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Abstract:
In this essay on Masahiko Aoki's recent study of Japanese corporate governance, we argue that he and others misdescribe Japan on several fundamental dimensions. First, Japanese firms and employees choose neither to arrange implicit life-time employment contracts nor to invest heavily in firm-specific skills. Instead, firms keep employees employed during economic downturns only because interventionist courts do not let them lay their employees off. Second, Japanese firms do not organize themselves into keiretsu corporate groups, do not exchange shares with other alleged group members, and do not necessarily use the money-center bank attributed to the group as their "main bank." Last, Japanese "main banks" neither agree in advance to rescue troubled debtors nor monitor firms on behalf of other creditors.

Abstract:
Central to so many accounts of post-war Japan, the keiretsu corporate groups have never had economic substance. Conceived by Marxists committed to locating "domination" by "monopoly capital," they found an early audience among western scholars searching for evidence of culture-specific group behavior in Japan. By the 1990s, they had moved into mainstream economic studies, and keiretsu dummies appeared in virtually all econometric regressions of Japanese industrial or corporate structure. Yet the keiretsu began as a figment of the academic imagination, and they remain that today.

The most commonly used keiretsu roster first groups large financial institutions by their pre-war antecedents. It then
assigns firms to a group if the sum of its loans from those institutions exceeds the amount it borrows from the next largest lender. Other rosters start by asking whether firm presidents meet occasionally with other presidents for lunch. Regardless of the definition used, cross-shareholdings were trivial even during the years when keiretsu ties were supposedly strongest, and membership has only badly proxied for "main bank" ties.

Econometric studies basing "keiretsu dummies" on these rosters have produced predictably haphazard results: some are a function of misspecified equations, while others depend on outlying data points and some are specific to one keiretsu roster but not others. The only reliably robust results are the artifacts of the sample biases created by the definitions themselves.

Abstract:
Several decades ago, Gerschenkron famously argued that banks facilitate economic growth in "backward" countries. To similar effect, theorists sometime claim that banks promote growth by reducing informational asymmetries and thereby improving the allocation of funds. As a fast-growth but allegedly bank-centered economy, Japan plays an important part in these ensuing debates.

In early 20th century Japan firms relied heavily on bank debt, observers argue. Those firms with preferential access to debt outperformed the others, and those that were part of the zaibatsu corporate groups obtained that preferential access through their affiliated banks.

In fact, Japanese banks did not play the role attributed to them. Japan in the first half of the 20th century was not a bank-centered economy; instead, firms relied overwhelmingly on equity finance. It was not an economy where firms with access to bank credit outperformed their rivals; instead, firms earned no advantage from such access. And it was not a world where the zaibatsu manuipulated their banks to favor affiliated firms; instead, zaibatsu banks loaned affiliated firms little more (if any) than the deposits those firms had made with the banks. During the first half of the last century, Japanese firms obtained almost all their funds through decentralized, competitive capital markets.

Abstract:
In the 1950s and 60s, Alexander Gerschenkron claimed that banks facilitate economic growth among "backward" countries. In 1990s and 2000s, many theorists similarly claim that banks promote growth. Banks do so by their superior monitoring and screening capabilities, they reason. Through those capabilities, banks reduce informational asymmetries and the attendent moral hazard and adverse selection, and thereby improve the allocation of credit.

As a fast-growth but allegedly bank-centered economy, Japan plays an important part in these discussions of finance and growth. In early 20th century Japan firms relied heavily on bank debt, observers argue. Those firms with preferential access to debt outperformed the others, and those that were part of the zaibatsu corporate groups obtained that preferential access through their affiliated banks.

With data from the first half of the century, we ask whether Japanese banks performed the roles Gerschenkron and modern theorists assign them. Notwithstanding the usual accounts, we find that they did not. Japan was not a bank-centered economy; instead, firms relied overwhelmingly on equity finance. It was not an economy where firms with access to bank credit outperformed their rivals; instead, firms earned no advantage from such access. And it was not a world where the zaibatsu manipulated their banks to favor affiliated firms; instead, zaibatsu banks loaned affiliated firms little more (if any) than the deposits those firms had made with the banks. During the first half of the last century, Japanese firms obtained almost all their funds through decentralized, competitive capital markets.

Abstract:
Most studies of executive compensation have data on pay, but not on total income. Studies of executives in Japan do not even have good data on pay. Although we too lack direct data on Japanese salaries, from income tax filings we compile data on total executive incomes, and from financial records obtain some indication of which executives have substantial investment income. We find that Japanese executives earn far less than U.S. executives - holding firm size constant, about one-third the pay of their U.S. peers. Using tobit regression analysis, we further confirm that executive pay in Japan depends on firm size, with an elasticity of .24, but not on accounting profitability or stock returns. Corporate governance variables such as board composition have little or no effect on executive compensation, except that firms with large lead shareholders do appear to pay less.

Executive compensation, Japan, Incentive pay, Corporate governance

Abstract:
The Japanese "main bank system" figures prominently in the recent literature on "relationship banking." By most accounts, the main bank epitomizes relationship finance: traditionally, every large Japanese firm had one, and that bank monitored the firm, participated in its governance, acted as the delegated monitor for other creditors, and rescued the firm if it fell into financial distress. Yet all this has begun to change, continue these accounts. Japan deregulated its financial markets in the 1980s, and many firms abandoned their relational lender for market finance. As the main banks then lost their ability to constrain firms - as relationship banking unraveled - the firms gambled in the stock and real estate bubbles, the bubbles burst, and the firms threw the country into recession.

Using financial and governance data from 1980 through 1994, we show that none of this is true. The accounts of the Japanese main bank instead represent fables, stories we collectively recite because they so conveniently illustrate the theories and models we hope to develop. Whether during the 1980s boom or the 1990s recession, they bore no resemblance to any aspect of Japanese corporate finance or governance.

Abstract:
Most of what we collectively think we know about the Japanese economy is urban legend. In fact:

- The keiretsu do not exist, and never did. An entrepreneurial research institute in the 1950s created the rosters to sell to Marxist economists looking for the monopoly capital that their theory told them would dominate their bourgeois capitalist world. Western scholars hoping for examples of culture-specific forms of economic organization then brought them back to the U.S.

- The zaibatsu did not succeed pre-war because they bought politicians, exploited the poor, or manipulated disfunctional capital markets. They succeeded for all the usual varied reasons a few firms succeed in any modern economy. They acquired the (pejorative) zaibatsu label because they happened to be thriving when muckraking journalists in the 1920s and 30s came looking for someone to blame for the depression.

- Japanese firms have no main bank system, and never did. Economists popularized the idea as an anecdote on which to peg their mathematical models, and non-economists use it (like the keiretsu) as yet another putatively culture-bound economic phenomenon.

- Japanese firms are neither short of outside directors nor badly governed. The charges simply represent yet another variant on populist journalism. Like firms in other competitive capitalist countries, Japanese firms survive only if they adopt governance mechanisms appropriate to the markets within which they must compete.

- The Japanese government never seriously guided or intervened in the Japanese economy. When the economy boomed, politicians and bureaucrats did take credit. They had created the success through their own far-sighted leadership, they claimed. Marxist scholars dominated Japanese social science departments, and they were not about to suggest instead that market competition might account for the success. Happy as they were to find an example of successful government intervention, neither were most Western scholars of Japan.

Abstract:
According to modern contract theory, how firms structure their trading patterns and governance structures will depend both on the size of any relationship-specific investments they make, and on the feasibility of detailed contracts. Suppose contracts are hard to draft and enforce, but firm A must invest heavily in a capital asset whose value depends on A's continued trades with firm B. If A makes this investment on its own, B may try to restructure opportunistically the terms of the contract ex post. To mitigate the risk of such hold ups, predict contract theorists, A and B may negotiate a variety of governance mechanisms they would not otherwise choose. In the extreme, they may even decide to merge.

The puzzle to this theory is less in its logic. It is more in its empirics. Over the past two decades, scholars have looked hard for evidence of governance arrangements driven by large relationship-specific investments. Although they find some evidence of such arrangements in idiosyncratic industries like public utilities, aerospace, and defense, they find less evidence in more "ordinary" industries. Within this context, the Japanese automobile industry has played an important symbolic role: an "ordinary" industry thought to be structured by extra-contractual governance arrangements driven by substantial relationship-specific investments.

In this article, we re-evaluate that ordinary industry. Despite examining a variety of data on ties among suppliers and assemblers, we find less evidence of large relationship-specific investments than most accounts imply, and less evidence of extra-contractual governance arrangements driven by such investments. Perhaps, we suggest, the time has come to reconsider whether relationship-specific investment theory explains quite as much as we have thought.

Abstract:
Reformists argue that Japanese firms maintain inefficiently few outside directors, while theory suggests market competition should drive firms toward their firm - specifically optimal board structure (if any). The debate suggests three testable hypotheses. First, perhaps board composition does not matter. If so, then firm performance will show no relation to board structure, but outsiders will be randomly distributed across firms. Second, perhaps boards matter, but many have suboptimal numbers of outsiders. If so, then firms with more outsiders should outperform those with fewer. Last, perhaps boards matter, but market constraints drive firms toward their firm-specific optimum. If so, then firm characteristics will determine board structure, but firm performance will show no observable relation to that structure.

To test these hypotheses, we assemble data on the 1000 largest exchange-listed Japanese firms from 1986-94. We first explore which firms tend to appoint outsiders to their boards, and find the appointments decidedly non-random: board composition matters. We then ask whether firms with more outside directors outperform those with fewer, and find that they do not: board composition is endogenous. As we find no robust evidence that board composition affects firm performance during either the thriving 1980's or the depressed early 1990's, we suspect that the optimal board structure may not depend on the macro-economic environment.

We note that until recently courts effectively barred shareholder suits in Japan. We speculate that the much higher level of outside directors in the U.S. may have nothing to do with efficiency or monitoring. Instead, it probably reflects the way U.S. courts let firms use such directors to insulate the firm from extortionate but otherwise costly-to-defend self-dealing claims.

Abstract:
In 1985, Demsetz & Lehn argued both that the optimal corporate ownership structure was firm-specific, and that market competition would drive firms toward that optimum. Because ownership was endogenous to expected performance, they cautioned, any regression of profitability on ownership patterns should yield insignificant results.

To test the Demsetz-Lehn hypothesis, we use the zaibatsu dissolution program from late-1940s Japan as an exogenous shock to the pre-war ownership equilibrium. Through that program, the U.S.-run occupation removed the more prominent shareholders from many of the most successful Japanese companies. By focusing on the effect the program had on profitability and on the way firms responded to the program, we accomplish two goals: (a) we avoid the endogeneity problem that has plagued much of the other research on the subject, and (b) we clarify the equilibrating dynamics by which competitive markets move firms toward their optimal ownership structure.

With a sample of 637 Japanese firms for 1953 and 710 for 1958, we confirm the equilibrating mechanism behind Demsetz-Lehn: between 1953 and 1958, the ex-zaibatsu firms did significantly reconcentrate their ownership structure. As of 1953, the unlisted ex-zaibatsu and new firms still had not yet been able to negotiate the transactions necessary to approach their optimum ownership structures, and even the listed firms had not fully undone the effect of the occupation-induced changes on managerial practices. By 1958 they had, and the earlier correlation between profitability and ownership disappeared. By then, firm profitability showed no correlation with ownership, whether under linear, quadratic, or piecewise specifications. We further find no evidence that ex-zaibatsu firms sought to strengthen their ties to banks over 1953-58.

Abstract:
Observers of modern transitional economies urge firms there to ignore stock markets. Stock markets simply will not work in such environments, they explain. Firms should instead rely on debt finance, particularly bank debt. Only then will they be able to keep principal-agent (i.e., investor-manager) slack to manageable levels.

Turn-of-the-century Japanese firms faced problems that closely mirrored those in modern eastern Europe. Yet in Japan, the successful large firms did not rely on debt. Instead, they raised their funds through the stock market, and took a variety of steps to mitigate the principal-agent slack involved. As one of those steps, they recruited prominent investors to their boards.

Using data on firms in the cotton-spinning industry (arguably the most important industrial sector in turn-of-the-century Japan), we explore why the firms recruited prominent directors. First, we note that firms with such directors had higher profits than others. In part, they probably had higher profits because such investors had an eye for firms that would likely succeed. In part too, however, they seem to have had higher profits because those investors brought basic management skills -- they knew how to monitor and when to intervene.

Second, prominence held constant, we find that firms did not have higher profits by having directors affiliated with a bank or with other spinning firms. One might have thought directors with access to a bank or spinning technology would raise profits at a firm. In fact, they did not, for banks did not have the funds to lend, and the technolgy was freely available. Last, we explore whether the directors certified firm quality on behalf of other investors. Although firms with prominent directors apparently did have an advantage in the capital market, we conclude that quality certification was at most a by-product (if even that) of the monitoring and intervention these directors performed.

Abstract:
Observers of the formerly communist transitional economies urge firms there to obtain funds from a relatively few sources. They note the institutional problems the firms face: courts not working, markets not developed, statutes not written. Because these firms cannot rely on the courts to discipline managers, they predict that firms will do best if they raise their capital only from a few concentrated sources.

Firms in Japan at the close of the 19th century faced a similar "transitional" institutional environment. They too faced disfunctional courts, nascent markets, and non-existent statutes. Yet the firms that succeeded in Japan were not the ones that took the tack proposed by modern observers of transitional economies. They were the ones that used little debt and raised their equity from a large number of investors. In this article, we outline how concentrated finance can introduce problems potentially as severe as the ones it supposedly mitigates, and discuss why dispersed equity did not reduce firm efficiency in late-19th century Japan. Although investors with relatively large stakes can indeed provide a firm value, they do so only under limited conditions -- and we explore what some of those conditions might be.

Abstract:
Observers of the formerly communist transitional economies urge firms there to obtain funds from a relatively few sources. They note the institutional problems the firms face: courts not working, markets not developed, statutes not written. Because these firms cannot rely on the courts to discipline managers, they predict that firms will do best if they raise their capital only from a few concentrated sources.

Firms in Japan at the close of the 19th century faced a similar "transitional" institutional environment. They too faced disfunctional courts, nascent markets, and non-existent statutes. Yet the firms that succeeded in Japan were not the ones that took the tack proposed by modern observers of transitional economies. They were the ones that used little debt and raised their equity from a large number of investors. In this article, we outline how concentrated finance can introduce problems potentially as severe as the ones it supposedly mitigates, and discuss why dispersed equity did not reduce firm efficiency in late-19th century Japan. Although investors with relatively large stakes can indeed provide a firm value, they do so only under limited conditions -- and we explore what some of those conditions might be.

Abstract:
In many ways, the current financial distress in Japan traces itself to the limited range of non-bank financial intermediaries available. That limited availability is itself a creature of regulation. By examining the recent deregulation of commercial paper issues by financial intermediaries, we explore the dynamics of the regulatory process that originally contributed to - if not caused - the current distress.

We also use this case study to explore the dynamics of the Japanese legislative and regulatory process more generally. We characterize deregulation as a bargain between banks and the newer non-bank intermediaries: the banks acquiesced to commercial paper issues by non-banks, while the non-banks agreed to the regulatory jurisdiction of the Ministry of Finance. The non-banks obtained a cost-effective way to raise additional funds; the banks brought their new competitors within their regulatorily enforced cartel. At a specific level, the dynamics illustrate the classic Stiglerian theory of regulation; at a more general level, they illustrate the trans-national economic logic to the Japanese legislative and regulatory process.

Abstract:
Prepared for a forthcoming book on the distribution sector in Japan, this essay introduces the distribution network in the apparel industry. We note the varying patterns of cross-market contracting and intra-firm organization in the industry, and trace the economizing logic involved. More specifically, we show how the decision at the firm level of whether to integrate wholesale, retail and production depends crucially on an informational and incentive-based logic, and how that logic is in turn driven by patterns of consumer demand.

Abstract:
Change is in the air in Japan, claim many observers: The government is radically deregulating crucial sectors of the economy, the large firms are unwinding their keiretsu corporate groups, and firms and banks are dismantling their main bank arrangements. Some observers see all three as exogenous institutional shocks, while others treat the last two as behavioral responses to the first. In fact, although the first phenomenon would constitute an institutional change if it occurred, it has not - for Japanese bureaucrats had no substantial regulatory power to abandon. Although the last two would constitute market responses if they occurred, they have not either - for firms and banks maintained no groups or main-bank arrangements to unwind or dismantle.

Abstract:
Various theories, notably those of McCubbins & Schwartz and Landes & Posner, say why judicial independence might be desired by voters and politicians. Why, however, are judges independent in some elected regimes but not others? We develop an "alternating-parties" explanation based on the theory of repeated games and use it to explain the differences between Japan in the 1920's, Japan 1950-1990, and federal judges in the United States. We also discuss why other elite bureaucrats are treated differently from judges.

judges, bureaucrats, judicial independence, separation of powers, bundling

Abstract:
Prepared as an introductory chapter to a forthcoming book on the distribution sector in Japan, this essay introduces the basic structure of the industry. We note the way competition drives consumers, sellers, and manufacturers to select distributional arrangements that minimize total costs, and the way that this distributional equilibrium will depend both on patterns of consumer demand and on production technology.

To illustrate the way that cross-national distributional practices vary less than often thought, we compare automobile distribution in Japan and the U.S.

Abstract:
In the Grutter case, Justice O'Connor suggested that universities could justifiably try to enroll a critical mass of minority students. Enroll fewer than that critical mass, reason some observers, and minority students will feel too marginalized to perform at their highest levels. In this article, we test whether minority students perform better with other students from their ethnic group in a class or school. To do so, we assemble data on the ethnicity and performance of each student in all classes at two law schools - for three years at one, and for sixteen years at the other. We find no consistent evidence that having additional students from one's ethnic group raises a student's performance. Instead, we find some evidence that having additional ethnic peers lowers performance - albeit by a very small amount (US, Canada).

Abstract:
The Ringling case presents itself as an irrational spat over board seats among spoiled investors. It is not.

The investors were not fighting over board seats; they were fighting instead over corporate offices. Neither were they irrational. Although Edith Ringling pushed her incompetent son and Aubrey Haley her inappropriate husband, they did so to their private advantage. Although the circus cycled from one management team to another, the investors always promoted the new teams for private gain.

The root of the Ringling dispute lay not in irrationality but in the inability of the law to enforce duty-of-loyalty standards. The duty does not just mandate fairness. If enforced, it promotes corporate performance (and the aggregate welfare of all investors) by removing the incentive to appoint less able kin, and the tendency of management teams to cycle. The Ringling circus did not degenerate into the chaos in which it found itself because the investors were spoiled or irrational. It degenerated because the law could not enforce the duty of loyalty.

Abstract:
The Japanese national health insurance provides universal coverage. Necessarily, this entails a subsidy that dramatically raises the demand for medical services. In the face of the increased demand, the government suppresses costs by suppressing prices. By combining extensive biographical (including income) data on all 449 Tokyo cosmetic surgeons and a random sample of 499 other Tokyo physicians, I explore the effect of this price suppression on the allocation of talent and the development of expertise. Crucially, the national health insurance does not cover services - like elective cosmetic surgery - deemed medically superfluous. Facing price caps in the covered sector but competitive prices in these superfluous sectors, the most talented doctors should tend to shift into the superfluous sectors and there to invest heavily in their expertise. I find evidence consistent with this: cosmetic surgeons earn higher incomes than other doctors; are more likely to have attended a national (generally more selective) medical school; are more likely to have served on the faculty of a medical school; and are more likely to be board-certified. I speculate on the broader implications this phenomenon poses for the allocation of talent in medicine.

Abstract:
Economists and legal scholars routinely posit an implicit contract between Japanese firms and their principal lender (called their "main bank"). Under this arrangement, the bank implicitly agrees to rescue the firm (through financial and managerial help) when times turn bad. Out of court, it rescues the firm from insolvency. Not only does it save the investments specific to the troubled firm, it lowers the use of costly bankruptcy proceedings and cuts the costs of those bankruptcy procedures it does occasionally invoke.

Given the creditor-shareholder conflicts of interest that arise as firms approach insolvency, such arrangements would seem unstable. Yet according to a long sociological tradition, conflicts of interest are inherently less problematic in Japan than in the West. According to the emerging economic and legal tradition, Japanese economic actors do face those conflicts, but keep them in check through reputational concerns, close-knit ties, and government supervision.

Using two datasets of troubled firms from the 1970s and 1980s, we ask whether Japanese main banks in fact rescue distressed borrowers. We find no evidence that they do: large Japanese firms fail; when large firms approach insolvency main banks do not increase the share of the firm's debt they bear; stronger ties between distressed firms and their main bank do not facilitate loans; and troubled firms do not try to preserve their main bank relationship. Instead, the claim that Japanese banks implicitly agree to rescue firms is sheer myth. Conflicts of interest do indeed matter in Japan - and they matter enough to prevent precisely the incentive-incompatible rescue deals that scholars in the field so routinely posit.

Abstract:
By juxtaposing at-will employment with corporate fiduciary duties, Jordan v. Duff & Phelps creates something of a classroom brain-twister. Yet the exchange between Frank Easterbrook (writing for the majority) and Richard Posner (dissenting) also illustrates two fundamental but seldom recognized principles of real-world courts.

First, the bench is properly a place for honest jurists of moderate talent (ideally, monitored for their work). It is not a place for men and women with the independence and sophistication of Posner and Easterbrook. Such judges can muddy the law by trying to fix bad precedent, and worsen the law by setting interventionist examples for their far less talented peers.

Second, by basic second-best principles, the right legal rule for a substantial fraction of contractual disputes is not a rule designed to facilitate efficient deals. It is a rule that dismisses a plaintiff's claim forthright. We live in a world with imperfect judges, costly and dishonest attorneys, and only moderately intelligent juries. As Posner implicitly recognizes in Jordan (but other judges rarely do), many cases are simply beyond the capacity of such real-world courts to handle cost-effectively.

Abstract:
For nearly a decade now, the specter of financial malaise has haunted East Asia. It overwhelms the weaker economies. It imperils North America. Persistently, it refuses to retreat.

Yet even as the specter teases entrepreneurs with insolvency, some observers suggest that responsibility might lie with the entrepreneurs themselves. Might not the source of the malaise lie in the very governance structures they created and maintain, particularly in the shareholding and board composition patterns they support? Might not its solution lie in legal reforms that would force them to remake those structures?

To examine these questions, we consider the governance arrangements at the heart of the malaise: in corporate Japan. Theoretically, we find nothing to suggest that the source of the recession lies in issues of corporate governance, and nothing to suggest that the solution lies in corporate law reform. We then assemble data from the banking industry - one of the sectors most badly struck by the financial crisis. Empirically, we find nothing to suggest that the contested governance structures explain the poor performance of the banks involved.

Abstract:
The debate over the role bureaucrats played in the postwar Japanese economy has been the wrong debate. To date, it has been a debate about effectiveness: the government tried to promote growth through interventionist policies, but did it succeed? In fact, the government never tried. Majority voters did not want interventionist bureaucrats, and consistently rejected communist and socialist candidates offering interventionist approaches. Instead, they chose candidates from the centrist, decidedly non-interventionist party. Reflecting those electoral market exigencies, politicians in power seldom gave their bureaucrats the authority to alter market investment and production decisions.

To explore these issues, we first investigate the tools Japanese politicians gave their bureaucrats. We find that bureaucrats lacked the mechanisms they would have needed to shape significantly production or investment. Second, we reexamine the central anecdote behind the legend of Japanese bureaucratic power: the 1965 showdown between Sumitomo Metals and MITI. We find that Sumitomo rather than MITI won the battle. Last, we survey the case law on bureaucratic power, and find that Japanese courts strictly restricted bureaucratic discretion.

There is a broader moral here, and it goes to the perils of relying on secondary research. For obvious reasons, Japanese politicians and bureaucrats encouraged stories that disguised ordinary pork-barrel policies as growth-enhancing intervention. Although the tales they told differed little from the self-serving accounts politicians tell everywhere, in the 1960s most Japanese social scientists were Marxists. Understandably, they had little sense of how markets worked, and no skepticism at all about the powers of governments to plan. Yet it is their accounts on which modern observers rely for their picture of the postwar Japanese political economy. Had modern scholars done more than recount the conclusions in the secondary literature, they would have noticed that they were merely adding academic gloss to political sloganeering. Unfortunately, they never tried.

Abstract:
Firms in modern developed economies can choose to borrow from banks or from trade partners. Using first-difference and difference-in-differences regressions on Japanese manufacturing data, we explore the way they make that choice. Whether small or large, they do borrow from their trade partners heavily, and apparently at implicit rates that track the explicit rates banks would charge them. Nonetheless, they do not treat bank loans and trade credit interchangeably. Disproportionately, they borrow from banks when they anticipate needing money for relatively long periods, and turn to trade partners when they face short-term exigencies they did not expect.

This contrast in the term structures of bank loans and trade credit follows from the fundamentally different way bankers and trade partners reduce the default risks they face. Because bankers seldom know their borrowers' industries first-hand, they rely on guarantees and security interests. Because trade partners know those industries well, they instead monitor their borrowers closely. Because the costs to creating security interests are heavily front-loaded, bankers focus on long-term debt. Because the costs of monitoring debtors are on-going, trade creditors do not. Despite the enormous theoretical literature on bank monitoring, banks apparently monitor very little.

Abstract:
Observers routinely claim that the Japanese government during the high-growth 1960s and 70s rationed and ultimately directed credit. It banned investments by foreigners, barred domestic competitors to banks, and capped loan interest rates. Through the resulting credit shortage, it manipulated credit to promote its industrial policy.

In fact, the government did nothing of the sort. It did not bar foreign capital, did not block domestic rivals, and did not set maximum interest rates that bound. Using evidence on loans to all 1000-odd firms listed on Section 1 of the Tokyo Stock Exchange from 1968 to 1982, we show that the observed interest rates reflected borrower risk and mortgageable assets, and that banks did not use low-interest deposits to circumvent any interest caps. Instead, the loan market probably cleared at the nominal rates.

We follow our empirical inquiry with a case study of one of the industries where the government tried hardest to direct credit: ocean shipping. We find no evidence of credit rationing. Rather, we show that non-conformist firms funded their projects readily outside authorized avenues - so readily that the non-conformists grew with spectacular speed and earned their investors enormous returns.

Abstract:
In Japan, the government wins most of its tax cases against taxpayers. Why? We find, using statistical analysis, that judges who rule for taxpayers do not suffer in their future careers
in general. If, however, the loser, whether tax office or payers, appeals and wins, the trial judge's future job posting do worsen. We conclude that the Japanese government cares more about good judging than about rulings in its own favor, as makes sense since the government can legislate higher taxes if it so desires.

Abstract:
The tax office wins most cases in Japan. We think about why this might be. We find that although judges who rule in favor of the taxpayer do not suffer in their future careers, if the loser - whether governemnt or taxpayer - appeals and wins, the reversed judge's career does take a turn for the worse. This implies that the government cares more about accurate judging than about pro-government judging.

Abstract:
It is natural to suppose that a prosecutor's conviction rate - the ratio of convictions to cases prosecuted - is a sign of his competence. Prosecutors, however, choose which cases to prosecute. If they prosecute only the strongest cases, they will have high conviction rates. Any system which pays attention to conviction rates, as opposed to the number of convictions, is liable to abuse. As a prosecutor's budget increases, he allocates it between prosecuting more cases and putting more effort into existing cases. Either can be socially desirable, depending on particular circumstances. We model the tradeoffs theoretically in two models, one of a benevolent social planner and one of a prosecutor rewarded directly for his conviction rate as well as caring about convictions and personal goals. We also look at anecdotal evidence from Japan and detailed U.S. data drawn from county-level crime statistics and a survey of all state prosecutors by district. We find that prosecution rates vary little with budget, but conviction rates do increase, and that the conviction rate declines in the number of cases prosecuted and with the crime rate of a district.

Abstract:
Many Americans picture the Allied (i.e., U.S.) Occupation of Japan (1945-52) as the quintessentially good occupation: elaborately planned in advance, idealistically administered until derailed by anti-Communist ideologues in its later years, it laid the foundation for Japan's post-War democracy and prosperity. In fact, the Americans - especially those Americans celebrated as most "idealist" - did not plan a Japanese recovery, and for the first several years did not work for one. Instead, they mostly just planned retribution: whom to hang, and which firms to shutter. Economic issues they entrusted to Japanese bureaucrats, and those bureaucrats merely manipulated the controls they had used to disastrous effect during the War. Coming from a New Deal background in Washington, the Americans enthusiastically urged them on.

Although the Japanese economy did grow, it did not grow because of the Occupation. It grew in spite of it. In early 1949, Japanese voters overwhelmingly rejected the political parties offering economic controls. In their stead, they elected center-right politicians offering a non-interventionist platform. These politicians then dismantled the controls, and (despite strong opposition from New Deal bureaucrats in the Occupation) imposed a largely non-interventionist framework. As a result of that choice - and not as result of anything the Occupation did - the Japanese economy grew.

Abstract:
Most studies of executive compensation focus on publicly traded companies. The high levels of compensation there are often attributed to agency slack due to ownership by diffused shareholders. If so, pay at private companies more closely held should be much lower. Governments in the United States and elsewhere do not require the pay of executives in private companies to be publicly disclosed, but until 2004 the tax office of Japan published the name and tax liability of any individual paying over about $100,000 in tax. We match this tax data with rosters of some 1,400 presidents of public and 4,100 presidents of private corporations. We find that public and private company presidents have similar incomes. Both groups earn incomes that rise with the size and profitability of the firm, but the presidents' incomes are more sensitive to profitability at public firms than at private ones. In Japan, at least, public firms pay their presidents no more than private firms do, and tie that compensation more closely to observable performance benchmarks.

Abstract:
In several fields, modern academics trumpet the contingency of social science and the indeterminacy of institutional structures. The Japanese experience during the first half of the 20th century, however, instead tracks what much-derided chauvinists have claimed all along: modern legal institutions largely trump indigenous organizational frameworks, and modern rational-choice theory nicely predicts how people respond to such institutions. As orientalist as it may seem, such theory goes a long way toward explaining the real world in which we live.

Abstract:
Using micro-level data (from tax records) on attorney incomes in 2004, we reconstruct the industrial organization of the Japanese legal services industry. These data suggest a bifurcated bar. The most talented would-be lawyers (those with the highest opportunity costs) pass the bar-exam equivalent on one of their first tries or abandon the effort. If they pass, they then opt for careers in Tokyo that involve complex litigation and business transactions. The work places a premium on their talent, and from it they earn appropriately high incomes. The less talented face lower opportunity costs, and willingly spend many years studying for the exam. If they eventually pass, they tend to forego the many amenities available to professional families in Tokyo and disproportionately opt for careers in the under-lawyered provinces. There, they earn monopoly rents not available in the far more competitive Tokyo market.

Abstract:
Medieval Japanese governments only haphazardly enforced claims to scarce resources. Necessarily, this presented landholders with a void. To obtain the enforcement the governments did not offer, many turned to institutions affiliated with the fractious Buddhist church instead. Temples and monasteries enjoyed an exemption from tax on their lands, and controlled an array of financial and human resources with which they could adjudicate and enforce claims to scarce resources. To obtain access to that exemption and those resources, landholders "commended" their land to them, and paid them a share of the harvest. In exchange, the temples and monasteries exempted them from tax, adjudicated disputes internal to the estate, and protected their estates against external threats. Effectively, the temples and monasteries competed in a market for basic governmental services.

Abstract:
The Japanese antitrust agency (the J-FTC) holds a jurisdictional monopoly over most issues. Because overlapping jurisdictions would enable politicians to gauge relative bureaucratic performance, this monopoly prevents politicians from monitoring the agency on most issues. In response, J-FTC bureaucrats have chosen not to enforce those statutory provisions like criminal penalties that firms might contest. Consequently, firms face virtually no criminal sanctions for violating the antitrust statute. Most Japanese markets are still competitive - but primarily because they are large, fluid, and easy to enter. The J-FTC enforces the law only in areas where politicians can monitor its performance, and politicians have the information they need to monitor only on issues about which they care deeply. All else equal, monopolist agencies will regulate less actively than competitive agencies. Yet politicians do not win elections by creating agencies they cannot control, and even monopolist agencies will regulate actively when politicians can gauge their performance. In equilibrium, therefore, politicians will grant agencies a jurisdictional monopoly over electorally important issues only when they have access through other sources to information by which to monitor their bureaucrats.

Abstract:
Do workers earn their market wage under multi-year incompletely specificied contracts? Or do employers use their monopsony power in later years to hold wages down? We use pay and performance data from Japanese baseball to compare the salaries players receive before and after turning free agents. Although teams do pay lower salaries (performance levels held constant) during the early years of a player's contract term, they do so largely to recoup the training and sign-on bonus they provide. Once they recover that training and bonus, they pay salaries close to free agent levels - even before a player becomes a free agent. Additionally, we find that the younger stars earn high endorsement incomes; that Japanese owners compete for players who offer the same performance characteristics as the players for whom U.S. owners compete; that Japanese teams pay a premium for American players; and that Japanese teams do not pay black players less than white players.

Abstract:
Although the executive branch appoints Japanese Supreme Court justices as it does in the United States, a personnel office under the control of the Supreme Court rotates lower court Japanese judges through a variety of posts. This creates the possibility that politicians might indirectly use the postings to reward or punish judges. For forty years, the Liberal Democratic Party (LDP) controlled the legislature and appointed the Supreme Court justices who in turn controlled the careers of these lower-court judges. In 1993, it temporarily lost control. We use regression analysis to examine whether the end of the LDP's electoral lock changed the court's promotion system, and find surprisingly little change. Whether before or after 1993, the Supreme Court used the personnel office to 'manage' the careers of lower court judges. The result: uniform and predictable judgments that economize on litigation costs by facilitating out-of-court settlements.

Judges, Japan, supreme court, political economy

Abstract:
For over four decades, Japan has offered universal health insurance. Despite the demand subsidy entailed, it has kept costs low by regulatorily capping the amounts it pays doctors, particularly for the most modern and sophisticated procedures. Facing subsidized demand but stringently capped prices on the most complex procedures, Japanese physicians have had little incentive to invest in specialized expertise. Instead, they have invested in small private clinics and hospitals.

The resulting proliferation of primitive clinics and hospitals has cut both the number of complex modern medical procedures performed, and the number of hospitals with any substantial experience in those procedures. With a quarter of the heart disease in the US, Japan performs less than 3 percent as many coronary bypass operations and less than 6 percent as many angioplasties. Of the 855 cities in Japan, 71 percent lack any hospital with substantial experience in the sophisticated modern treatment of cerebrovascular disease, and 83 percent lack any in heart disease.

In this article, I estimate the mortality cost of this regulatorily-driven lack of expertise. Toward that end, I combine mortality data from 855 cities with information on local hospital expertise and local demographic composition. In the typical city, I find that the addition of one hospital with substantial experience in stroke patients or in modern stroke treatment would cut annual stroke mortality by 10 to 15 deaths. The addition of one hospital with substantial experience in cardiac bypass operations or angioplasties would cut annual heart attack mortality in the city by 27 to 56 deaths.

Abstract:
Wolff (2007) argues that female judges in Japan experience statistically significant pay discrimination. To document his assertion, he compares the mean values for men and women among judges hired in the 1960s. I use multivariate regressions to test his claim with new data on all judges hired between 1978 and 1981. I find (a) that women brought qualifications comparable to the men, (b) that women received initial postings as attractive as the men, (c) that women accepted inter-city transfers in their careers at the same rates as the men, and (d) that women were not more likely to quit their jobs than the men. Although I find (i) that women were underrepresented among those judges who specialized in administrative rather than judicial work, I also find (ii) that women did not climb the pay scale significantly more slowly than the men. Wolff's pay discrimination results are apparently an artifact of an earlier era.

Abstract:
Japanese patients file relatively few medical malpractice claims. To date, scholars have tried to explain this phenomenon by identifying "faults" in the Japanese judicial system. They look in the wrong place. Largely, the faults they identify do not exist.

To explore the reasons behind Japanese malpractice claiming patterns, I instead begin by identifying all malpractice suits that generated a published district court opinion between 1995 and 2004. I then combine the resulting micro-level dataset with aggregate data published by the courts, and publicly available information on the Japanese health care industry.

I locate the explanation for the dearth in claims in the patterns of Japanese medical technology, and the reason for that technology in the national health insurance program. In order to contain the cost of its universal national health insurance plan, the Japanese government has radically suppressed the price it pays for the technologically most sophisticated procedures. Predictably as a result, Japanese doctors and hospitals have focused instead on more rudimentary - and more generously compensated - care. Yet, for reasons common to many societies, Japanese patients do not sue over rudimentary care. They sue the physicians who supply the most sophisticated care. Japanese patients bring relatively few malpractice suits because the government has (for reasons of cost) suppressed the volume of the services (namely, highly sophisticated services) that would otherwise generate the most malpractice claims.

Abstract:
Because of the risk of political interference, in countries with managed courts jurists who share ruling-party preferences disproportionately self-select into judicial careers. During political turmoil, such jurists will find judicial careers less attractive. Orthodox potential jurists will disproportionately shun the courts, and orthodox incumbent judges will disproportionately resign. Unorthodox potential jurists, on the other hand, might find the judiciary more attractive. Combining data on a random sample of 1,605 Japanese lawyers and all 2,502 judges hired between 1971 and 2001, we locate evidence consistent with these hypotheses: after the political crisis of 1993, the recruitment of young lawyers from elite universities lagged, while the number of early resignations increased.

Abstract:
Empirical students of the U.S. courts successfully explain some court decisions through the party of the executive or legislature that appointed the judge. Others (including some judges) find these studies offensive. In taking offense, they miss a crucial implication: appointment politics predict judicial outcomes only when courts are independent.

Japanese Supreme Court justices enjoy an independence similar to that of their American peers, but their lower-court colleagues do not. Although the Liberal Democratic Party (LDP) has governed Japan for most of the post-war period, it temporarily lost power in the mid-1990s. Elsewhere, Eric Rasmusen and I ask whether this non-LDP hiatus changed the administration of the lower courts. Here, I ask whether the non-LDP prime ministers appointed Supreme Court justices with different policy preferences than their LDP predecessors. I find that they did not.

Abstract:
Observers routinely claim that the Japanese government of the high-growth 1960s and 1970s rationed and ultimately directed credit. It barred domestic competitors to banks, insulated the domestic capital market from international competitive pressure, and capped loan interest rates. In the resulting credit shortage, it promoted industrial policy by rationing credit.

As much as the government purported to ration and to direct credit, it apparently accomplished nothing of the sort. It did not block domestic rivals to banks successfully, did not insulate the market from international forces, and did not set maximum interest rates that bound. Using evidence on loans to all 1,000-odd firms listed on Section 1 of the Tokyo Stock Exchange from 1968 to 1982, we find that observed interest rates reflected borrower risk and mortgageable assets and that banks did not use low-interest deposits to circumvent any interest caps. Instead, the loan market seems to have cleared at the nominal rates.

We follow our empirical inquiry with a case study of the industry to which the government tried hardest to direct credit: ocean shipping. We find no evidence of credit rationing. Despite the government programs to allocate capital, nonconformist firms funded their projects readily outside authorized avenues. Indeed, they funded them so readily that the nonconformists grew with spectacular speed and earned their investors enormous returns.

Abstract:
Although some observers urge modern transitional economies to rely on bank finance rather than stock markets, in "transitional" Japan at the opening of the 20th century large firms did not rely on debt. Instead, they raised their funds through the stock market, and took a variety of steps to mitigate the agency slack involved. As one of those steps, they sometimes recruited prominent investors to their boards.

We explore the value of director prominence. More precisely, we use data on firms in the cotton-spinning industry in early 20th century Japan to explore the relationship between board composition and firm profitability. First, we find that firms who hired prominent directors had higher profits than their competitors in succeeding years. We hypothesize that these prominent directors brought basic monitoring skills and certifying credibility: they knew what to expect of the firms, knew when and how to intervene, and had the reputations necessary to certify firm quality credibly. Second, we find that firms did not further increase their profitability by appointing directors with access to a bank or to spinning technology. We conclude that the firms probably had access to funds and technological assistance without connections through the board.

Abstract:
Conviction rates in Japan exceed 99 percent. Because Japanese judges can be penalized by a personnel office if they rule in ways the office dislikes, perhaps they face biased incentives to convict. Using data on the careers and opinions of 321 Japanese judges, we find that judges who acquit do have worse careers following the acquittal. On closer examination, though, we find that the punished judges are not those who acquit on the ground that the prosecutors charged the wrong person. Rather, they acquit for reasons of statutory or constitutional interpretation, often in politically charged cases. Thus, the apparent punishment seems unrelated to any pro-conviction bias at the judical administration offices. We suggest an alternative explanation: the high conviction rates reflect case selection and low prosecutorial budgets; understaffed prosecutors present judges with only the most obviously guilty defendants.

Abstract:
Conviction rates are high in Japan. Why? First, Japanese prosecutors are badly understaffed. Able to bring only their strongest cases, they could be presenting judges only with the most obviously guilty defendants. High conviction rates would then follow naturally. Crucially, however, this is not the full story, for Japanese judges face seriously biased incentives. A judge who acquits a defendant runs significant risks of hurting his career and earns scant hope of positive payoffs. Using data on the careers and published opinions of 321 Japanese judges (all judges who published an opinion in a criminal case in 1976 or 1979), we find skewed incentives to convict. First, a judge who ? trying a defendant alone -? acquits a defendant will spend during the next decade an extra year and a half in branch office assignments. Second, a judge who acquits a defendant but finds the acquittal reversed on appeal will spend an extra three years in branch offices. Conversely, a judge who finds a conviction reversed incurs no substantial penalty. Unfortunately for innocent suspects, the absence of an unbiased judiciary also reduces the incentives Japanese prosecutors have to prosecute only the most obviously guilty defendants.

Abstract:
All judges in Japan, except those on the Supreme Court, become judges at a relatively young age by process of rigorous examination and then spend their career rotating through various positions. Although the judicial system handles its own promotion procedure, this raises the possibility that politics enters into judicial decisions. We look at the quality of postings that some 400 judges received after deciding various politically sensitive kinds of cases. In tobit regressions we find that judges who made decisions favored by the ruling Liberal Democratic Party did better in their careers. Judges who enjoin the national (but not local) government frequently suffer in their careers; so do those who ruled against the government on the constitutionality of the military; so do those who ruled that electoral redistricting was necessary before the LDP itself decided that.

Courts, judicial independence, Japan, civil law, administration

Abstract:
We are grateful to Ilya Segal and Michael Whinston for improving our analysis. We are pleased they confirm our two main conclusions. The first is that normally a firm cannot use contracts with its customers or suppliers inefficiently to exclude a rival from competition, because the high price of these contracts will make this strategy unprofitable. This is an old point, well summarized in Robert Bork's 1978 book. Second, and in contrast, exclusionary contracts can be profitable, effective, and socially inefficient--under certain limited conditions. One condition is that firms in the industry must be able to operate only at or above some minimum efficient scale. Another condition is that the victims--customers or suppliers--must expect that the exclusionary tactic will succeed, and must be unable to coordinate their actions to defeat the tactic. An excluding firm in this situation can buy naked exclusion affordably because it can scare victims into selling cheaply; no single victim can stop the exclusion by itself, so no single victim has any bargaining power. At a theoretical limit, the excluding firm can gain the exclusionary rights for free.

This striking result has implications for antitrust policy by suggesting that naked exclusion is, in theory, a potentially viable threat to efficient competition. Also striking from an antitrust perspective, however, is the lack of fit between this theory and the cases in which the United States Supreme Court has forged the law most relevant to exclusionary conduct. A simple legal label for contracts of naked exclusion is "exclusive dealing": "You agree to deal only with me, and not with my competitors." The facts of the three relevant Supreme Court cases, however, clearly violate the assumptions of the naked exclusion theory, as we explain in Rasmusen, Ramseyer and Wiley (1998).

Two important conclusions follow. We cannot establish whether this kind of naked exclusion ever really happens by looking at the three legally most relevant cases. The theory awaits other empirical testing. And second, naked exclusion--if it ever really occurs--cannot be the only explanation for exclusive dealing. Rather, exclusive dealing "often" serves legitimate business purposes, as Judge (now Justice) Stephen Breyer wrote in his 1987 opinion in Interface Group, Inc v. Massachusetts Port Authority. The theory at hand thus does not support outlawing exclusive dealing on a per se or summary basis. If a legal prohibition is justified at all, any sensible legal test would have to be far more discriminating. Lawyers and judges who might seek to translate this theory into practice, please take note.

Abstract:
We are grateful to Ilya Segal and Michael Whinston for improving our analysis. We are pleased they confirm our two main conclusions. The first is that normally a firm cannot use contracts with its customers or suppliers inefficiently to exclude a rival from competition, because the high price of these contracts will make this strategy unprofitable. This is an old point, well summarized in Robert Bork's 1978 book. Second, and in contrast, exclusionary contracts can be profitable, effective, and socially inefficient -- under certain limited conditions. One condition is that firms in the industry must be able to operate only at or above some minimum efficient scale. Another condition is that the victims -- customers or suppliers -- must expect that the exclusionary tactic will succeed, and must be unable to coordinate their actions to defeat the tactic. An excluding firm in this situation can buy naked exclusion affordably because it can scare victims into selling cheaply; no single victim can stop the exclusion by itself, so no single victim has any bargaining power. At a theoretical limit, the excluding firm can gain the exclusionary rights for free.

This striking result has implications for antitrust policy by suggesting that naked exclusion is, in theory, a potentially viable threat to efficient competition. Also striking from an antitrust perspective, however, is the lack of fit between this theory and the cases in which the United States Supreme Court has forged the law most relevant to exclusionary conduct. A simple legal label for contracts of naked exclusion is "exclusive dealing": "You agree to deal only with me, and not with my competitors." The facts of the three relevant Supreme Court cases, however, clearly violate the assumptions of the naked exclusion theory, as we explain in Rasmusen, Ramseyer and Wiley (1998).

Two important conclusions follow. We cannot establish whether this kind of naked exclusion ever really happens by looking at the three legally most relevant cases. The theory awaits other empirical testing. And second, naked exclusion - if it ever really occurs - cannot be the only explanation for exclusive dealing. Rather, exclusive dealing "often" serves legitimate business purposes, as Judge (now Justice) Stephen Breyer wrote in his 1987 opinion in Interface Group, Inc v. Massachusetts Port Authority. The theory at hand thus does not support outlawing exclusive dealing on a per se or summary basis. If a legal prohibition is justified at all, any sensible legal test would have to be far more discriminating. Lawyers and judges who might seek to translate this theory into practice, please take note.

Abstract:
Although sometimes said to reflect distinctively Japanese modes of economic organization or the general importance of path-dependence and culture, the cross-shareholding patterns within the Japanese keiretsu often display a straightforward economic logic. When keiretsu banks trade on debtor stock, for example, they occasionally seem to be capturing gains from inside information. When manufacturers in the automobile industry buy stock in their suppliers, they apparently do so to protect relationship-specific investments. And when the pre-war predecessors to the keiretsu invested in component firms, they often invested in ways that resembled the ways silicon valley venture capitalists invest today. Economic form may differ between the U.S. and Japan, but the cross-shareholdings themselves reflect a simple economic rationale.

Abstract:
Using a data set of about 1000 Japanese contracts, I study the relationships among urban labor markets, peasant employment contracts ,and parental control over work-age children. From 1600 to the mid-18th century, the use of contracts for the sale, pledge, or long-term employment of children fell drastically. The reason apparently lies in the development of a large non-agricultural labor market. Because this market (with its informal, at-will contractual terms) made it profitable for so many children to abscond, it threatened any property right that parents may once have had in their children's work. And absent that property right, most employers no longer offered long-term contracts on attractive terms. By making it profitable for dissatisfied children to abscond, this new labor market also reduced the control that parents had over their children. Indirectly to be sure, it shaped relations within the family and constrained domestic exploitation as well.

Abstract:
By standard economic logic, the governance systems that successful firms adopt should (on the more substantial aspects) tend to converge over time. In this paper, I investigate one of the ways in which Japanese corporate governance is said not to converge with U.S. governance: cross-shareholding arrangements. I find evidence for four propositions, all of which suggest that standard economic principles -- independent of any differences in social context -- largely explain Japanese shareholding patterns. First, the pre-war zaibatsu functioned largely as venture capital firms. Second, the cross-shareholding among the non-functional firms in the keiretsu is trivial. Third, the cross-shareholding among the financial firms in the keiretsu is an artifact of insider trading. Last, the cross-shareholding among firms in the automobile industry is a means of controlling opportunism in the presence of relationship-specific investments (as predicted by Klein, Crawford & Alchian and Gilson and Roe).

Abstract:
From time to time, observers argue that important facets of corporate governance are explicable only in path-dependent terms. Some buttress this claim with comparisons between U.S. and Japanese patterns of corporate governance. Using data that Kaplan has discussed in other contexts, we dispute the empirical foundation of this path-dependence claim. In fact, we find that U.S. and Japanese governance patterns are remarkably similar. We suggest that this similarity may imply that competitive product, capital and labor markets largely vitiate historically based idiosyncracies in governance.

Abstract:
Any justification of strict products liability faces a problem: why should the law impose on private contracts made in competitive product markets what is effectively a mandatory insurance contract? Proponents of the current regime generally justify it by citing some mix of contracting costs, informational asymmetries, and (sometimes) consumer irrationality. The common implicit premise is that parties to ordinary consumer sales contracts would not, in an unregulated market, negotiate strict products liability by contract. In fact, over the past 20 years, manufacturers of a wide variety of products in Japan have voluntarily offered strict products liability protection by contract. In this article, I introduce the data on these contracts, and explore why some manufacturers (but not others) have found the contracts economically advantageous.

Abstract:
Because civil-law systems hire unproven jurists into career judiciaries, many maintain elaborate incentive structures to prevent their judges from shirking. We use personnel data (backgrounds, judicial decisions, job postings) on 275 Japanese judges to explore general determinants of career success and to test how extensively politicians manipulate career incentives for political ends. We find strong evidence that the judicial system rewards the smartest and most productive judges. Contrary to some observers, we find no evidence of on-going school cliques, and no evidence that the system favors judges who mediate over those who adjudicate. More controversially, we locate three politically driven phenomena. First, even as late as the 1980's, judges who joined a prominent leftist organization in the 1960's were receiving less attractive jobs. Second, judges who decided a high percentage of cases against the government early in their careers were still receiving less attractive jobs than their peers in the 1980s. Finally, whenever a judge decided a case against the government, he incurred a significant risk that the government would soon punish him with a less attractive post.