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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 Catalog to locate a working paper.

Recent Working Papers:


Generic Drugs, Used Textbooks, and the Limits of Liability for Product Improvements

By Timothy Muris, Jonathan Nuechterlein

ABSTRACT:

A key issue in "product-hopping" cases is how to reconcile society's interest in increased price competition with the need for continued pharmaceutical innovation, particularly where a new product formulation presents genuine therapeutic benefits. Some courts have proposed to weigh the acknowledged therapeutic value of a new pharmaceutical product against the monetary effects of suppressed generic competition. But the task of "weighing" such radically incommensurable social values lies well beyond the competence of generalist tribunals. Michael Carrier and Steve Shadowen have proposed to side-step this problem through what they call a "no business sense" test. Although this approach would avoid a direct comparison of therapeutic benefits and monetary harms, it would present intractable implementation problems of its own, and it asks the wrong conceptual question in any event. In the final analysis, developing and marketing a new formulation should not subject a manufacturer to antitrust liability if the formulation presents genuine therapeutic benefits for patients.

We underscore these points by comparing the pharmaceutical marketplace to the economically similar marketplace for college textbooks. That marketplace, too, features a "price disconnect," where the professors who assign textbooks do not pay for them, and the students who pay for textbooks do not choose them. Yet no one seriously proposes to subject publishers and authors to antitrust liability for conduct strikingly similar to pharmaceutical product-hopping: introducing new editions more often than they otherwise would allegedly in order to suppress competition from used booksellers. There is no principled reason for applying different rules to successful reformulations of existing pharmaceutical products.

The Proper Role of History and Tradition in Second Amendment Jurisprudence

By Nelson Lund

ABSTRACT:

The Supreme Court’s decisions in District of Columbia v. Heller (2008) and McDonald v. City of Chicago (2010) resolved two foundational issues. First, the Second Amendment protects the inherent right of individuals to self-defense, not a right of states to maintain an organized militia. Second, the Amendment applies to state and local governments in the same way that it applies to the federal government. Both cases also held that a general ban on the possession of a handgun in one’s home are unconstitutional. In the ensuing decade, the lower courts have confronted many questions about the scope and application of the Second Amendment that were left unanswered by these decisions.

Shortly after the retirement of Justice Anthony Kennedy, who was probably the median voter in the 5-4 decisions in Heller and McDonald, the Court granted certiorari in New York State Rifle & Pistol Association v. City of New York. This challenge to New York City’s uniquely severe restrictions on transporting firearms in public raises another foundational issue: whether the Second Amendment right to “bear Arms” is protected outside one’s own home. New York has attempted to render this case moot by changing the law to accommodate the plaintiffs’ very specific and modest demands. The plaintiffs maintain that the case is not moot, and the Court has not yet ruled on that issue.

Whether in this case or some other, Justice Brett Kavanaugh will have an opportunity to press an unusual jurisprudential approach that he developed in a dissenting opinion while he was on the D.C. Circuit. He contended that Heller requires courts to apply a history-and-tradition test to every issue that is not resolved by the constitutional text. No circuit court has adopted this position. Many, however, have employed a version of the means-end analysis that the Supreme Court routinely uses in analogous areas of constitutional law, and none has rejected the use of such analysis.

This Article will show that then-Judge Kavanaugh misinterpreted Heller, and it will explain why neither he nor other members of the Supreme Court should adopt the approach that he mistakenly imputed to Heller. Other circuit judges have developed a better framework, in which text, history, and tradition are relied on when, and only when, those sources provide reasonably clear guidance. In other cases, which in practice will be much more numerous, judges should engage in means-end analysis that is informed by what is known about the purpose of the Second Amendment from its text and history.

Knick v. Township of Scott: Ending a Catch-22 that Barred Takings Cases from Federal Court

By Ilya Somin

ABSTRACT:

The Supreme Court’s decision in Knick v. Township of Scott put a long-overdue end to a badly misguided precedent that had barred most takings cases from federal court. The big issue at stake in Knick was whether the Court should overrule Williamson County Regional Planning Commission v. Hamilton Bank (1985). Under Williamson County, a property owner who contends that the government has taken his property and therefore owes “just compensation” under the Takings Clause of the Fifth Amendment could not file a case in federal court until he or she first secured a “final decision” from the relevant state agency and “exhausted” all possible remedies in state court. The validity of this second “exhaustion” requirement was at issue in Knick. Even after both Williamson County requirements were met, it was still usually impossible to bring a federal claim because procedural rules preclude federal courts from reviewing final decisions in cases that were initially brought in state court.

Part I of this article briefly describes the background of the Knick case and the Williamson County decision that the Court ended up reversing. In Part II, I explain why the Court was right to conclude that Williamson County created an indefensible double standard under which takings claims against state governments were effectively barred from federal court in situations where other types of constitutional claims would not be. Part III explains why overruling Williamson County is justified under the Supreme Court’s admittedly imprecise doctrine on overruling precedent. Justice Elena Kagan’s dissenting opinion is wrong to argue that overruling Williamson County also entails overruling numerous earlier precedents. Finally, Part IV assesses the potential real-world impact of the Knick decision. In many cases, it will make little difference whether a takings claim gets litigated in state court or federal court. In some situations, however, the right to bring a claim in federal court is a vital tool to avoid potential bias in state courts and procedural hoops that subject property owners to a prolonged ordeal before they have an opportunity to vindicate their rights. Claims that Knick will lead to a flood of new takings litigation are overblown. But to the extent that substantial new litigation does result, that is likely to be a feature, not a bug.

Privacy and Consumer Control

By Howard Beales, Timothy Muris

ABSTRACT:

This essay, prepared for the Aspen Institute Congressional Program on the Internet, Big Data, and Algorithms, makes three points. First, personal information about commercial transactions does not belong solely to the consumer. Approaches to privacy regulation based on property, particularly notice and choice, do not give consumers meaningful control over their information or how it is used. Second, regulating information uses based on the consequences of information use and misuse is a more productive approach, providing important protections to consumers. Third, information about users is critical in determining the value of the targeted advertising on which the financing of internet content depends, allowing consumer to receive valuable information and services without direct payment.

The Promise and Peril of Epistocracy

By Ilya Somin

ABSTRACT:

Jason Brennan's Against Democracy makes a strong case that democratic majorities' right to rule rests on shaky grounds so long as their ballot box decisions are heavily influenced by ignorance and bias. But his “epistocratic” alternative - empowering the better-informed segments of society - has significant flaws of its own. Ironically, the biggest shortcoming of epistocracy may be that we lack the knowledge necessary to make it work well.

Testimony on 'The State of Patent Eligibility in America' before the Senate Judiciary Committee, Intellectual Property Subcommittee

By Adam Mossoff

ABSTRACT:

This invited testimony was prepared for the Senate Judiciary Committee, Intellectual Property Subcommittee, hearing on reforming § 101. It identifies several reasons that justify congressional action in reforming § 101 and abrogating the Alice-Mayo framework created by the Supreme Court in its patent eligibility cases between 2010 and 2014. First, it details the very high rates of invalidation of patents and rejection of patent applications under § 101 since 2014. Second, it explains why the USPTO’s recent reforms in its § 101 examination guidelines are insufficient to solve the problems of excessive cancelations of patents by courts and uncertainty for innovators. Third, it identifies a guidepost for congressional action today in the 1952 Patent Act. Congress has abrogated Supreme Court doctrines many times before, and its enactment of § 103 in the 1952 Patent Act is a model for reform of § 101 today. Section 103 is succinct, technology neutral, and simple in setting forth procedural and substantive limits for nonobviousness doctrine. It does this because it responded to the same problems in nonobviousness doctrine that innovators face today under patent eligibility doctrine: the Supreme Court created a very restrictive test (“the flash of creative genius”) that resulted in extensive invalidations of patents and uncertainty for innovators. In 1949, Justice Robert Jackson lamented in dissent that "the only patent that is valid is one which this Court has not been able to get its hands on." This could have been written today about patent eligibility cases. Congress should act again to rein in a judicial doctrine that is undermining the function of the patent system in driving the innovation economy.

Questioning Patent Alienability

By Tun-Jen Chiang

ABSTRACT:

The standard economic rationale for the alienability of property rights is that it facilitates the flow of resources to those who can put it to the most valuable use, or the “highest utility user.” But patents do not come with a right to productively use some social resource—patent rights consist only of a right to stop others from using the claimed invention. The person who is most able to extract rents with a patent’s veto power is not necessarily the same as the person who will put an invention to its most socially valuable use. If one simply applied the conventional economic justification for the alienability of property rights onto patents, then having patents flow to the highest rent extractor is not obviously desirable from a social viewpoint. Restricting transfers to predatory users would accordingly seem justified.

If the unrestricted alienability of patents is to be justified on economic grounds, it must be by reference to other reasons, such as an argument that allowing alienability increases the value of a patent and therefore increases ex ante incentives to invent. But such alternative justifications come with their own limits. Alienability is neither the only means to increase ex ante incentives to invent, nor a particularly effective one, given that inventors must share the surplus generated by alienability with the (more sophisticated) transferee. The case for unlimited alienability of patents is therefore an uneasy one.

Book Review, The US Supreme Court and the Centralization of Federal Authority, by Michael A. Dichio

By Ilya Somin

ABSTRACT:

Does the U.S. Supreme Court protect the states from the expansion of federal authority? In this important new book, political scientist Michael Dichio argues that the answer is “no.” To the contrary, he contends that, throughout American history, “the Court …. has persistently acted as an important instrument of the broader central state, expanding federal authority over society.” The theory that the Supreme Court expands federal power at the expense of the states is not a new idea, having been first raised by anti-Federalist critics of the Constitution over 200 years ago. But Dichio provides the most thorough and wide-ranging defense of it to date, drawing on an extensive database of notable Supreme Court decisions from 1789 through 1997. Among other things, he shows that the Court constrained the states in important ways even in historical periods that are often thought of as high points for “states’ rights,” such as the Jacksonian era and the late nineteenth century. 

Dichio’s analysis is, in many ways, compelling, and is a major contribution to the literature on federalism and judicial review. But some of his methodological choices overstate the centralizing tendencies of the Supreme Court. He also unduly downplays some key ways in which the Court promotes decentralization of power. While the Supreme Court has never been a consistent ally of state governments seeking to limit federal authority, it is also not quite as consistent a centralizing force as Dichio suggests.

Antitrust After Big Data

By John Yun

ABSTRACT:

With the rise of digital markets, the conventional wisdom was that big data was a new economic phenomenon that would allow incumbent firms with market power to entrench their market positions, foreclose competitors, and serve as a virtually insurmountable barrier to entry. This led to calls for greater antitrust enforcement and regulation of big data practices. Since that time, with the benefit of substantial growth in the theoretical and empirical economic literature involving big data, it is appropriate to revisit our understanding of big data’s implications for antitrust. This paper contributes to the discussion by detailing three things we have learned about big data as it applies to competition policy. First, we now have a better understanding of the role that big data plays in the production and innovation process. Second, it makes little sense to reflexively label big data as a barrier to entry. Competition policy is better served by considering actual entry conditions rather than basing competitive effects analysis on determining whether access to certain inputs are or are not barriers to entry. Third, competition authorities now have a sizeable level of experience in assessing big data in actual cases. It is notable that, thus far, big data alone has not fueled a theory of harm that has led to an agency challenge in the U.S. or Europe. All these considerations suggest that we are perhaps in a new, more mature, era regarding big data in competition policy — not because big data is any less important to innovation — but because researchers and regulators have consistently found that big data in and of itself does not represent a relevant antitrust concern.

The Political Economy of Enforcer Liability for Wrongful Police Stops

By Tim Friehe, Murat Mungan

ABSTRACT:

This article questions whether excessive policing practices can persist in an environment where law enforcement policies are subject to political pressures. Specifically, it considers a setting where the police decide whether to conduct stops based on the suspiciousness of a person's behavior and the potential liability for conducting a wrongful stop. We establish that the liability level that results in a voting equilibrium is smaller than optimal, and, consequently, that excessive policing practices emerge in equilibrium.

The Destructive Legacy of McCulloch v. Maryland

By Nelson Lund

ABSTRACT:

McCulloch v. Maryland is probably the Supreme Court’s single most influential opinion, and certainly one of its most celebrated. As countless commentators have recognized, McCulloch’s importance arises from its doctrine of implied congressional powers, which has been applied even to constitutional amendments adopted decades after the McCulloch decision itself. Revered though it may now be, Chief Justice Marshall’s opinion provoked a hostile commotion when it was issued. So much so that he was moved to defend it in a series of anonymous newspaper essays. The opinion remained controversial for many years, and it deserves to become controversial once again.

Like Marshall, all of the current Justices can say that the abstract principle of limited and enumerated powers is “now universally admitted.” But the legacy of his opinion has been the effective destruction of that principle. McCulloch famously proclaimed that “we must never forget, that it is a constitution we are expounding.” This sonorous aphorism is frequently, if unnecessarily and improperly, taken to mean that it is merely a constitution, which judges are free (or obligated!) to amend under the guise of interpretation. That attitude has triumphed historically, and perhaps irrevocably. Constitutional law is widely regarded now as a branch of political philosophy or as a field on which to play junior varsity statesmanship. Or, not infrequently, as an arena for flamboyant moral posturing or as a weapon of partisan warfare.

Rather than submissively celebrate these developments, we could choose to stop forgetting that the Constitution was originally meant to be a law, and that it was meant to be more authoritative than what the Supreme Court says about it. If we did, McCulloch and its rank progeny would become controversial once again.

The Second Amendment and the War on Guns

By Nelson Lund

ABSTRACT:

The right to keep and bear arms is a vital element of the liberal order that our Founders handed down to us. They understood that those who hold political power will almost always strive to reduce the freedom of those they rule, and that many of the ruled will always be tempted to trade their liberty for empty promises of security. The causes of these political phenomena are sown in the nature of man. The U.S. Constitution, including the Second Amendment, is a device designed to frustrate the domineering tendencies of the politically ambitious. The Second Amendment also plays an important role in fostering the kind of civic virtue that resists the cowardly urge to trade liberty for an illusion of safety. Armed citizens take responsibility for their own security, thereby exhibiting and cultivating the self-reliance and vigorous spirit that is ultimately indispensable for genuine self-government. While much has changed since the eighteenth century, for better and for worse, human nature has not changed. The fundamental principles of our regime, and the understanding of human nature on which those principles are based, can still be grasped today. Once grasped, they can be defended. Such a defense demands an appreciation of the right to arms that goes beyond the legalistic and narrowly political considerations that drive contemporary gun control debates.

What’s Next in Apple v. Pepper? The Indirect Purchaser Rule and the Economics of Pass-Through

By Bruce Kobayashi, Joshua Wright

ABSTRACT:

In Apple v. Pepper, the Supreme Court issued a narrow 5-4 decision holding that iPhone users who purchased apps from the Apple App Store were direct purchasers. Justice Brett Kavanaugh, writing for the majority, held that the iPhone users had standing under Illinois Brick to sue Apple for alleged monopolization under Section 2 of the Sherman Act. The dissent, written by Justice Gorsuch, concluded that the iPhone users were direct purchasers of distribution services provided by Apple, and thus relied on a "pass-on" theory to recover damages from Apple. On remand, the plaintiffs will have to show that they were harmed by Apple's ad valorem royalty rate. Our analysis demonstrates that the plaintiffs are unlikely to prevail because they have not been harmed by Apple's ad valorem rate. We also explain that the Supreme Court correctly accepted the plaintiff's alleged market definition at the motion to dismiss stage, and therefore did not abandon its ruling in American Express.

Section 2 Mangled: FTC v. Qualcomm on the Duty to Deal, Price Squeezes, and Exclusive Dealing

By Douglas Ginsburg, Joshua Wright, Lindsey Edwards

ABSTRACT:

Judge Koh handed down a sweeping opinion in May 2019 condemning as antitrust violations many of Qualcomm’s business practices related to the royalty rates it charged to license its SEPs. The district court opinion significantly expands the scope of liability for refusals to deal and for non-predatory pricing behavior, further eroding the longstanding symmetrical approach to antitrust enforcement regardless of the kind of property involved. 

We find three glaring errors in the district court opinion. First, the court expands the exception to the general rule permitting refusals to deal, as laid out in Aspen Skiing, well beyond the outer boundary of Section 2 by applying it to contracts negotiated by Qualcomm over 20 years ago and by inferring the company was willing to sacrifice profits even in the face of evidence that the change in dealing was implemented to increase short-term profits. Second, the district court accepted a price squeeze theory—characterized by the FTC as a “tax” on OEMs transacting with Qualcomm’s rivals—directly contrary to the Supreme Court’s holding in linkLine. Third, the court erroneously concluded that Qualcomm’s exclusive dealing arrangements with Apple violate the Sherman Act, despite a glaring failure by the FTC to prove substantial foreclosure, contrary to modern antitrust precedent and economic theory, both of which make crystal clear that proof of substantial foreclosure is necessary to showing an anticompetitive effect from exclusive dealing. 

The district court’s inappropriate extension of antitrust liability in three separate areas of well-settled antitrust doctrine is remarkable and threatens to upend important precedent that has successfully guided business conduct for years. Further, the remedy—aside from putting the nation’s security at risk and potentially undermining U.S. leadership in 5G technology and standard-setting—transforms the role of antitrust courts from adjudicators to central planners, a role for which the Trinko Court expressly stated they are ill suited. The decision invites plaintiffs to use the Sherman Act to reach conduct that has been generally shielded from antitrust liability. That invitation is ill advised and should be rejected by the Ninth Circuit, and if necessary, the Supreme Court.

Optimal Standards of Proof in Antitrust

By Murat Mungan, Joshua Wright

ABSTRACT:

Economic analyses of antitrust institutions have thus far focused predominantly on optimal penalties and the design of substantive legal rules, and have largely ignored the standard of proof used in trials as a policy tool in shaping behavior. This neglected tool can play a unique role in the antitrust context, where a given firm may have the choice to engage in exceptional anticompetitive or procompetitive behavior, or simply follow more conventional business practices. The standard of proof used in determining the legality of a firm's conduct affects not only whether the firm chooses to engage in pro- versus anticompetitive behavior, but also whether it chooses to remain passive. We introduce a model to investigate the effects of this additional tradeoff on the optimal standard of proof. The nature of these effects depends upon the relationship between the beneficial impact of procompetitive behavior versus the harmful impacts of anticompetitive behavior, since this relationship is what determines the costs associated with Type I and Type II error. Adopting Judge Easterbrook's presumption that preventing procompetitive behavior is more harmful than allowing anticompetitive behavior, we show that the standard of proof facing plaintiffs in antitrust cases ought to be stronger than preponderance of the evidence.

The Effect of Public Health Insurance on Criminal Recidivism

By Erkmen Aslim, Murat Mungan, Carlos Navarro, Han Yu

ABSTRACT:

The prevalence of mental health and substance abuse disorders is high among incarcerated individuals. Many ex-offenders reenter the community without receiving any specialized treatment and return to prison with existing behavioral health problems. We consider a Beckerian law enforcement theory to identify different sources through which access to health care may impact ex-offenders' propensities to recidivate, and empirically estimate the effect of access to public health insurance on criminal recidivism. We exploit the plausibly exogenous variation in state decisions to expand Medicaid under the Affordable Care Act. Using administrative data on prison admission and release records from 2010 to 2016, we find that the expansions decrease recidivism for both violent and public order crimes. In addition, we find that the public coverage expansions substantially increase access to substance use disorder treatment. The effect is salient for individuals who are covered by Medicaid and referred to treatment by the criminal justice system. These findings are most consistent with the theory that increased access to health care reduces ex-offenders' perceived non-monetary benefits from committing crimes.

Predictable Punishments

By Brian Galle, Murat Mungan

ABSTRACT:

Economic analyses of both crime and regulation writ large suggest that the subjective cost or value of incentives is critical to their effectiveness. But reliable information about subjective valuation is scarce, as those who are punished have little reason to report honestly. Modern “big data” techniques promise to overcome this information shortfall, but perhaps at the cost of individual privacy and the autonomy that privacy’s shield provides.

This Article argues that regulators can and should instead rely on methods that remain accurate even in the face of limited information. Building on a formal model we prove elsewhere, we show that variability in a defendant's subjective costs of punishment should be a key consideration in any incentive system, whether it be criminal law or otherwise. Our model suggests that this variability can be mitigated with some familiar and well-tested tools. For instance, in some situations ex ante taxes on behavior that creates a risk of harm can be preferable to ex post punitive regimes, such as the criminal law, that target primarily harms that actually arise. 

Because of what we show to be the centrality of variation in subjective costs, we also argue that long-standing approaches to criminal theory and practice should be reconsidered. For instance, economic theory strongly prefers fines over other forms of punishment. We argue that this claim is typically right — indeed, it is understated — when applied to firms. But fines can be the wrong choice for incentivizing most humans, while ex ante taxes are a promising alternative. We also show that this same analysis counsels that, if prison is the most viable punishment available, it can be more efficient to make prisons safer and less alienating.

Dialoguing with Paganism

By Helen Alvaré

ABSTRACT:

Professor Steven D. Smith’s comparison of ancient and contemporary beliefs in the “immanent sacred” works well in his book, Pagans and Christians in the City: Culture Wars from the Tiber to the Potomac. By this I mean that it’s quite plausible, and accounts for quite a few contemporary claims, disputes, and movements in both law and culture. The book’s implications for law are likely too complicated to allow for anything like its straightforward application in today’s religion clause contests. Still, it might indirectly assist traditional believers to lower the temperature of, or even avoid, such contests. I develop each of these points in this article.

Static v. Dynamic Antitrust: A Reply

By John Yun

ABSTRACT:

Sanjukta Paul and Hal Singer (P&S) responded to my recent CPI Comment, “News Media Cartels are Bad News for Consumers,” which addressed the likely harm that would arise from the proposed Journalism Competition and Preservation Act, if passed. P&S criticize my conclusion that the legislation would likely harm competition and consumers on a variety of grounds. In this short reply, I address their central points and demonstrate that our disagreement largely, but not completely, arises from P&S restricting their analysis to a static view of markets and antitrust.

Policing For Profit: The Political Economy of Law Enforcement

By Anna Harvey, Murat Mungan

ABSTRACT:

In recent years numerous observers have raised concerns about "policing for profit," or the deployment of law enforcement resources to raise funds for cash-strapped jurisdictions. However, identifying the causal effect of fi scal incentives on law enforcement behavior has remained elusive. We model the effects of fiscal incentives on traffic safety enforcement, fi nding that rules allocating a greater share of fine revenues to deploying jurisdictions may induce increased enforcement effort by patrol officers, and consequent reductions in unsafe driving behavior, with only indeterminate effects on the frequency of citations. We test this model using citation and accident data from Saskatchewan, Canada between 1995 and 2016, for towns policed under the province's contract with the Royal Canadian Mounted Police. We find that fiscal rules reducing the share of fine revenue captured by the province in towns above a sharply defined population threshold increase the frequency and severity of accidents in these towns, but have no effects on the frequency of traffic stops. We also fi nd that cited drivers in towns just below this threshold are given fewer days to pay their fines and are less likely to pay their fi nes on time, leading to higher risks of late fees and license suspension. These results are robust to the use of both data-driven regression discontinuity and local randomization inference strategies. We observe no discontinuities in the citation and accident data at the threshold during the period prior to the introduction of these fi scal rules, in the areas "near" these jurisdictions, within which the province receives 100% of fi ne revenue throughout our period of interest, or at any of multiple placebo thresholds constructed on either side of the actual population threshold.