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:

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.

Fixing Fuller's Record: The Green Bag and the U.S. Reports

By: Ross Davies

Date Posted: 2014

No.: 14-48

Full text (most current version) on SSRN

Abstract:

Melville Fuller, Chief Justice of the United States from 1888 to 1910, had a notably “self-effacing nature.” Perhaps that is why he did not always push hard to correct errors about himself that appeared in published reports. In retrospect, this seems admirably modest in some contexts and disturbingly irresponsible in others. This article deals first with an example Fuller’s admirable modesty, which it overcomes for the benefit of modern readers. Second, this article examines an instance of Fuller’s converse irresponsibility, and suggests that the Supreme Court can and should officially correct Fuller’s error.

Welcome to New Columbia: The Fiscal, Economic and Political Consequences of Statehood for D.C.

Abstract:

This Essay sketches some of the long-term economic and political consequences of making Washington D.C. the 51st State. The statehood debate has overwhelmingly focused on the same set of issues: the impact of statehood on the federal government’s structure. But if D.C. becomes a state, the most impactful change in its citizens’ lives would not be their new ability to elect members of Congress; it would be the dramatic shift in economics and politics that would come with the transition to having a state rather than city government. On the day “New Columbia” enters the Union, it would bear a constellation of features unprecedented in the nation: the only state wholly part of one metropolitan region, the only state without local governments, and the only wholly urban state. These features have deep implications for the advisability of statehood when compared to the alternatives of retrocession or the stateless status quo and also furnish a blueprint for steps to mitigate the risks and exploit the benefits that statehood would offer.

Part I of the Essay will discuss the special fiscal and economic conditions that New Columbia would face. On one hand, statehood would better allow D.C. to take advantage of periods of economic success. In particular, a state of New Columbia would likely be free of the restrictive confines of the Height of Buildings Act, allowing for greater growth when demand for living in D.C. is high. Moreover, the District would likely also gain greater taxing power (although it would lose some forms of generous federal funding). Yet such benefits come at a price: as a single-city state, New Columbia would face drastic risks in times of downturn. The fact that New Columbia would be entirely in one economic region, and the fact that it would exclusively be the center city of that region, would mean almost necessarily that the state would face substantial financial risks in the case of regional and urban-form related shocks. This pro-cyclical effect makes the case for retrocession stronger, and also suggests reforms like a mandatory rainy day fund if statehood is achieved.

Part II discusses the implications of New Columbia’s unique internal politics. As noted, New Columbia would be the only state without local governments. The absence of separate spheres for local and state elections would have at least two major implications for New Columbia’s politics and policy. First, as a state composed of an overwhelmingly single-party city, New Columbia’s elections would likely be decidedly uncompetitive. Even in the status quo, this absence of party-level electoral competition is a likely cause of many of the pathologies in D.C. politics, from excessive restrictions on growth to its persistent problems with corruption. To ensure the state of New Columbia does not share these defects, any move towards statehood should include reforms aimed at introducing more political competition. Second, and more optimistically, the unprecedented marriage of a city and a state government offers a powerful change for innovation. Historically, the relatively circumscribed legal power of cities has prevented them from pursuing a number of effective policies because such powers are the exclusive province of states. Further, big cities are often losers in state political fights. In this context, New Columbia’s fusion of city and state would provide many opportunities for policy flexibility and discovery unavailable to most big cities.

An Assessment of Behavioral Law and Economics Contentions and What We Know Empirically about Credit Card Use by Consumers

By: Thomas A. DurkinGregory Elliehausen Todd Zywicki

Date Posted: 2014

No.: 14-46

Full text (most current version) on SSRN

Abstract:

“Behavioral Law and Economics” (BLE) is a specialized component of the legal literature that purports to base its conclusions on a branch of economic analysis known as behavioral economics. The central claim of BLE is that by applying findings of behavioral economics to the real world it can provide more accurate assumptions about individual behavior and decision making than neoclassical economics and thus better and more effective policy prescriptions where needed. To date, however, BLE’s claims have been almost entirely a priori, taking certain suggested biases identified in the laboratory experiments by behavioral economists and claiming that they extend significantly to actual consumer behavior and the need for regulation. Yet it is well-accepted that the proper test of the scientific validity of an economic theory is the accuracy of its predictions relative to empirically testable hypotheses, not a priori reasoning or hypothetical extensions. This paper focuses on an area where BLE has been particularly active and even influential—the analysis of consumer use of credit cards. Comparison of the claims of BLE against hypotheses of the traditional neoclassical model of consumer credit use developed over the past century finds that available empirical evidence uniformly rejects BLE’s hypotheses for consumer credit. In short, while behavioral considerations are an important component of economic analysis, its BLE extension to policy in the consumer credit area has not yet proven to be useful.

Commentary on CFPB Report: Data Point: Checking Account Overdraft

By: G. Michael Flores Todd Zywicki

Date Posted: 2014

No.: 14-45

Full text (most current version) on SSRN

Abstract:

The Consumer Financial Protection Bureau (CFPB) released a data point update of its ongoing analyses of overdrafts. We review the report and provide commentary on its findings, methodology and the inferences of this update, specifically the potential to further restrict debit card overdrafts. We suggest metrics the CFPB should use in its future analyses to help provide a more thorough assessment of the costs and benefits of overdrafts. To this end, we cite findings from our previous and other third-party analyses. Finally, we recap the larger policy questions of access to credit, alternative sources of credit, and the economic benefit attained by the use of overdrafts. We hope to add positive feedback to the CFPB as they work toward potential regulations of overdrafts. As with the CFPB’s prior efforts, this report provides no basis for additional regulation of bank overdraft protection. Further research, however, is warranted.

Foreword to The Rise of ISIS: A Threat We Can't Ignore by Jay Sekulow

Abstract:

Responding to the fact that murderous forces have been unleashed in the Middle East, and provoked by the prospect that such forces and their allies seek to expand their territory by directly encroaching on the West, this book serves to alert Americans to the risks that ISIS poses. The failure to face the facts richly addressed by the authors of The Rise of ISIS: A Threat We Can’t Ignore, exposes democratic nations to the rising danger that they will capitulate to the prospect of appeasement, disaster and death.