legal theory and offers a few elaborations thereon.

Actavis and Multiple ANDA Entrants: Beyond the Temporary Duopoly

Abstract:

This paper examines the economics of litigation and settlement of patent disputes arising from Paragraph IV ANDA filings under the Drug Price Competition and Patent Term Restoration Act (“Hatch-Waxman Act”) within the framework set out in FTC v. Actavis. Recent economic analyses of reverse payment settlements are based upon a monopoly-to-duopoly model that assumes a single generic entrant. These analyses have been used to support antitrust rules that would enjoin reverse payments that exceed the cost of litigation. We demonstrate that the simple monopoly-to-duopoly models providing the analytical basis for the litigation cost benchmark for analyzing reverse payment settlements is incomplete. Our key institutional insight is the fact that entry by multiple firms follows the invalidation of a patent. Accounting for this critical institutional detail in a more generalized monopoly-to-duopoly model results in important and different implications for patent settlements, welfare, and application of the rule of reason pursuant to Actavis. The result is a broader settlement range than under the monopoly-to-duopoly model that yields robust incentives for the brand and generic entrant to settle the case. This broad settlement range makes attempts to regulate the size of patent settlements ineffective at achieving consumer welfare increasing settlements, or inducing the invalidation of “bad” patents through higher litigation rates. Incorporating multiple serial entrants also decouples the litigation-adjusted expected value of the patent and the consumer welfare standard, and further weakens the relationship between patent strength and the size of the settlement which has motivated numerous calls to deem presumptively unlawful all payments greater than anticipated litigation costs.

Things Aren’t Going That Well Over There Either: Party Polarization and Election Law in Comparative Perspective

Abstract:

One of, if not the, most important change in American political life over the last 30 or so years has been the rise of extreme party polarization. Our two major parties are increasingly ideological distinct and distant from one another, and increasingly willing to abandon long-standing institutional norms and short-term policy compromise in the name of achieving long-run party goals. Efforts to understand why the parties have changed largely have been parochial, largely looking for explanations in American politics, history, media and institutional arrangements.  This focus has a logic to it. Politics in most other advanced democracies does not feature the same type of polarization between parties, and therefore the answers for why American politics has gone in this direction seem to lie inward rather than abroad.   

But it is still a mistake. This short essay argues that a common shift in voter preferences towards more radical and fundamentalist opinion among even a small slice of the electorate can explain polarization in the United States and changes in politics abroad. In many European countries with proportional representation (PR), we have seen the rise of parties so radical that established parties refuse to form coalitions with them. In “Westminster” systems, which due to their use of first-past-the-post vote counting and single-member districts are supposed to tend towards having two parties, we have seen the rise in third-and fourth party voting. Notably, in most Westminster systems, there is little intra-party democracy, leading groups of voters with more radical opinions without the ability to influence mainstream parties, which makes those with radical opinions more willing to waste votes. A plausible story about American political development is that the same voters and interest groups who would form radical parties in PR systems and support spoilers in Westminster systems use intraparty democracy to influence our two-party system and create polarization. Election laws and institutional design shape the way radicalism influences politics. 

If this is right, several lessons follow. Any effort to understand why American parties have changed must look at factors that are common across many western democracies. Further, the rise of radical parties in PR systems and spoilers in Westminster systems have created governance problems that are of a type with the problems created by our extreme polarization. We should thus be skeptical that there are institutional design reforms that can make American governance work easily in the face of polarization. 

Libertarianism and Originalism in The Classical Liberal Constitution

By: Ilya Somin

Date Posted: 2014

No.: 14-60

Full text (most current version) on SSRN

Abstract:

Richard Epstein’s The Classical Liberal Constitution is an impressive synthesis of between libertarian political theory and constitutional interpretation.

Part I of this brief essay summarizes Epstein’s important contribution to constitutional scholarship, particularly his sophisticated effort to integrate originalism and libertarianism. In Part II, I consider a possible tension in his theory: Epstein’s desire to leave room for government regulation that cures market failures could potentially be used to justify a wide range of nonlibertarian forms of government intervention that might undermine the very constitutional rights that he seeks to protect.

Part III suggests that the tension in Epstein’s theory can be partially mitigated by greater reliance on originalism with fewer policy-driven exceptions for market failures. Given real-world judges and political actors, this might result in greater economic efficiency as well as stronger protection for individual freedom than Epstein’s approach. In the process of considering these issues, I focus on judicial interpretation of the Bill of Rights. It may be helpful to look at the original meaning not just in 1791, when the Bill of Rights was first enacted, but also in 1868, when, as a result of the Fourteenth Amendment it became incorporated against state governments. The case of the Public Use Clause of the Fifth Amendment, which Epstein and I have both written about extensively, exemplifies each of these points.

Bork’s “Legislative Intent” and the Courts

Abstract:

Robert H. Bork’s influence upon modern antitrust law is difficult to overstate. One of his lasting legacies is his analysis of the legislative history, text, and structure of the Sherman Act, which led him to conclude the intent of the Congress passing it was to maximize consumer welfare and economic efficiency. That conclusion was adopted by the Supreme Court in 1979 and has formed the foundation for antitrust policy and enforcement ever since. This article explains the rationale for Bork’s “consumer welfare” thesis, recounts the history of its rise and the objections it engendered from other academics, and summarizes its salutary effect upon antitrust law and business practices.

Enjoining Injunctions: The Case Against Antitrust Liability for Standard Essential Patent Holders Who Seek Injunctions

By: Douglas GinsburgTaylor M. Owings Joshua Wright

Date Posted: 2014

No.: 14-58

Full text (most current version) on SSRN

Abstract:

A standard essential patent (SEP) may give the patent holder market power in the market for an input that technology manufacturers need in order to make their products compatible with each other. Several commentators have argued that, when a patent becomes part of a standard pursuant to an agreement among competitors given in exchange for the patent holder’s promise to license the technology under fair, reasonable, and non-discriminatory (FRAND) terms, antitrust law should limit the holder’s right to seek an injunction to stop an infringing manufacturer from selling its standardized product. We disagree for two reasons: First, antitrust sanctions are not necessary, given the law of contracts and of injunctions, to avoid harm to consumers and, second, the application of antitrust law in this situation could, by undermining the ability of courts to tailor appropriate remedies, diminish the incentives for companies to innovate and for industries to adopt standards.

Introduction and Overview of Consumer Credit: Development, Uses, Kinds, and Policy Issues

By: Thomas A. DurkinGregory ElliehausenMichael E. Staten Todd Zywicki

Date Posted: 2014

No.: 14-57

Full text (most current version) on SSRN

Abstract:

The growth of the American economy in the post-War era has been characterized by a growth in the consumer economy as a fundamental driving force in the economy. In turn, this growth in the consumer economy has been driven by a growth in usage and spread of the use of consumer credit. Yet the relationship between consumer credit and the American economy remains little understood and little explored by economists.

This book explores the institutions, history, and economics of consumer credit, focusing especially on the causes and consequences of the growth of consumer credit in the post-War era. Focusing primarily on consumer, non-mortgage debt, we identify the reasons for growing use of consumer credit and public policy responses to it. Starting with the basic question of “Why do consumers borrow?” we consider the evolution of consumer credit institutions and the manner in which these evolutions have co-evolved with other elements of society and the economy and the ways in which these factors have transformed American society. We also discuss contrary hypotheses, such as the long-standing research efforts to study consumer behavior from the perspective of consumer psychology (recently taking the form of so-called Behavioral Economics) and the ways in which these views have been incorporated into the study of consumer credit. Most important, as the government stumbles through efforts to respond to the most recent financial crisis, we argue that a proper understanding of how consumers actually use consumer credit and the impact on the American economy is essential for sound policy-making.

We present here Chapter 1, the Introduction to Consumer Credit and the American Economy, which provides an overview of the book and frames the discussions to follow.

Administrative Law Without Congress: Of Rewrites, Shell Games, and Big Waivers

By: Michael GreveAshley Parrish

Date Posted: 2014

No.: 14-56

Full text (most current version) on SSRN

Abstract:

Administrative law has ceased to respond adequately to the challenges posed by modern-day executive government. We suggest that the discordance reflects a mismatch between the debilities of the Congress and an administrative regime built on legislative supremacy.

Administrative law—in its New Deal and its modern, post-Chevron forms—presuppose a Congress that is jealous of its legislative powers. However, the modern Congress has increasingly dis-empowered itself. It consistently fails to update old statutes even when they are manifestly outdated or, as actually administered, have assumed contours that neither the enacting nor the current Congress would countenance. When Congress does legislate, it tends to enact highly convoluted and often incoherent “hyper-legislation.”

We examine the effects first on agencies, and then on courts and their doctrines. Knowing that there is no turning (back) to Congress, agencies are tempted to improvise policies lacking legislative authority. In turn, administrative law doctrines that were developed under very different institutional conditions start to bend.

We describe three increasingly common forms of agency action: (1) agency “re-writes” of statutes; (2) procedural shell games and manipulation; and (3) broad regulatory waivers without or in excess of a statutory warrant. We provide illustrations in the “old statutes” and “hyper-legislation” settings. Our principal old-statute example is the Clean Air Act and the protracted litigation over the EPA’s regulation of greenhouse gases, culminating (for now) in the Supreme Court’s decision in Utility Air Regulatory Group v. EPA. Our principal examples of hyper-legislation are the Dodd-Frank Act and the Affordable Care Act, including the pending litigation over the scope of the act’s subsidy and mandate provisions.

We conclude with a plea for more institutional realism and less interpretive metaphysics in administrative law.

Libertarianism and Federalism

By: Ilya Somin

Date Posted: 2014

No.: 14-55

Full text (most current version) on SSRN

Abstract:

Federalism is a political system with multiple levels of government, each of which has some degree of autonomy from the others. The United States has a federalist system that encompasses the national government, states, and localities. The United States adopted federalism in part to prevent abuses of power and to preserve individual liberty. Federalism serves those goals by helping individuals to “vote with their feet,” thereby fostering interjurisdictional competition. Such benefits are most likely to be found in federal systems where subnational governments have an incentive to compete for residents and businesses because they must raise most of their revenue from their own taxpayers, as opposed to receiving subsidies from the central government. In many ethnically divided societies, federalism can also enhance liberty by reducing ethnic conflict and oppression. However, federalism can also endanger liberty or property by empowering subnational governments to exploit owners of immobile assets, most notably land. Federalism can also permit local majorities to oppress local minorities. Contrary to James Madison’s expectations, federalism in the current era is unlikely to constrain the national government since states have incentives to support the expansion and centralization of power in Washington. Whether federalism enhances liberty depends on circumstances and institutional design.

Baseball and the U.S. Constitution, Circa 1887

By: Ross Davies

Date Posted: 2014

No.: 14-54

Full text (most current version) on SSRN

Abstract:

Only one sport played a part in the centennial celebration of the U.S. Constitution in Philadelphia: baseball. On September 15, 1887, while the Justices of the U.S. Supreme Court were breakfasting in the Academy of Music building at 240 South Broad Street, a big parade — the centennial’s “Civic and Industrial Procession” — was rolling by outside, past the Academy of Music and the magnificent City Hall under construction at the end of the street. The Marshal of the parade included this entry in his formal report after the event: “KENSINGTON BASE-BALL CLUB. This organization paraded one wagon, handsomely decorated with flags, drawn by two horses, decorated with flags and bells, and carrying the members of the club in their uniform,— light-gray suits, light caps with red band, red stockings and belts, light shoes, and the name of the club upon their shirt-fronts. They were the only representatives of the national game, which for the last quarter of a century has attracted intense interest from admirers of athletic sports.”

Lego and Law: Linking the Gilded Age and Today

By: Ross Davies

Date Posted: 2014

No.: 14-53

Full text (most current version) on SSRN

Abstract:

The Supreme Court of the United States may be skeptical about the emotional capacity of an incorporated entity, but the Green Bag has no doubts about its own passion for Lego. This sentiment has manifested itself only rarely and recently in print, but it has long been deeply felt. Our focus in this Almanac on the 1887 Constitutional Centennial in Philadelphia provides a nice opportunity to again express our love of Lego, because the Supreme Court-related Centennial festivities provide an obvious choice for a new plastic-brick structure.

Breakfast with the Justices: Networking in the Nineteenth Century

By: Ross Davies

Date Posted: 2014

No.: 14-52

Full text (most current version) on SSRN

Abstract:

On Thursday, September 15, 1887, the Philadelphia bar hosted a lavish “Breakfast to the Justices of the Supreme Court of the United States” in that city’s American Academy of Music building. It was the first of a series of events — parades, ceremonies, speeches, and so on — celebrating the centennial of the Constitution of the United States. Some, like the “Breakfast to the Justices,” were by invitation only. Others were open to the public and attracted large crowds — the biggest were probably the “Civic and Industrial Procession” on September 15 and the “Memorial Day Ceremonies in Independence Square” on September 17. All those big events, both the private and the public, surely were exciting at the time and merit further study today. But the focus of this little essay is elsewhere — on a pair of small but instructive (and perhaps also amusing) aspects of the inner workings of the “Breakfast to the Justices.”

Globalization and the Pursuit of Decent Work: Can the ILO Deliver?

Abstract:

Whether globalization is a relatively recent development or not, it appears that as nations and nongovernmental organizations focus on international competitiveness and the correlative commitment to liberalization and privatization, and the acceptance of interdependencies and integrations among the world’s major economies, these moves have consequences. Taken together with (1) the pursuit of trade liberalization by the West (the quest for open markets for Western products and capital markets), (2) increased international inequalities with respect to capital stock and flows favoring the richest countries, (3) the simultaneous rise in trade protection that reduces or constrains access by developing countries to Western markets, and (4) the incipient and growing emphasis on technology and innovation by many countries and firms including the emergence of information and communication technologies (ICT) including the world wide web and the internet, the prospect of inequality in relationships and income advances.

On the other hand, globalization has been accompanied by the instantiation of new institutions coupled with renewed attention being given to existing intergovernmental institutions such as the International Labor Organization that are designed to deal with problems that are either initiated or exacerbated by globalization. Given the difficult economic currents percolating throughout the world, many analysts suggest that the “real question is how labor law can respond to the challenges presented by globalization. In order to promote an efficacious labor law . . . [it is argued that a] new global goal should be added to the labor law agenda – decent work with a living wage.” The ILO program is advanced around the world through its promotion of “decent work,” an apparently ambiguous slogan calculated to level income inequalities within and between nations. It is the objective of this paper to briefly explore the promise, possibilities and failures of the ILO in an era that apparently features an increasing acceptance by elite opinion formers, banks and financial institutions, and Western world leaders of the presumed value and presumed legitimacy of increased trade integration.

The Behavioral Law and Economics of Fixed-Rate Mortgages (and Other Just-So Stories)

Abstract:

A major cause of the recent financial crisis was the traditional American mortgage, which is distinctive for the following features: it is a thirty-year, self-amortizing loan with an unlimited right to prepay. The United States is unique in the world for standardizing on a mortgage product with these features. Yet not only have a majority of the foreclosures that occurred during the financial crisis been fixed-rate mortgages, the fixed-interest-rate characteristics have undermined efforts by the Federal Reserve and government to assist recovery of the housing market. Moreover, the long fixed-rate term and ability to refinance are highly expensive and suboptimal features for many consumers. Nevertheless, many consumers persist in purchasing this mortgage. Drawing on the methodology of behavioral law and economics, this article provides rationalizations for how behavioral law and economics can explain the persistence of a product that is so harmful to many consumers and to the economy at large. The article then draws conclusions about what this analysis means for the behavioral law and economics research program generally and for the use of behavioral law and economics in government policy-making.

Bruno Leoni’s Legacy and Continued Relevance

Abstract:

In his famous book, Freedom and the Law, originally published in 1961, Italian lawyer-economist Bruno Leoni posed the question of whether over the long run a society and legal system premised primarily on legislative law-making could sustain a system of individual liberty, or whether such a system required a common law-style foundation to support it. In this article I evaluate Leoni’s challenge and find that his predictions about the nature of a legislative-centered legal system not only are more relevant than ever, but that recent tendencies toward extreme and arbitrary law-making by executive edict are consistent with the trends and intellectual principles that Leoni identified over 50 years ago. By identifying the underlying jurisprudential theories that generated the current state of affairs, Leoni’s warnings are even more relevant today than ever before.