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:

How Judicial Review Can Help Empower People to Vote with Their Feet

1-2022 | Ilya Somin


For decades, critics of judicial review have argued that it inhibits the will of the people, expressed through laws and regulations enacted by democratically elected officials. Thus, they argue, it should be used sparingly, or perhaps even not at all. This critique implicitly assumes that the political freedom of the people is best expressed through ballot box voting. We elect government officials, and thereby decide what government policies they wish to live under. Judicial review must therefore be kept within strict bounds, if not eliminated entirely, in order to avoid infringing on democratic self-government. This Article challenges that assumption and instead suggest that political choice is often best expressed through foot voting, rather than ballot-box voting. That, in turn, strengthens the case for strong judicial review in a range of areas.

People can vote with their feet through international migration, by choosing what jurisdiction to live in within a federal system, and by making decisions in the private sector. All three types can be enhanced by judicial review. Instead of a singular collective “will of the people,” foot voting enables individual members of the public to pursue a wide range of policy preferences. As a result, it allows far more people to live under policies that they prefer, and reduces the disadvantages faced by minorities.

Part I of this Article summarizes the advantages of foot voting over ballot box voting as a mode of political choice. In particular, foot voting enables individuals to make decisions that are more likely to have a decisive impact in determining the policies they live and more likely to be well-informed. It also offers a wider range of choice to people with minority preferences. Part II provides a brief overview of the three types of foot voting. Part III explains how judicial review can empower foot voting within a federal system by enforcing structural constitutional limits on the scope of federal government power. Part IV describes how judicial review can enhance foot voting in both the public and private sector by enforcing individual rights that make foot voting more feasible and effective. Finally, Part V discusses how judicial review can enhance foot voting through international migration.

Foot voting is not the only factor that must be considered in determining the appropriate level of judicial review in a constitutional system. But it is a crucial issue that often gets overlooked in debates over the role of the judiciary in a democratic society.

Dobbs and the Holdings of Roe and Casey

1-2022 | Eric Claeys


The U.S. Supreme Court is currently considering the case Dobbs v. Jackson Women’s Health Organization. In Dobbs, the State of Mississippi has asked the Court to overrule Roe v. Wade (1973) and Planned Parenthood v. Casey (1992). At oral argument, many of the Justices seemed to agree that Dobbs fairly presents the question whether Roe and Casey should be reaffirmed or overruled. At argument, however, Chief Justice John Roberts explored an alternative theory. In this exploratory theory, Roe and Casey entitle women only to a fair or meaningful opportunity to obtain abortions during pregnancy. Neither Roe nor Casey entitles women to obtain abortions, the theory suggests, up to the time when their fetuses are likely to be viable after birth.

This Article studies that exploratory theory with the two most relevant sets of legal doctrines. Because the theory raises questions about what RoeCasey, and other previous abortion cases held, the Article summarizes general legal principles about precedents and judicial authority. Courts rely on these principles when they identify the holdings, reasons for decision, and obiter dicta from earlier decisions. Because RoeCasey, and the other relevant decisions all considered overbreadth challenges to state abortion restrictions, the Article also summarizes the legal rules federal courts follow when they consider facial overbreadth challenges. The Article applies those two sets of doctrines to RoeCasey, and 11 other subsequent cases in which the Court declared unconstitutional state pre-viability restrictions on abortion. In all of those cases, necessary to a judgment was this proposition of law: A state restriction on abortion violates the Fourteenth Amendment Due Process Clause if it restricts a substantial number of pre-viability abortions without justification. Neither Roe, nor Casey, nor any of the other 11 post-Roe and -Casey decisions invalidating pre-viability abortion restrictions can be interpreted as narrowly as they would need to be for the theory explored at oral argument in Dobbs to be convincing or faithful to the Court’s case law.

This Article helps make clear the choices presented in Dobbs. Justices may reaffirm Roe and Casey, and they may overrule those cases. Unless they depart drastically from standard legal rules about judgments and overbreadth, however, they cannot avoid that choice.

Financial Market Infrastructure – The Essential Role of Risk Management

12-2021 | Paolo Saguato


Since the 2008 global financial crisis, policymakers have invested in reforming the market to build more effective risk management mechanisms. A perfect example of regulatory interest in risk management was the reform of the over-the-counter (OTC) derivatives markets. In pursuit of resiliency and efficiency, policymakers required the use of financial market infrastructures (FMIs) as specialized risk managers. FMIs are the multilateral systems that allow financial transactions to occur. As such, they play a critical role in each segment of risk management. For example -- to manage systemic risk -- policymakers mandated that FMIs act as market-wide risk managers. Organizational risk mitigation using FMIs includes enhanced rules and requirements to reduce conflicts of interest and agency costs. This has been achieved through corporate governance rules, risk management mechanisms, internal audits, and compliance systems. Transactional risk management by means of FMIs has included shoring up capital and financial defenses and supporting firms’ resilience.

Market risk management can be categorized into three distinct segments: systemic risk management, organizational risk management, and transactional risk management. International and domestic policymakers have acted in all three segments of risk management. This chapter delves into the risk management policies implemented in the aftermath of the 2008 financial crisis, with a particular focus on the systemic role of FMIs and their risk management toolkit. It discusses FMIs’ economics and business; analyzes their regulatory architecture; and examines their role in an international policy context. Finally, it concludes with an evaluation of the political economy of regulating risk management and a critical assessment of such regulation.

Clearinghouses and Systemic Risk

12-2021 | Paolo Saguato, Guido Ferrarini


After the 2008 financial crisis, over-the-counter derivatives markets were closely examined and determined to be a contributing factor. At the time, the four primary concerns with the derivatives markets were: (1) the limited number of interconnected market players, which raised the risk of domino defaults; (2) the lack of containment safeguards during times of market distress; (3) the absence of transparency, which hampered oversight efforts; and (4) no existing public regulatory scheme.

In response, policymakers developed and implemented a new regulatory framework intended to reduce risk-taking behavior and better contain systemic risk. This framework mandated the use of clearinghouses for all standardized derivatives as the foundation of the new system. Clearinghouses are helpful in combatting these problems because they add stability by managing risks and have an enhanced ability to absorb losses and internalize costs. As middlemen, they exert a stabilizing influence, increasing efficiency and security. In addition to the clearinghouses, standards for governance and risk management, as well as procedures for international cooperation and supervision were implemented. A decade later, there is a need to reevaluate.

This chapter examines the post-crisis clearinghouse regime and how it influences risk within the markets. It also identifies two potential points of failure in the existing regulatory scheme. First, how the universal role of clearinghouses necessarily makes any associated risk systemic as well. Second, how strained international economic relations threaten the future of collaborative cross-border supervision of the market. The chapter issues a call to action for policymakers by underscoring ongoing weaknesses in the derivatives markets system. Later, it proposes policy changes aimed at improving clearinghouse resiliency.

Governance and Organization of Trading Venues: The Role of Financial Market Infrastructure Groups

12-2021 | Guido Ferrarini, Paolo Saguato


The scenario of trading venues has undergone significant reforms and transformation over the last twenty years. Particularly in the European Union, through integration — at a firm level — and consolidation — at a geographical level — traditional financial exchanges have developed into pan-European and global financial market infrastructure (FMI) groups. However, European financial regulation has not kept the pace with these market developments. Despite more than 70% of market transactions being handled by infrastructural groups, the regulatory approach is overly siloed, creating a separate set of regulations for trading and post-trading entities and services. This paper questions whether and to what extent FMI groups may (i) affect competition in the trade and post-trade industry and (ii) pose systemic stability threats because of their structural role in providing a primary service for the smooth functioning of the financial markets.

Credit Cards and the Reverse Robin Hood Fallacy: Do Credit Card Rewards Really Steal from the Poor and Give to the Rich?

12-2021 | Todd Zywicki, Ben Sperry, Julian Morris


This paper considers the evidence for and against the reverse Robin Hood hypothesis. Under the “reverse Robin Hood” hypothesis, credit-card companies rob from the poor users of cash and give to the rich users of credit cards. But there are problems with this story. Indeed, the reverse Robin Hood may be more mythical than the original Robin Hood.

Part I describes a strong form of the reverse Robin Hood hypothesis in more detail. Part II subjects this strong form of the reverse Robin Hood hypothesis to economic scrutiny.

First, the economics of multisided markets is introduced to provide a basic framework to understand the operation of credit-card networks and the roles played by interchange fees and rewards programs. Second, the logic of the reverse Robin Hood hypothesis is analyzed in light of those economic principles, as well as the system’s empirical realities. Implicit to the conjectures that make up the reverse Robin Hood hypothesis are a number of propositions that must be true for the hypothesis to be upheld. Two main observations falsify the hypothesis. First, merchants are not able to pass on all costs to consumers. Second, the availability of rewards cards is more tied to credit ratings than to income, which means that even those with lower incomes do benefit from the use of rewards cards. Part III considers and rejects a weaker form of the reverse Robin Hood hypothesis from a 2020 Boston Fed Study.

Finally, the brief considers the likely distributional effects of proposed legislative or regulatory action to target credit-card interchange fees. Specifically, Part IV considers the evidence related to merchant pass-through of interchange-fee caps in the form of lower prices for consumers, as well as the likely ways banks and other card issuers would adapt to any such fee caps. If the experience with caps on debit card fees under the Durbin Amendment is any indication, the benefits of interchange-fee caps will be much smaller than the costs to consumers, especially lower-income consumers.

Overdeterrence, Non-Competition Policy Goals, and Inadequate Defense Rights—Identifying (and Fixing) Antitrust Constraints on International Trade

12-2021 | Tad Lipsky


In the last several decades both international trade and international antitrust enforcement have grown dramatically. With the increased significance of multinational enterprise, and with over 130 jurisdictions enforcing antitrust law, the effect of any flaw in antitrust enforcement is magnified in ways that impede the growth of trade through operation of a dynamic and competitive international economy. Such flaws include the use of unnecessarily strict substantive rules, policy objectives in tension with competitive growth, and procedures that fail to recognize sufficient rights of defense. These flaws have been recognized and addressed in a variety of ways – bilateral and multilateral collaboration among enforcement agencies, including the ICN and OECD, as well as antitrust provisions contained in recent trade agreements – but all such efforts to date have produced little in terms of real improvement. New and unique international arrangements may be required to achieve real progress in assuring that antitrust enforcement functions in the interest of continuing increases in global living standards.

Financial Regulation, Corporate Governance, and the Hidden Costs of Clearinghouses

12-2021 | Paolo Saguato


Clearinghouses are systemic nodes in financial markets that handle trillions of dollars’ worth of transactions. Yet, these critical market infrastructures stand on fragile foundations. The Dodd-Frank Wall Street Reform Act of 2010, the sweeping financial reform that followed the 2008 financial crisis, embraced clearinghouses as systemic risk managers for the over-the-counter derivatives markets. While policymakers used clearinghouses to remove some counterparty risk from the markets, they ended up concentrating that risk onto them, making them systemically important.

This Article warns that while clearinghouses might have addressed some of the failures of the pre-crisis derivatives markets, they have created new issues that still remain unaddressed. The economic and governance structure set in place by the existing regulatory regime and the private rules adopted by clearinghouses in their self-regulatory capacity have important and as-yet overlooked fragilities that can undermine clearinghouses’ mission as financial stability bastions and transform them into systemic risk spreaders.

Clearinghouses operate in a framework of misaligned incentives. They face unique agency costs that spill from what this Article defines as the “member-shareholder divide” and the “separation of risk and control.” Because of their economic structure, the ultimate risk of the business is passed down to the members (i.e., users) of the clearinghouses and not borne by their shareholders, which creates moral hazard. This dynamic is further exacerbated by the tension between the public policy role bestowed on clearinghouses as systemic risk buffers and the for-profit nature of the financial conglomerates to which they belong. In addition, while clearinghouses were embraced as countercyclical mechanisms to stabilize the markets, the operation of their loss-absorption and mutualization function have procyclical features that put strong pressure on clearing members, while clearinghouses’ shareholders have a small equity at stake.

After offering a political economy explanation of the current regulatory regime for clearinghouses, this Article urges policymakers and the industry to intervene to re-align the incentives of clearinghouse shareholders to those of their members in order to ultimately enhance financial stability. Building on insights from the corporate governance and finance literature, this Article proposes reforms to address the unique agency costs that clearinghouses face, to enhance their governance and resilience, and to ensure their role as private systemic stability infrastructures. Clearinghouses should have more skin in the game in their business and their capital structure should be complemented with hybrid convertible financial instruments to more effectively allocate losses, recapitalize the business, and better align the economic incentives of clearinghouses’ stakeholders. A multi-stakeholder board should be established to enhance the participative governance of these firms and support the legitimacy and accountability of their operations. Finally, a new approach to the recovery and resolution of troubled clearinghouses that could result in their remutualization should be implemented in order to provide certainty in times of distress, as well as an ultimate realignment of members’ and shareholders’ incentives.

Robinhood’s Threat to Sue The SEC Over Broker-Inducement Regulation Unlikely to Succeed

11-2021 | J.W. Verret


This article considers a rulemaking effort underway at the Securities and Exchange Commission to regulate the conflicts of interest that result when brokers send client orders to venues that pay the broker a fee in exchange for routing to them. These payments for order flow or rebates present a distortive conflict to a broker’s duty of best execution that has troubled the SEC for over 40 years and which the SEC has tried to regulate through multiple reforms. The SEC’s new Chairman has indicated he will more forcefully address broker conflicts. Robinhood, a popular trading app that makes most of its revenue via payment for order flow, has threatened to challenge the rule in court.

Analysis of this rule, and of the likely outcome in subsequent court challenge, shows that Robinhood is likely to lose. Yet this analysis is of interest not merely to brokers accepting PFOF, as this challenge provides a richer appreciation of the administrative law environment of SEC rulemaking. Along the way the reader is taken on a tour of lesser-known SEC rulemaking objectives that take on surprising significance in the market structure context.

The SEC’s competition objective will play a central role in this rule, reminding readers that the SEC is, at least to some extent, an antitrust regulator. The SEC’s fairness objective will also feature prominently in this rule. This fairness focus does not easily lend itself to economic analysis and therefore will require that a qualitative conflicts analysis be paired alongside any traditional economic analysis. Since prior SEC rule challenges have focused on economic analysis, it would appear a rulemaking under the fairness objective bolster’s the SEC’s chances of success.

What begins as an analysis of a specific rule, and a brewing challenge between Robinhood and the SEC, ultimately provides a richer understanding of the SEC’s multi-factor mission and of the administrative law constraints governing SEC rulemaking.

Textualism and Bostock

11-2021 | Nelson Lund


This short essay demonstrates that the Supreme Court’s majority opinion in Bostock v. Clayton County is fatally flawed in a way that will force the Court to reject its reasoning in future cases, whether the Justices admit it or not. This demonstration supplements the arguments in the dissenting opinions of Justices Alito and Kavanaugh.

Regulatory Robustness

11-2021 | Todd Zywicki


The modern regulatory state is the product of the Progressive Era and the progressive ideology that social and economic problems are subject to “solutions.” Social problems can be best addressed by selecting well-qualified individuals insulated from distorting political and economic incentives and arming them with the information needed to devise these solutions. This can be characterized as an “optimization” approach to regulation as regulators believe it their task to solve pressing social problems.

Yet the quality of the decisions that these individuals make is subject to the limits of information and benevolence they have toward pursuing the public interest instead of their own private interests and those of interest groups as well as their ability to admit their own errors and adapt. This gives rise to the concept of regulatory “robustness,” namely the robustness of regulation to three potential distortions: (1) limited knowledge, (2) limited benevolence, and (3) adaptability and feedback. Taking into account these factors, it becomes evident that the solutions advocated in a world of regulatory optimization are not those that would be recommended in the world of regulatory robustness. Aiming for regulatory optimization in the face of limited knowledge, benevolence, and adaptability can result in suboptimal and even catastrophic results.

App Stores, Aftermarkets & Antitrust

10-2021 | John Yun


App stores have become the subject of controversy and criticism within antitrust. For instance, app developers such as Spotify and Epic Games (creator of Fortnite) allege that Apple’s 30 percent cut of all sales in the App Store violates the antitrust laws and is indicative of monopoly power. The idea is that iPhone users are locked into Apple’s walled garden iOS platform, which frees Apple to engage in misconduct in the App Store “aftermarket” to the detriment of users and app developers.

This Article challenges the recent economic and legal characterizations of app stores and the nature of the alleged harm. First, this Article builds an accessible, economic framework to illustrate how app stores do not represent the same type of aftermarkets that were condemned in the Supreme Court’s landmark Kodak case. Importantly, the differences between Kodak-like aftermarkets and app store aftermarkets raise serious questions whether the digital revival of the aftermarket doctrine conforms with the economic realities of these markets.

Second, the complexity of the commercial relationships found in app stores has raised questions regarding who has standing to seek antitrust damages in this type of market setting. This Article provides an overview of the development of the current doctrine of antitrust standing—focusing on Illinois Brick and Apple v. Pepper. Further, this Article contends that Justice Kavanaugh’s opinion in Pepper, which gave iPhone users the right to sue Apple over the 30 percent commission, was right for the wrong reason. Instead, Justice Gorsuch’s dissent offers a much more economically sound approach to antitrust standing—as his “proximate cause” standard does not artificially focus on identifying the “direct purchaser,” which is unnecessarily limiting for more complex commercial relationships. As the number of antitrust claims against various app stores proliferate, the consequences of faulty characterizations of app stores will only grow.

Vaccine Passports as a Constitutional Right

8-2021 | Kevin Cope, Ilya Somin, Alexander Stremitzer


Does the U.S. Constitution guarantee a right to a vaccine passport? In the United States and elsewhere, vaccine passports have existed for over a century, but have recently become politically divisive as applied to COVID-19. A consensus has emerged among legal experts that vaccine passports are often constitutionally permissible. Yet there has been almost no serious analysis about whether a vaccine passport can be a constitutional right: whether a government is constitutionally obligated to exempt fully vaccinated people from many liberty-restricting measures. While some measures may be unconstitutional regardless of to whom they apply, we argue that there exist certain public-health restrictions from which the vaccinated must constitutionally be exempted, even if the unvaccinated need not be. The government is never constitutionally obligated to impose liberty-restricting measures in response to an epidemic. But where it does so, it often has an obligation to exempt those who, being successfully vaccinated, pose little danger of transmitting the disease or suffering serious illness. Under U.S. constitutional law, vaccinated people might be entitled to exemptions from six sets of restrictions: (1) domestic travel and movement; (2) international travel; (3) uncompensated shutdowns, under the Fifth Amendment takings clause; (4) abortion, under the constitutional right to privacy; (5) restrictions on access to gun stores, under the Second Amendment; and (6) assembly and worship, under the First Amendment freedom of assembly and free exercise clauses. Contrary to some social-justice and liberty-based arguments, this conclusion is also consistent with longstanding liberal principles of fair allocation of costs, equity, liberty, and non-discrimination.

Growing Convergence: The Limited Role of Antitrust in Standard Essential Patent Disputes

8-2021 | Douglas Ginsburg, Joshua Wright, Camila Ringeling


In the last couple of years, the United States Department of Justice (“DOJ”) and several European countries have reversed previous interventionist decisions and limited the role of antitrust in the resolution of disputes concerning Standard Essential Patent (“SEPs”). These jurisdictions recognize the need to protect intellectual property rights (“IPRs”) by making available injunctions against infringers. Courts have realized that hold-up by a patent holder demanding excessive royalties is not a widespread problem and that patent implementers may hold-out against paying any royalties whilst they continue to practice a patent. They have accordingly adopted new standards for granting injunctions in disputes involving SEPs with the goal of increasing efficiency and legal certainty. We discuss this shift and its implications for competition policy and innovation.

An Economic Analysis of Restitution for Mistaken Payments

8-2021 | Dhammika Dharmapala, Nuno Garoupa


The law of restitution and unjust enrichment has emerged as an important and independent branch of private law. However, it has attracted relatively little economic analysis. The aim of this paper is to develop a general conceptual framework for the economic analysis of the core example of restitution - mistaken payments. Our framework distinguishes between scenarios with unilateral and bilateral harms from mistakes, and unilateral and bilateral precaution by payers and recipients. Using this taxonomy, we develop a formal model in a parsimonious setting with two buyer-seller pairs. This model generates several novel insights, based on the idea that mistaken payments impose a “transaction tax” on contracting parties. It implies that full restitution is socially optimal when harm is unilateral (i.e., when a mistaken payment harms only the payer). When harm is bilateral (i.e., the recipient would suffer net harm from receiving the payment and making full restitution), partial restitution is generally optimal. However, we propose a hypothetical decoupled regime that would (if it were feasible) lead to more efficient outcomes than would partial restitution. The decoupling regime is intended as a thought experiment that can arguably shed light on some of the foundational debates surrounding the law of restitution.

Church Autonomy after Our Lady of Guadalupe School: Too Broad? Or as Broad as it Needs to Be?

8-2021 | Helen Alvaré


In Our Lady of Guadalupe School v. Morrissey-Berru (Guadalupe), the Supreme Court reaffirmed that the Religion Clauses of the First Amendment preserve a broad right of church autonomy. The breadth of Guadalupe’s church autonomy doctrine respecting religious institutions’ personnel decisions in particular, is potentially remarkable. It is, however, also required given the empirical evidence about the crucial role personal witness plays in preserving and promoting religious beliefs and norms. At the same time, Guadalupe’s church autonomy doctrine poses potentially dangerous incentives and consequences, threatening both the doctrine and religious institutions. This Article will examine these matters as follows: Part I will detail the breadth of Guadalupe’s church autonomy doctrine. Part II will attend to potentially narrower readings of the doctrine suggested by the majority opinion, especially the prospect that its application might be limited to teachers directly charged to transmit the faith. It concludes, however, that severe limitations are unlikely.

Parts III and IV propose that Guadalupe’s church autonomy doctrine is no broader than it needs to be respecting religions’ freedom to appoint personnel. Part III examines religious teaching about the role of personnel in preserving and communicating an institution’s faith, doctrine, and mission. Part IV reviews a body of empirical research indicating the dispositive role played by personal witness toward preserving and communicating religious beliefs and norms. This literature—variously published in the fields of “social influence” theory and the psychology and sociology of religion—confirms the practical wisdom of religions’ theologically-based personnel policy: to staff their institutions with persons whose beliefs and conduct strengthen the community’s witness to its faith and mission, by communicating to others the plausibility and even attractiveness of the religious mission(s). If Guadalupe means to allow religions to effectively govern their own “faith and doctrine,” including its transmission, then this empirical literature strongly indicates that the state will have to leave religions a wide berth of freedom to choose their own personnel.

Part V considers future threats to a broad church autonomy doctrine, and recommendations to counter these. The Guadalupe dissenters highlight fears that religious institutions will abuse their roles as employers and courts will abdicate their judicial responsibilities to determine the applicability of the church autonomy doctrine. Both of these errors can be avoided.

Rewards versus Imprisonment: The Impact of Choice

7-2021 | Murat Mungan


Imprisonment and monetary rewards for non-convictions can similarly incentivize potential offenders to refrain from committing crime. Although imprisonment is expensive, it may still enjoy a cost advantage over rewards. This is because only detected criminals are imprisoned, whereas rewards need to be provided to the remaining, much larger, population. In this article I demonstrate that the possible cost disadvantages of rewards are mitigated when people are offered a choice between an enforcement scheme involving no rewards and another involving rewards coupled with longer imprisonment sentences. Specifically, by using rewards in this manner, one can jointly reduce crime, time served per convict, and the tax burden of the criminal justice system, under the same conditions as one could by introducing rewards without choice in an environment where there is perfect detection. Moreover, monetary rewards provide incentives through wealth transfers, but imprisonment operates by destroying wealth. This leads choice based reward regimes to be optimal unless the imprisonment elasticity of deterrence is higher than is empirically observed.

Deregulation and the Lawyers' Cartel

6-2021 | Nuno Garoupa, Milan Markovic


At one time, the legal profession largely regulated itself. However, based on the economic notion that increased competition would benefit consumers, jurisdictions have deregulated their legal markets by easing rules relating to attorney advertising, fees, and, most recently, nonlawyer ownership of law firms. Yet, despite reformers’ high expectations, legal markets today resemble those of previous decades, and most legal services continue to be delivered by traditional law firms. How to account for this seeming inertia?

We argue that the competition paradigm is theoretically flawed because it fails to fully account for market failures relating to asymmetric information, imperfect information, and negative externalities. In addition, the regulatory costs imposed on sophisticated consumers such as corporate purchasers of legal services differ radically from those imposed on ordinary consumers who use legal services infrequently. Merely increasing the number and types of legal services providers cannot make legal markets more efficient. We illustrate our theoretical account with evidence from the United Kingdom, Europe, and Asia.

For legal markets to better serve the public, regulators must tailor solutions by segment. Regulators should seek to minimize negative externalities associated with the delivery of legal services to the corporate segment and confront information asymmetries that lead to the maldistribution of legal services in the consumer segment. Deregulation alone is insufficient and may in fact exacerbate existing market failures.

A Theory of Unenforced Laws

6-2021 | Thomas Miceli, Murat Mungan


We consider a government’s interrelated decisions of enacting laws prohibiting harmful behavior and choosing how aggressively to enforce those laws. There are three broad policies available to the government in this regard: not prohibiting the act at all, enacting a law and enforcing it, and enacting a law and not enforcing it. When enactment is costly and a fraction of the population reflexively complies with the law once its enactment has been announced (reflecting an expressive function of law), all three policies may be optimal, depending on the severity of the harm from the act and the fraction of reflexive compliers.

Antitrust & Privacy: It's Complicated

6-2021 | James Cooper, John Yun


Privacy and antitrust are on a collision course. Increasingly, privacy practices of large digital platforms are coming under antitrust scrutiny. It has become almost an article of faith that zero-price platforms exercise market power by offering lower levels of privacy. Yet, a rigorous examination of the assumptions underlying this data-price analogy is seriously lacking. Even more important, there is almost no empirical work that has been done in this area. This Article contributes to the debate by providing empirical evidence on the relationship between market power and privacy. First, we examine the privacy grade for each app in the Android App marketplace (covering the 2014-15 period)—as well as metrics that measure the number of users and app quality. These data suggest no relationship between privacy grades and measures of market concentration, that is, the Herfindahl-Hirschman Index (HHI) and market shares based on Google Play store categories. Second, we collected website traffic data from SimilarWeb and matched it to DuckDuckGo’s privacy ratings for sites in thirty-seven website categories. Again, the data suggest a lack of a reliable relationship between privacy ratings and market concentration. The theoretical analysis and empirical results cast doubt on the notion that firms exercise market power by reducing privacy levels.

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