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Abstract:
The skyrocketing bankruptcy filing rates of recent years are well known. Some commentators and scholars have charged that the cause of the bankruptcy boom has been promiscuous lending by credit card issuers and irrational borrowing by credit card users. Spurred on by high-profits, it is argued that credit card issuers have extended ever-larger amounts of credit to ever-riskier borrowers. In turn, irrational consumers have borrowed ever increasing amounts, generating a downward spiral into bankruptcy.

This theory rests on a substantial number of assumptions about the nature of the credit card market and the nature of rational credit card use by consumers. The thesis requires assuming that credit card users are homogenously concerned only about interest rates and not about any other term of the credit card contract, whether benefits, grace periods, or annual fees. In short, for the argument to be plausible, it requires a series of heroic assumptions about persistent profits in a market with low barriers to entry, a failure of competition in a market with all structural indicia of competitiveness, a peculiar and extraordinarily narrow definition of the indicia for measuring competition, and a failure of consumer rationality in a situation where there are strong incentives for consumers to act rationally and to learn over time.

Alternatively, it could be argued that the credit card market is competitive and that consumers use credit cards rationally. As this article will show, both credit card issuers and consumers appear to act in a manner consistent with the predictions of economic theory. It is not necessary to rely on implausible assumptions about consumer irrationality or to devise idiosyncratic models of a failure of competition in the credit card market. This article will present voluminous empirical evidence - most of which has heretofore been ignored in the legal literature - demonstrating that the operation of the credit card market and consumer choice is consistent with rational decision-making subject to real-world constraints. Moreover, this suggests that there is some efficiency loss as a result of bankruptcy, and that at least some of the losses of credit card issuers are absorbed by other consumers.

Finally the paper suggests some bankruptcy implications of a proper understanding of the nature of the credit card market and rational credit card use by consumers.

Abstract:
The collapse of the subprime mortgage market has led to calls for greater regulation to protect homeowners from unwittingly trapping themselves in high-cost loans that lead to foreclosure, bankruptcy, or other financial problems. Weighed against this catastrophe are the benefits that have accrued to millions of American families who have been able to become homeowners who otherwise would not have access to mortgage credit. Although the bust of the subprime mortgage market has resulted in high levels of foreclosures and even problems on Wall Street, the boom generated unprecedented levels of homeownership, especially among young, low-income, and minority borrowers, putting them on a road to economic comfort and stability. Sensible regulation of subprime lending should seek to curb abusive practices while preserving these benefits.

This article reviews the theories and evidence regarding the causes of the turmoil in the subprime market. It then turns to the question of the rising foreclosures in that market in order to understand the causes of rising foreclosures. In particular, we examine the competing models of home foreclosures that have been developed in the economics literature - the distress model and the option model. Establishing a correct model of the causes of foreclosure in the subprime market is necessary for sensible and effective policy responses to the problem. Finally, we review some of the policy initiatives that have been suggested in response to the crisis in the subprime market. Because new regulatory interventions will have costs as well as benefits, until the causes of the market's problems are better understood it may be that the best policy in the short-term is to do little until well-tailored regulatory approaches are available.

bankruptcy, consumer credit, distress model, foreclosure, homeownership, lending practices, mortgages, option model, regulation, subprime

Abstract:
This Essay examines Richard Posner's critique of F.A. Hayek's legal theory and contrasts the two thinkers' very different views of the nature of law, knowledge, and the rule of law. Posner conceives of law as a series of disparate rules and as purposive. He believes that a judge should examine an individual rule and come to a conclusion about whether the rule is the most efficient available. Hayek, on the other hand, conceives of law as a purpose-independent set of legal rules bound within a larger social order. Further, Posner, as a legal positivist, views law as an order consciously made through the efforts of judges and legislators. Hayek, however, views law as a spontaneous order that arises out of human action but not from human design. For Hayek, law as a spontaneous order - of which the best example is the common law - contains and transmits knowledge that no one person or committee could ever know, and thus regulates society better than a person or committee could. This limits the success of judges in consciously creating legal rules because a judge will be limited in the forethought necessary to connect a rule to other legal and non-legal rules and what Hayek termed the knowledge of particular circumstances of time and place.

This Essay also explores Posner's argument that Hayek misunderstood the rule of law as the rule of good law. Contrary to Posner, in the view Hayek came to espouse in his later work, the common law embodies the rule of law in a way that positivist creations of law do not. When judges consciously make law it is those human actors, not the law as such, that rule. When law arises out of a spontaneous order, however, it is the law that rules. Judges merely articulate it. Posner does not distinguish between these two processes, and therefore sees a difference between the rule of law and the rule of good law which Hayek does not. This is because for Hayek the rule of law is only meaningful in a liberal society where law arises out of a spontaneous order.

Hayek, Posner, law and economics, common law, spontaneous order, rule of law, judicial knowledge, stare decisis, precedent, positivism, group selection

Abstract:
Since the inception of the first permanent American bankruptcy law in 1898, the intellectual and political understanding of consumer bankruptcy has been anchored in a model that views bankruptcies as resulting from household financial distress. For much of the Twentieth Century, this traditional model provided a plausible explanation of bankruptcy filing patterns and clear normative policy implications. Moreover, the widespread intellectual and social consensus on the traditional model was reflected in the enactment of the current Bankruptcy Code in 1978, which rests on the intellectual foundation of the traditional model. To this day, leading bankruptcy scholars adhere to the traditional model and its implications. Over the past twenty-five years, however, the traditional model has broken down. During a period of unprecedented prosperity and economic stability, personal bankruptcies have soared, raising fundamental questions about the validity of the traditional model.

This article argues that there has been an unacknowledged sea-change in the economics of consumer bankruptcy in America. This article first provides a scientific analysis of the traditional model to determine whether these new trends can be accommodated within the traditional model. It focuses on the key variables offered by the traditional model as components of household financial distress: first, high levels of household indebtedness, including the influences of credit cards and home mortgages; second, unemployment and downsizing; third, divorce; and fourth, health problems, health care costs, and lack of health insurance. A scientific analysis of the evidence demonstrates that although these factors can explain part of the background exogenous level of bankruptcies, as well as some regional variation in bankruptcy filing rates, they cannot explain the upward trend in bankruptcy filing rates over the past twenty-five years. The article then briefly discusses an alternative model of consumer bankruptcy that can explain the increased propensity for consumers to file bankruptcy through an examination of the legal, social, and economic institutions of the consumer bankruptcy system.

Bankruptcy, consumer credit, New Institutional Economics

Abstract:
This essay reviews David A. Skeel, Jr., Debt's Dominion: A History of Bankruptcy Law in America. Although nominally a book about the history of bankruptcy law in America, Skeel's book is a comprehensive analysis of the past, present, and future of bankruptcy law in America. Skeel divides the history of bankruptcy law in America into three historical stages: the Nineteenth Century, the era of the 1898 Bankruptcy Act and the Great Depression, and the modern era of the 1978 Bankruptcy Code. As Skeel notes, the shape of bankruptcy law and practice throughout American history is at least as much a factor of political considerations and influence as economic considerations. To develop his point, Skeel draws on the fields of public choice and social choice, both of which apply the assumptions and tools of economics to the study of political science. Skeel uses these tools to shape his narrative, giving his argument an analytical edge that prior historical studies of American bankruptcy law have lacked. In particular, American bankruptcy law can be understood as resulting from the clash of three sets of interests: pro-debtor ideological interests (often spearheaded by law professors), creditors, and bankruptcy professionals (including bankruptcy judges). Although the outcome of this three-way struggle is unclear at any given moment, the dominant course of evolution of American bankruptcy law has been towards increasingly-generous bankruptcy laws that provide strong incentives for both individual and corporate debtors to file bankruptcy.

Building on Skeel's insights, I then offer my own impressions of the current debate over the bankruptcy reform act as well as the future of bankruptcy law in America. Although largely explained by the factors identified by Skeel, the current debate over the bankruptcy reform act has introduced a new element to the traditional debate - an ideology of personal responsibility ushered in by the Republican takeover of Congress in 1994 that has offset the traditional dominance of prodebtor ideology. At the same time, the bankruptcy system has become sufficiently unbalanced in a prodebtor direction that creditors have been able to overcome the collective action problems that have undermined prior reform efforts. These historical developments have made bankruptcy reform possible, unlike reform efforts in the past. With respect to the future of bankruptcy law, this essay argues that the likely result will be global convergence on efficient bankruptcy laws. Building on prior work demonstrating convergence on efficient corporate law rules in the American federal system, this essay argues that globalization will drive a similar convergence on efficient bankruptcy laws. This will encourage countries with excessively prodebtor laws, such as the United States, to adopt less-generous laws; it should also induce European countries to loosen their laws so as to encourage greater entrepreneurship and risk-taking.

bankruptcy, consumer bankruptcy, bankruptcy reorganization, rent-seeking, political economy

Abstract:
This article revisits the debate over the institutional foundations of the efficiency in the common law by examining the supply-side conditions of the production of common law legal rules. Previous models of efficiency in the common law, such as those proposed by Paul Rubin and George Priest, have stressed the "demand" side of the production of common law legal rules. They have argued that the driving force in the evolution of the common law are the actions of private litigants that generate a "demand" for the production of legal rules. It has been argued that these litigation efforts by private parties can explain both the common law's historic tendency to produce efficient rules as well as its more recent evolution away from efficiency in favor of wealth redistribution. This article does not directly challenge the traditional "demand side" model, but it proposes to supplement the model with a "supply side" model of the evolution of the common law that examines the institutional incentives and constraints of common law judges over time. It is argued that the traditional efficiency of the common law arose in the context of a particular historical institutional setting and that changes in that institutional framework have made the common law more susceptible to rent-seeking pressures and thereby undermined its pro-efficiency orientation.

The article first describes the traditional demand-side explanation for the rise and fall of efficiency in the common law. The article then distinguishes a supply-side model of efficiency in the common law, examining the historical institutional framework that generated the common law. It will be argued that the common law evolved in a particular institutional framework that differed substantially from the modern set of institutional constraints faced by judges and which render the modern understanding of judicial constraints quite anachronistic. The article argues that there were certain characteristics of the institutional structure that produced the common law that tended to encourage the production of efficient common law rules: (1) the doctrine of "weak precedent" under the common law, (2) the polycentric legal order of the judicial system in the era in which the common law was formed, and (3) the reliance of the common law on private ordering, including freedom of contract and custom. The article then explains how changes in this institutional framework has generated a decline of the efficiency of the common law and a rise in rent-seeking pressures that has caused the common law's evolutionary path to deviate in recent decades.

law & economics, efficiency of common law, economic history, new institutional economics

Abstract:
This essay provides a general, nontechnical survey of the field of evolutionary psychology and discusses some of the implications of evolutionary psychology for law and the social sciences. The focus of the essay is on the "four paths to cooperation" in nature that have been identified by evolutionary psychologists. Through this discussion, the essay illuminates the importance of evolutionary psychology for a proper understanding of social norms, the state, constitutions, and the evolution of cooperation in the absence of culture, informal norms, legal rules, and political institutions. By understanding the evolution of cooperation absent these other forces it becomes possible to understand the sources and the importance of norms, rules, and institutions, at the margin. Discussion of these social institutions is incomplete without a grounding in evolutionary psychology. The essay concludes with a survey of developing issues in law and the social sciences that could be fruitfully studied through the lens of evolutionary psychology.

Abstract:
It is clear that Americans are getting fatter, both adults and children. This development has led some to call for a ban on food advertising directed at children. There are numerous practical and constitutional difficulties with such a policy. This article poses a more fundamental question - even if feasible, would restricting food advertising do anything to reduce obesity or even slow its trends? The article also considers whether the social costs of banning advertising could outweigh the social benefits of such an action.

This article provides a review of the literature on the fundamental causes of the American obesity problem as well as the purported contribution of children's advertising to the problem. The final conclusion is inescapable - the available evidence does not support the theory that children's exposure to food advertising has significantly contributed to increased children's obesity. Although children's obesity rates have skyrocketed during the past two decades, the available evidence indicates that children's exposure to food advertising has remained constant or has even declined during that same period.

This article first describes the existing theories and empirical evidence regarding the causal factors in the American obesity problem. Second, the article examines in detail the claim that the rise in children's obesity has been caused in whole or in part by food advertising directed at children. Available evidence and observations regarding the exposure of children to food advertising fail to support the hypothesis that increased food advertising directed at children has significantly contributed to the rise in childhood obesity. As a result, there is also little reason to believe that greater restrictions on advertising directed at children will do much at all to staunch the increase in children's obesity. Third, the article reviews the existing literature on the positive effects that advertising can have on increasing consumer knowledge and choice. Thus, even though there is little evidence that advertising is the cause of the obesity problem, it is likely that advertising can play a positive role in being part of the solution to obesity by providing more information to consumers and by providing incentives to create and market healthier food alternatives.

Obesity, Health Claims, Economics of Advertising

Abstract:
One of the most controversial aspects of Hayek's social theory was his acceptance of the concept of cultural group selection. The publication of Unto Others: The Evolution and Psychology of Unselfish Behavior provides an opportunity to revisit this much-maligned component of Hayek's thought. Sober and Wilson are concerned with biological group selection, but much of their argument is equally applicable to cultural group selection. This essay revisits Hayek's views on cultural group selection in light of the model proposed by Sober and Wilson. Comparing their model to Hayek's model suggests that group selection theories are more plausible than traditionally thought and that their viability in any given situation is an empirical, not an a priori, question. So long as there are benefits to a group from greater levels of altruism and cooperation, and so long as free rider problems can be mitigated, group selection models are plausible.

Abstract:
One of the most controversial aspects of Hayek's social theory was his acceptance of the concept of cultural group selection. The publication of "Unto Others: The Evolution and Psychology of Unselfish Behavior" provides an opportunity to revisit this much-maligned component of Hayek's thought. Sober and Wilson are concerned with biological group selection, but much of their argument is equally applicable to cultural group selection. This essay revisits Hayek's views on cultural group selection in light of the model proposed by Sober and Wilson. Comparing their model to Hayek's model suggests that group selection theories are more plausible than traditionally thought and that their viability in any given situation is an empirical, not an a priori, question. So long as there are benefits to a group from greater levels of altruism and cooperation, and so long as free rider problems can be mitigated, group selection models are plausible.

Abstract:
Since the inception of the first permanent American bankruptcy law in 1898, the intellectual and political understanding of the bankruptcy process has been anchored in a model of the bankruptcy process that views bankruptcies as being driven by household financial distress. For much of the Twentieth Century, this "traditional model" of bankruptcy accurately explained observed trends in bankruptcy filings. Moreover, the widespread consensus on the traditional model was reflected in the enactment of the current Bankruptcy Code in 1978, which rested on the intellectual foundations of the traditional model.

To this day, the overwhelming number of leading bankruptcy scholars continues to believe in the descriptive accuracy and normative policy recommendations of the traditional model. Thus, scholars as diverse as Elizabeth Warren and Jay Westbrook, Douglas Baird, and Kenneth Klee, have all expressed strong opposition to the bankruptcy reform legislation. Regardless of whether they draw from a progressive and sociological background (Warren and Westbrook), law & economics background (Baird), or doctrinal background (Klee), scholars have continued to express consensus belief in the traditional model and the policy implications that it implies.

For most of this period, the traditional model has provided both empirically descriptive findings and normatively clear implications. Over the past two decades, however, the traditional model has broken down. During a period of unprecedented prosperity and economic stability, personal bankruptcies have soared, raising fundamental questions about the validity of the traditional model.

This article argues that there has been an unacknowledged sea-change in the nature of consumer bankruptcy in America and that this requires a new model of the consumer bankruptcy process and that this new model of consumer bankruptcy also implies the need for certain amendments to the Bankruptcy Code. This article first provides a scientific analysis of the traditional model to determine whether these new trends can be accommodated within the traditional model. The model is examined in the light of the available evidence and the conclusion is that the traditional model is unable to account for the upward surge in bankruptcies over the past twenty-five years. The article then offers a new model to explain the anomaly of the rising bankruptcy filings of recent years and examines the available empirical evidence on point. This model draws from the school of New Institutional Economics (NIE) and focuses on the institutions, incentives, and transaction costs associated with filing bankruptcy. Although the model will require further testing and refinement before it can be said to be definitive, available evidence tends to support the model advanced here.

The article then turns to the normative conclusions that are suggested by the New Institutional Economics model. Widespread acceptance of the traditional model animated the framework of the 1978 Bankruptcy Code and continues to animate the opposition to the current bankruptcy reform movement. The replacement of the traditional model with the NIE model offered here also has certain normative and policy implications. Most fundamentally, whereas the premises of the traditional model are inconsistent with the bankruptcy reform movement, the finding of the NIE model justifies many of the key bankruptcy reform efforts of recent years.

Bankruptcy, consumer credit, New Institutional Economic

Abstract:
This article examines tort law and the tort reform debate through the lens of public choice. The article uses the tools of public choice to explain the development of tort law over the past few decades and its evolution away from efficient rules. The article identifies a supply and demand dynamic for the evolution of expansive tort liability and damages and complex tort law doctrines. On the demand side, the evolution has been driven by the economic interests of plaintiffs' lawyers seeking to expand tort liability and damages. Defense lawyers share an economic interest in this development. Other interests, including insurers, manufacturers, and consumers, are shown to lack either the incentive to oppose these developments or are plagued by collective action problems from preventing them. On the supply side, the provision of expansive tort liability by judges is seen to be consistent with the self-interest of judges seeking power over society and status within the bar and academia. Finding the judicial process an unlikely avenue for tort reform, the article turns to the question of legislative tort reform. Although plagued by many of the same difficulties, legislative tort reform may hold out the possibility of greater consumer and manufacturer influence to counterbalance the interests of lawyers and judges. The article concludes with a model of how tort reform can succeed in the face of these obstacles. This model relies on the Peltzman-Becker model of regulation and points to Governor George W. Bush's success in enacting tort reform in Texas as consistent with the proffered model.

Abstract:
This essay is actually a series of posts from the Volokh Conspiracy weblog that discusses the policy and constitutional issues surrounding a question that the Supreme Court will hear this term, whether discriminatory barriers to the interstate direct shipment of wine are constitutional. Because of the timeliness of the issue, the essay is presented in this unusual and informal format so as to be available to the public more rapidly than through the traditional law review format. This "essay" reviews the historical evidence and ratification history of the 21st Amendment, and concludes that the answer is unambiguously no.

The purpose of the 21st Amendment was to reverse the 18th Amendment's disastrous experiment with federal Prohibition, and thereby to restore the balance between state and federal power that had existed prior to the 18th Amendment. It did this in two ways. First, Section 1 of the Amendment repealed Prohibition, restoring to the States their exclusive police power authority to regulate the local sale and distribution of alcohol. Second, Section 2 of the Amendment constitutionalized certain federal laws that allowed the States to enforce their police power on equal terms against alcohol shipped in interstate commerce as against alcohol manufactured or sold within the State. Section 2's purpose was to nullify a line of Supreme Court decisions that compelled some States to "reverse discriminate" in favor of out-of-state vendors. As a result, the 21st Amendment removed the federal government from meddling in local affairs, but did not cede a novel and unnecessary power to the States to meddle in the federal government's traditional control over interstate commerce.

In other words, the 21st Amendment enabled dry States to remain dry if they so chose, but it did not empower wet states to engage in economic warfare against the products of other wet States.

Commerce Clause, Twenty-First Amendment

Abstract:
After decades of neglect, interest in the nature and consequences of the rule of law has revived in recent years. In the United States, the Supreme Court's decision in Bush v. Gore has triggered renewed interest in the nature of the rule of law in the Anglo-American tradition. Meanwhile, economists have increasingly come to realize the importance of political and legal institutions, especially the presence of the rule of law, in providing the foundation of freedom and prosperity in developing countries. The emerging economies of Eastern Europe and the developing world in Latin America and Africa have thus sought guidance on how to grow the rule of law in these parts of the world that traditionally have lacked its blessings. This essay summarizes the philosophical and historical foundations of the rule of law, why Bush v. Gore can be understood as a validation of the rule of law, and explores the consequences of the presence or absence of the rule of law in developing countries.

Abstract:
Consumer bankruptcy filing rates have soared during the past 25 years. From 225,000 filings in 1979, consumer bankruptcies topped 1.5 million during 2004. This relentless upward trend is striking in light of the generally high prosperity, low interest rates, and low unemployment during that period. In response to this anomaly of ever-upward bankruptcy filing rates during a period of economic prosperity, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), which fundamentally rebalances the consumer bankruptcy system by creating new safeguards against fraudulent and abusive filings. Although BAPCPA drew broad bipartisan support on Capitol Hill, it is controversial within the academy. Critics have argued that these reforms are unnecessary and punitive, and that private market adjustments such as higher interest rates and more restrictive credit rationing are adequate policy responses to the problem of rising bankruptcy filings without the need for legislative reform.

These criticisms are misplaced, and fail to appreciate the causes of the consumer bankruptcy crisis and the appropriate responses to it. Scholars have previously identified two models of the consumer bankruptcy process, the "traditional" or distress model and the economic incentives model. Neither model, however, can explain the observed bankruptcy filing patterns of recent decades. This article offers a new model of consumer bankruptcy rooted in New Institutional Economics that explains the rise in consumer bankruptcy filings as reflecting changes in the institutions, incentives, and constraints surrounding the consumer bankruptcy filing decision. It is argued that this new model of consumer bankruptcy is both theoretically and empirically superior to the traditional model. The demise of the traditional model, which has dominated bankruptcy scholarship for a century, has created a need for a new theory of consumer bankruptcy filings that can better explain the observed data. The model offered here fills that gap.

This article identifies three institutional factors that can explain the observed rise in bankruptcy filings over the past several decades: (1) A change in the relative economic costs and benefits associated with filing bankruptcy; (2) A change in social norms regarding bankruptcy; and (3) Changes in the nature of consumer credit, toward more national and impersonal forms of consumer credit. All of these factors have tended to increase the incentives and opportunity for filing bankruptcy or reduce the constraints imposed on filing bankruptcy. In contrast to the traditional distress model, which purports to focus on changes in underlying household financial condition as the cause of rising bankruptcies, this model presented here examines the economic demand for bankruptcy itself, focusing on the incentives and institutions that condition consumer bankruptcy filings. The result of all of these changes has been to increase the equilibrium level of bankruptcy filings in America.

In light of these changes, the article briefly discusses some policy implications of accepting this new model of consumer bankruptcy. In particular, the model described here explains the economic logic of BAPCPA, showing its key provisions to be consistent with the logic of the new model of consumer bankruptcy presented here. In addition, the article also addresses more far-reaching proposals, such efforts to reverse changes in social norms or proposals to allow contracting-around the mandatory discharge provision of current law.

consumer bankruptcy, consumer finance, New Institutional Economics

Abstract:
This is the entry for "Evolutionary Psychology" in the Encyclopedia of Law and Society: American and Global Perspectives. This entry provides a summary and overview of the science of evolutionary psychology and its implications for the study of law. Understanding how evolution has shaped human nature and individual preferences can provide insight into how to use law to direct individual behavior in pro-social directions and away from anti-social behavior. This essay provides an overview of the science of evolutionary psychology, especially as it manifests itself in human proclivities for cooperation and conflict. In contrast to the Hobbesian view of human nature that implicitly underlies the modern understanding of law, evolutionary psychology provides several models of cooperation in the absence of law. But evolutionary psychology also provides insights into the nature of social conflict and the challenges this presents for legal regulation. Finally, the article describes the research program of law and evolutionary psychology, the testable hypotheses of evolutionary psychology, and the criteria for distinguishing evolutionary explanations of human behavior from legalistic and norms-based theories.

evolution, cooperation, evolution of cooperation, evolutionary psychology, group selection

Abstract:
This is the entry for "Consumer Bankruptcy, Doctrinal Issues In" in the Encyclopedia of Law and Society: American and Global Perspectives. This entry provides a summary and overview of the law and policy of consumer bankruptcy. First, it summarizes the American bankruptcy law legal regime. Second, it explores the competing hypotheses for the rise in bankruptcy filings during the past three decades, contrasting the "traditional" or "distress" model of consumer bankruptcy with the "incentives" or economic model. Third, it describes the recent amendments to the American consumer bankruptcy regime. Finally, it provides a comparative view of consumer bankruptcy law by comparing the American system and trends in American bankruptcy law and policy with Europe and other areas of the world.

Consumer bankruptcy, comparative consumer bankruptcy law

Abstract:
It has been argued that environmental regulation can be best understood as the product of an unlikely alliance of "Baptists and Bootleggers" - public-interested environmental activist groups and private-interested firms and industries seeking to use regulation for competitive advantage. It is now well-understood how special-interests can manipulate regulation for competitive advantage. Moreover, economics has provided models of the results of private self-interest in markets and in politics. But, until now, economists have not provided a workable model of private self-interest by environmental non-profit organizations, nor have there been efforts to test a private interest model versus the predictions of public interest models of environmental activists. Some have gone so far as to suggest that environmental activists are motivated by a spirit of "civic republicanism" that causes them to subordinate their self-interest to the pursuit of the public good.

This article provides a first effort at testing the implications of public interest versus private interest models of environmental interest groups. In particular, it specifies three testable implications of a public interest model of the activities of environmental interest groups: (1) a desire to base policy on the best-available science; (2) a willingness to engage in deliberation and compromise to balance environmental protection against other compelling social and economic interests; and, (3) a willingness to consider alternative regulatory strategies that can deliver environmental protection at lower-cost than traditional command-and-control regulation. On all three counts, it is found that the public-interest or "civic republican" explanation for the activities of environmental interest groups fails to convincingly describe their behavior. On the other hand, the evidence on each of these three tests is consistent with a self-interested model of the behavior of environmental interest-groups. Their activities can be understood as being identical to those of any other interest group - namely, the desire to use the coercive power of government to subsidize their personal desires for greater environmental protection and to redistribute wealth and power to themselves.

Environmental Economics, Public Choice, Economics of Non-Profit Organizations

Abstract:
This article was prepared as part of a recent symposium celebrating the Ninetieth Anniversary of the founding of the Federal Trade Commission. In addition, Fall 2004 marks the Thirtieth Anniversary of a pivotal moment in the establishment of the modern advocacy program at the FTC, Chairman Lewis Engman's speech on the economic burden that inefficient transportation regulation policies were imposing on the American economy. Although the FTC has been involved in advocacy activities since its founding, Engman's speech symbolized a new aggressiveness on the part of the FTC in using its expertise to work with other governmental actors at all levels of the political system and in all branches of government to design policies that further competition and consumer choice.

Notwithstanding the beneficial impact that advocacy activities have had on the economy, the fortunes of the advocacy program have waxed and waned over time. In part, these mixed fortunes may reflect a lack of fundamental grounding of advocacy within the core mission of the FTC. The advocacy program, moreover, often has been politically controversial, exposing the Commission to criticism from special interests, Congress, and other governmental actors.

This article explores the theory and practice of competition advocacy, with the goal of explaining why the advocacy program should be recognized as a core element of the Commission's mission. Advocacy can be used in conjunction with many of the FTC's other tools, and in many situations the judicious use of advocacy can provide a low-cost and effective alternative to other enforcement options. The advocacy program is a unique and cost-effective tool for carrying out this mission. Because consumers are disadvantaged in the political arena vis-a-vis industry, they are likely to be unable to stop anticompetitive regulation on their own. Antitrust immunities, moreover, sometimes put anticompetitive regulation beyond the reach of traditional enforcement. By providing a means for the FTC to represent consumers' interests directly in the policy-production mechanism, the advocacy program can overcome these two hurdles and provide protection for consumers at relatively low cost.

Public Choice, Rent-Seeking, Antitrust Law & Policy

Abstract:
This article is part of a symposium on the work of Gordon Tullock, to be held in connection with the presentation to Tullock of the Lifetime Achievement Award of the Fund for the Study of Spontaneous Orders at the Atlas Research Foundation, for his contributions to the study of spontaneous orders and methodological individualism. This contribution to the symposium studies Tullock's critique of the common law.

Tullock critiques two specific aspects of the common law system: the adversary system of dispute resolution and the common law process of rulemaking, contrasting them with the inquisitorial system and the civil law systems respectively. Tullock's general critique is straightforward: litigation under the common law system is plagued by the same rent-seeking and rent-dissipation dynamics that Tullock famously ascribed to the process of legislative rent-seeking. This article reviews Tullock's theoretical critique and empirical studies on both issues. The article concludes that Tullock's critique of the adversary system appears to be stronger on both theoretical and empirical grounds than his critique of the common law system of rulemaking.

Tullock, Posner, law and economics, economics of judicial procedures, adversary system, inquisitorial system, civil law, common law, rent-seeking

Abstract:
This essay reviews the book Rescuing Business: The Making of Corporate Bankruptcy Law in England and the United States, by Bruce G. Carruthers and Terence C. Halliday, and applies their lessons to the current bankruptcy reform debate.

Part I of the essay provides an overview and discussion of their book. The book is divided into three parts. The first part lays out their sociological model of legislative reform. The second part comprises an extended historical study of the various factors at work in the fashioning of the 1978 Bankruptcy Code. The third part studies the unique role played by bankruptcy professionals in the bankruptcy reform process. The essay commends them for their careful and voluminous historical research. Nonetheless, crippled by an unworkable and unpersuasive analytical model, they are unable to shed much light on the dynamics of bankruptcy reform. Flaccid appeals to equity are shown to be little more than covers for rent-seeking behavior by powerful interest groups. Saddled with their sociological model, they are unable to diagnose whether the pivotal role played by bankruptcy professionals exerts an overall positive or negative influence on the process of bankruptcy reform.

Armed with a more persuasive model of the legislative process, Part II of the essay applies the insights of Rescuing Business to understand the current bankruptcy reform process. In particular, the essay highlights the powerful role played by bankruptcy academics and professionals, and the power they exert over the process.

Abstract:
In his new book, "Courting Failure: How Competition for Big Cases is Corrupting the Bankruptcy Courts", Professor Lynn LoPucki's book argues that that current bankruptcy venue rules have spawned an improper competition for big cases that has corrupted America's bankruptcy courts. LoPucki argues that this competition has harmed the bankruptcy system and the economy, transferring wealth from creditors and employees to incumbent management and bankruptcy professionals. He also argues that the competition that has corrupted the American bankruptcy system is being replicated internationally, resulting in a similar competition and similar harm on the global stage.

This essay reviews LoPucki's book and its central theoretical and empirical arguments. LoPucki offers powerful empirical evidence that something is amiss with much of current American bankruptcy practice. This essay will try to flesh out in more detail the model and theoretical foundations that implicitly underlie LoPucki's indictment of bankruptcy forum-shopping (and other forms of forum-shopping as well). Empirical evidence standing alone is insufficient to draw conclusions about whether forum-shopping is in general good or bad without a clearly stated hypothesis to test. Instead, it is necessary to also have a theoretical model sufficient to generate testable hypotheses as a predicate both for determining whether forum-shopping is good or bad on net, as well as the likely effects of reform proposals. Although LoPucki identifies several problem areas in the current Chapter 11 reorganization process, it is not as clear that all of these problems can be clearly attributed to runaway forum-shopping. Instead, they may simply be good-faith errors or mistakes, for which continued competition may be beneficial, in that the competition may actually expedite the process of self-correction.

This review essay develops a model of the institutions and incentives governing the forum-shopping competition described by LoPucki in an effort to determine whether the empirical observations proffered by LoPucki can be best explained as the outcome of improper forum-shopping competition. The essay then closes with an analysis of provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, noting that many of the provisions in the legislation offer substantive responses to many of the problems identified by LoPucki.

Bankruptcy, Corporate Reorganization, Chapter 11, Forum-Shopping

Abstract:
Bankruptcy law is generally thought of as being purely economic in nature. But personal bankruptcy is also a form of post-contractual opportunism that reflects a moral decision to allow an individual to repudiate a promise of repayment. Thus, the bankruptcy decision is fraught with moral significance regarding promise-keeping and reciprocity. Reciprocity, it is argued, is the cornerstone of a free economy, healthy civil society, and democratic governance. Rampant personal bankruptcy, it is argued, frays these bonds of reciprocity that are necessary for a free, responsible, and self-governing society.

Abstract:
Methodological individualism underpins economic analysis. In his paper in this volume, however, Douglas Glen Whitman demonstrates that group selection can be reconciled with methodological individualism. This essay extends Whitman's analysis in two ways. First, it summarizes and restates the necessary conditions for group selection to play a role in the evolution of human preferences and societies. Second, it discusses the role of group selection in Hayek's thought, with a particular focus on the role of group selection in the evolution of legal rules and the rule of law. The viability of group selection is demonstrated to be an empirical question.

F.A. Hayek, Evolutionary Economics, Methodological Individualism, Austrian Economics, Law and Economics

Abstract:
Recent developments in environmental law have heightened the importance of the concept of "existence value" -- the value that individuals gain simply from the knowledge that certain environmental resources exist. These values are non-use values, hence they are said to be in the nature of a public good and will tend to be underprotected by the market. Because there is no market for such values, some lawyers, economists, and policy-makers have proposed the use of "contingent valuation" studies to ascertain a value for these amenities. Contingent valuation studies ask respondents to state how much they would pay to preserve the environmental amenity in question.

Contingent valuation studies have been roundly criticized by both legal scholars and economists on various practical grounds. The purpose of this article is to move beyond these practical problems and demonstrate the use of contingent valuation to be conceptually flawed. Understanding these conceptual problems reveals that the practical problems that have previously been identified are merely manifestations of these more fundamental conceptual problems. Contingent valuation studies are based on several fundamental misunderstandings about the nature of economic choice and the role of prices in a dynamic economy. Contingent valuation studies rest on the mistaken assumptions that prices are absolute and static. In reality, prices are relative and dynamic. Thus, contingent valuation rests on a mistaken conceptual premise and should be rejected as a policy-making guide. Because existence value, by definition, can be ascertained only through choice heuristics such as contingent valuation, there is no basis in contingent valuation for political or judicial protection for existence value.

Abstract:
In 'The Nature of Constitutions,'Mark Grady & Michael McGuire provide a model of the evolution and purposes of constitutions as arising to minimize appropriation by dominants of subordinates. This Comment builds on Grady & McGuire's article in three ways. First, it supplements their analysis by operationalizing a model of constitutional evolution that views constitutions as arising out of the conflict of competing high-ranking individuals to preserve their own authority. From this clash of self-interest of dominant individuals, institutions are born. This predicts that constitutions will not simply tame all forms of appropriation, but will also hard-wire some forms of appropriation behavior into the permanent constitutional structure. Second, it examines the American constitution in light of this model to show how that constitution reflects the mixture of appropriation and appropriation-taming behavior. Third, this Comment argues that the breakdown of constitutionalism in the United States this century can be explained by a failure to fully appreciate the purposes of constitutionalism in a biological framework.

evolutionary economics, rent-seeking, constitutional economics, public choice.

Abstract:
The state action doctrine was born in an era of exceptional confidence in government, with governmental entities widely regarded as unbiased and conscientious defenders of the public interest. Over time, however, more cautious and skeptical theories of government began to gain sway. In particular, the school of thought known as public choice - which holds that governmental entities, like private firms, will act in their economic self-interest - began to influence both legal theory and competition policy. Indeed, a close examination of recent state action case law suggests that public choice thinking has driven a slow, but consistent, evolution of the doctrine toward less deference to state regulators and more careful assessment of the actual incentives that drive their decision-making.

This evolution in thinking, however, has not been accompanied by the development of a systematic, analytical framework to guide the application of the state action doctrine in particular cases. Developing such a framework should therefore remain a top priority of leading antitrust policymakers, including those at the Federal Trade Commission.

state action, public choice, antitrust law and policy, antitrust exemptions

Abstract:
The Presidential election of 2000 raised a number of unprecedented legal and political issues. Among those were issues raised by the Presidential Transition Act of 1963, which provides for office space and funding to be made available to the President-elect to effectuate his transition to power. The statute vests in the Administrator of the General Services Administration the power to determine the President-elect under the statute and thereby to release the transition offices and funds. Following the certification of Florida's electoral votes in November 2000, George W. Bush could claim a majority of certified and pledged electoral votes and thus requested the release of the transition resources. The Administrator refused this request and refused to release the transition resources until after the Supreme Court's ruling in Bush v. Gore and Al Gore's subsequent concession. This essay examines the language, legislative history, political history, and policies of the Act and concludes that the Administrator acted improperly in refusing to recognize Bush as the President-elect following the certification of Florida's electoral votes for him. The essay examines the arguments advanced by the Administrator and concludes that they do not justify the vast power and discretion claimed by him under the Act. The essay then briefly considers possible amendments to the statute to prevent similar problems in the future. Most of the legal issues raised by the 2000 election are likely to be unique to that election and are unlikely to arise again in future elections. By contrast, the issues raised by the Presidential Transition Act are likely to occur again in the future, making necessary an understanding of the inaccuracies of the Administrator's acts in the 2000 election as well as the proper interpretation of the Act.

Abstract:
Institutional Review Boards (IRBs) were born from sound motives of protecting participants in biomedical research protocols from undue risk of harm. Over time, however, the scope of IRBs have expanded to cover all types of research involving human subjects, including social science research. In recent years, complaints about the operation of IRBs have spread almost as rapidly as their jurisdiction. IRBs have been widely criticized as wasteful, obstructionist and unresponsive to researchers' needs, and in the end, ineffective at protecting research safety and ethics. Born from sound motives and administered by earnest and increasingly professional administrators, IRBs today are a source of delay and frustration with little to show for the costs that they impose. This article thus asks, "Why is it that the smart and conscientious people on IRBs are so prone to making such poor decisions?"

This article argues that the problem is that IRBs are fundamentally bureaucracies, and that this bureaucratic structure explains much of their frequent suboptimal decision-making. The poor performance of IRBs is thus not a consequence of those individuals who comprise it, but rather a reflection of their bureaucratic nature. The bureaucratic nature of IRBs appears to do nothing to improve the decisions that they make, while being the source of many of their problems.

Finally, the article briefly proposes possible reforms to ameliorate the IRB bureaucracy, both by narrowing its scope and increasing its efficiency.

Institutional Review Boards, Institutional Oversight of Research, Economics of Academia, Bureaucracy, Nonprofit Governance

Abstract:
Competition authorities have several tools at their disposal in crafting a competition policy. Most prominent are litigation and merger review. A less-recognized but often effective tool, however, is "competition advocacy." Broadly, competition advocacy is using persuasion, rather than coercion, to convince government actors to pursue policies that further competition and consumer choice. Competition advocacy can be especially useful in attacking government-created regulatory barriers to competition and in cultivating a "culture of competition" to educate the public on the economic benefits of competition as the organizing principle of the economy. From a cost-benefit analysis, competition advocacy can often generate substantial pro-consumer outcomes at low marginal cost.

Fostering a vigorous competition advocacy program can be especially valuable in Latin American countries that historically have had heavily-regulated economies and a weak culture of competition. This article draws on the experience of the Competition Advocacy Program of the United States Federal Trade Commission during the past 30 years to provide lessons for Latin American competition authorities seeking to build competition advocacy programs. This article is a chapter in a book on Latin American antitrust law and explains how competition advocacy can be an important and fruitful element of a vigorous competition policy in these developing economies.

competition, Economic Theory of Regulation, antitrust

Abstract:
The American bankruptcy system is a hybrid of state law and federal bankruptcy law. Under the Butner principle, federal bankruptcy courts preserve non-bankruptcy law substantive entitlements in bankruptcy unless bankruptcy policies compel a contrary result.

This hybrid system, however, gives rise to the threat of forum-shopping if parties attempt to invoke bankruptcy jurisdiction for improper purposes, namely to rearrange non-bankruptcy entitlements to advance no coherent bankruptcy policy. Modern developments in bankruptcy law, as exemplified in the case of Marshall v. Marshall raise a novel threat of bankruptcy forum-shopping. Marshall involved the bankruptcy of tabloid starlet Anna Nicole Smith and her efforts to recover from the estate of deceased billionaire oilman J. Howard Marshall. Rather than deferring to the processes of the Texas probate court, Smith raced into bankruptcy court in California to capture a large share of Marshall’s estate. The technical issue in the case concerns whether the dispute constituted a “core” matter under federal bankruptcy law and thus the timing of the entry of a final judgment by the bankruptcy court. If the Marshall Bankruptcy Court’s decision is allowed to stand, it could set a precedent for rampant forum-shopping by dissatisfied parties seeking a more favorable resolution of claims in federal bankruptcy court than that to which they would be entitled under state law.

“absolute priority” rule, core, creditors, David Skeel, debtors, Granfinanciera v. Nordberg, non-core, Northern Pipeline v. Marathon Pipeline, Thomas Jackson

Abstract:
The creation of a new Consumer Financial Protection Agency (“CFPA”) is a very bad idea and should be rejected. The proposal is not salvageable and cannot be improved in substance or in form. The foundational premise of the CFPA is that a failure of consumer protection, and specifically irrational consumer behavior in lending markets, was a meaningful cause of the financial crisis and that the CFPA would have or could have averted the crisis or lessened its effects. To the contrary, there is no evidence that consumer ignorance or irrationality was a substantial cause of the crisis or that the existence of a CFPA could have prevented the problems that occurred. The CFPA is likely to do more harm than good for consumers. In this article, we highlight three fundamentally problematic truths about the CFPA: (1) The CFPA is premised on a flawed understanding of the financial crisis, (2) the CFPA will have significant unintended consequences, including but not limited to reducing competition, consumer choice, and availability of credit to consumers for productive uses; and (3) the CFPA creates a powerful bureaucracy with undefined scope, risking expensive and wasteful regulatory overlap at both the federal and state levels without any evidence of its own expertise in the core areas it is designed to regulate.

Barack Obama, behavioral economics, credit cards, Elizabeth Warren, Federal Trade Commission, Financial Regulatory Reform, Michael Barr, new paternalism, Oren Bar-Gill, plain vanilla, regulation, White Paper

Abstract:
This testimony addresses the proposal of the Obama Administration to create a new Consumer Financial Protection Agency (CFPA) which would have the authority to issue and enforce new regulations related to consumer lending products. This testimony criticizes the proposal on three grounds. First, the basis for the proposal is based on misguided paternalism that arises from a fundamental misunderstanding about the causes of the consumer element of the financial crisis. While there were undoubtedly cases of fraud by borrowers against lenders and lenders against borrowers, the fundamental cause of the crisis was misaligned incentives, not consumer protection problems. Lenders made many foolish loans that created the crisis — but those loans were foolish because they failed to consider the incentives that they created when interest rates rose, home prices fell, and their interaction with other state laws. As a result, they created major safety and soundness concerns, but not major consumer protection problems. Second, by detaching consumer protection issues from safety and soundness concerns, the CFPA will likely produce unintended consequences that could lead to more foreclosures, less product innovation, and higher prices and reduced choice for consumers. In particular, proposals to ban prepayment penalties on home mortgages would likely increase foreclosures and new regulations on mortgage brokers will lead to reduced competition and higher prices for consumers. Third, the CFPA will create a new bureaucracy prone to the same dysfunctions and information problems of any other bureaucracy. A new bureaucracy of this sort is not necessary.

abuse, adjustable rate mortgages, ARMs, credit cards, default, Federal Reserve Commission, fixed rate mortgages, FTC, Federal Trade Commission, low-documentation loans, misplaced paternalism, personal responsibility, rational consumer response, subprime mortgages

Abstract:
For years, economists and lawyers have bemoaned the inefficiencies of the current centralized, command-and-control regime of environmental regulation. Despite the manifest failure of the current regime, however, the system of environmental regulation seems to be largely immune to rationalization and reform. This article advances a public choice explanation for the persistence of the current centralized, command-and-control system of environmental regulation. The model is premised on a simple model of gains to trade. Because of the defects of the political process, well-organized and powerful special interests can use the apparatus of government to transfer wealth to themselves. To the extent that the strategic use of regulation creates economic rents, it creates the opportunity for the division of those rents among these same interest groups. This article identifies a number of special interests that share an attachment to the current regime, and hostility to decentralized, market-based alternatives. In particular, this article identifies industries and firms directly-benefited from environmental regulation; industries and firms indirectly-benefited through cartel-like effect of restricting industry output and preventing entry; organized environmental interests who gain power, prestige, and money from the current system; politicians and regulators; and lawyers. Through the system of environmental regulation, these interests can generate economic rents to be distributed among themselves at the expense of the dispersed public. Thus, the article challenges the conventional portrayal of the system of environmental regulation as a struggle between industry polluters who oppose regulation and the public represented by environmental lobbying groups and regulators that favor regulation. Finally, the possibilities for reform of the current regime are presented.

Abstract:
Despite an extended period of high economic growth and low unemployment, consumer bankruptcy rates have hit an all-time high. In response to this personal bankruptcy boom, Congress proposed "means-testing" debtors, requiring upper middle-class debtors to opt for Chapter 13, rather than Chapter 7. Means testing rests on the sound moral intuition that those who can pay a substantial portion of their debts with minimal hardship should be required to do so. The urgency for means-testing is amplified by the underlying dynamics driving the bankruptcy boom. Recent research shows that the rapid increase in bankruptcy filing rates is being driven by two factors, reductions in the economic costs of filing bankruptcy and a decline in the social stigma and personal shame associated with bankruptcy filings. Because the reduction in shame and stigma operates most heavily at the margin for high-income debtors, it can be predicted that the number of high-income debtors who file bankruptcy can be expected to continue to increase in coming years, thereby making means testing increasingly urgent. Finally, other factors such as increased debt, increased credit card debt, and certain sociological factors are shown to be lacking empirical foundation.

Abstract:
In June 1998, the Religious Liberty and Charitable Donation Protection Act (the "Act") of 1998 was signed into law. The centerpiece of the Act will protect gratuitous transfers to churches and charities that would otherwise be avoidable as fraudulent transfers. The Act has been roundly criticized by the bankruptcy community. This article explains the state of the law with respect to these transactions prior to the enactment of the Act, the reasons justifying the Act, and explains the relevant provisions of the Act. This article justifies the Act on several grounds. First, it is shown that courts were in error in failing to protect these transfers under established fraudulent transfer principles even prior to the Act. Fraudulent conveyance law has traditionally protected consumption and investment transactions so as to permit reliance with third-parties with whom the debtor deals. This principle applies with equal force to arms'-length transfers made to bona fide religious and charitable organizations that actually rely on the transfer. Second, principles of equity justify protecting these transactions. Fraudulent conveyance law does not avoid transactions made for gambling, fine dining, and vacations; it similarly should not avoid transfers made from religious and charitable motives. Third, current law allows debtors to transfer property to themselves through use of the exemption power, a transaction analogous to a classical fraudulent conveyance "kickback" transaction. An arms'-length transfer to a bona fide religious or charitable organization does not create such a kickback arrangement. Fourth, just as the policies of the tax code yield to the traditional public support for religious and charitable organizations through their tax-exempt status, it is appropriate for bankruptcy and fraudulent conveyance policies also to yield.

Abstract:
The National Bankruptcy Review Commission initially recommended the repeal of the so-called "disinterestedness" requirement for a debtor in possession's professionals. In the end, however, the Commission reconsidered its initial recommendation and instead chose to maintain the current standard with some minor, but important, revisions. This article argues that the Commission was correct to retain disinterestedness generally, but to modify it in certain circumstances. In particular, this article argues that the advocates of repealing disinterestedness have failed to demonstrate why disinterestedness should be retained for trustees, but not debtors in possession. The fundamental concerns in both cases are identical: preservation of the integrity of the bankruptcy system, preservation of public confidence in the bankruptcy system, and consistency with state ethical standards. The arguments for distinguishing professionals representing debtors in possession from those representing trustees are demonstrated as being flawed.

[Note: The article is followed by comments on main paper by Charles W. Wolfram and Gerald K. Smith. A brief response to those comments is also presented; see Todd J. Zywicki, "Of Bubbling Pots and Bankruptcy Ethics: A Comment on Wolfram & Smith."]

Abstract:
In recent years, the Supreme Court has increasingly looked to "tradition" as a source of constitutional values. Justice Scalia has articulated a majoritarian view of tradition that looks to the legislative practices of state legislatures. Justice Souter has articulated a model that looks to Supreme Court precedent as a source of tradition, so-called "common law constitutionalism." Both have also found recent academic adherents: Michael McConnell has defended Scalia?s model, and David Strauss has done the same for Souter. While Scalia, Souter, and their academic followers are correct in celebrating tradition as a source of constitutional values, they have celebrated the wrong traditions. In this paper, we develop a model of tradition and show how tradition, properly understood, can be a source of constitutional values. Tradition is compatible with constitutionalism in identifying widely-shared community values that should be subject to constitutional precommitment and can be an effective mechanism for constitutional change. "Constitutionally efficient" traditions are those that emerge from decentralized evolutionary processes over a long period of time, bubbling up from society. The sources of tradition articulated by Scalia and Souter lack these conditions for constitutional efficiency; hence, they should be rejected as sources of constitutional values. We offer an alternative model of constitutionally-efficient traditions. Our article is followed by a Comment by Professor John McGinnis of Cardozo Law School and a brief Reply to McGinnis.