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Abstract: This is the introductory essay for the Economics of Federalism, a book edited by the authors and forthcoming in Edward Elgar Publishing's ECONOMIC APPROACHES TO LAW series. This essay discusses the major issues and theories concerning federal political systems, which we define as systems that have a hierarchy of at least two distinct state and central levels, each with a well-defined scope of authority. The essay discusses two branches the economics literature. The first branch, on competitive federalism, stems from Tiebout's 1956 article. It focuses on the horizontal structure of federalism and examines jurisdictional competition between state governments for mobile individuals and resources. The second branch of the literature, on fiscal federalism, examines the vertical structure of federalism, or the division of public services and taxing power between the central and state governments. The essay also examines applications of the economic analysis of federalism to specific areas of the law, including corporate law, antitrust law, environmental law, choice of law rules, contractual choice of law, and public choice theory.
Abstract: In a consistent framework, both the antitrust and intellectual property laws should point toward the same goal: the maximization of social welfare. The attainment of this goal suggests that both sets of laws should be harmonized to attain this common goal and come to a joint solution with respect to the use/creation tradeoff. This paper examines the state of antitrust and intellectual property right protection for software, and finds little evidence that both sets of laws are being applied in a consistent manner. An examination of how the antitrust laws are applied to intellectual property industries finds little consideration of the unique appropriability and free riding problems that face intellectual property owners. As a result, antitrust enforcement has been hostile to intellectual property contracting and intellectual property industries, and to the maximization of dynamic efficiency. Further, static, ex-post competition arguments are now being used in support of weakening copyright protection. The outcome of this two-pronged attack is unlikely to yield a rational solution to the use/creation tradeoff.
Abstract: This article surveys the voluminous economic literature on commodity bundling. While bundling has been widely studied, the vast majority of the papers are theoretical models of bundling. These models generally contain restrictive assumptions regarding the existence of monopoly in some markets, and the nature of rivalry in others. The models also generally ignore obvious and ubiquitous reasons firms may use bundled discounts. Moreover, these models have not been subject to robustness checks, nor have their assumptions been tested empirically. As a result, while the literature has demonstrated that use of bundling can generate anticompetitive harm, it does not provide a reliable way to gauge whether the potential for harm would outweigh any demonstrable benefits from the practice. Thus, this review of the economic literature generally confirms the SG's position in 3M v. LePage's regarding the underdeveloped state of the economics literature and the wisdom of delaying the promulgation of antitrust standards for bundling. In the future, economists should seek to expand their understanding of both the anticompetitive and procompetitive reasons firms engage in bundling. This will entail studying the reasons bundling is adopted by firms without market power, relaxing the assumption of monopoly in theoretical models, and generating testable hypothesis and the data to test them. NOTE: Previously titled "Not Ready for Prime Time? A Survey of the Economic Literature on Bundling"
antitrust, bundling, foreclosure, price discrimination
Abstract: This Article provides the first detailed empirical analysis of firms' choice of organizational form. It provides important evidence on whether there is an efficient market in organizational forms or firms' choice of form is impeded by network externalities. We focus on formations of limited liability partnerships (LLPs) and limited liability companies (LLCs) in examining the effect of various factors on firms' cho ice of business form. Our data provides important evidence against the network externalities hypothesis. Because the LLP and LLC forms are similar except for the LLP's link to the existing "network" of partnership law, firms would prefer the LLP to the LLC form if network externalities mattered. In fact, we find that firms prefer the LLC form. Moreover, the reduced relative popularity of LLCs in states that impose entity taxes on LLCs but not LLPs, and the increased relative popularity of LLCs in states and years in which LLCs have particular inherent advantages, provide further evidence that the inherent characteristics of the two business forms, rather than network externalities, are driving choice of form.
Abstract: States and the federal government have enacted laws intended to police franchisors' use of termination provisions in franchise contracts to opportunistically take over profitable establishments. This regulation may, however, reduce the total number of chain outlets because franchising is a valuable form of contracting and termination rights allow franchisors to police franchisee free-riding on the franchised trademark. On the other hand, no such effect is implied if the regulation reduces franchisors' extra gains from skimming profitable franchises. We exploit two new sources of data to provide new empirical evidence on the effects of franchise regulation. Panel data on fast food establishments extracted from uniform franchise offering circulars show that laws restricting franchisor termination rights lead to a reduction in franchising, and this reduction is not offset by the concomitant increase in franchisor-operated establishments. This article also examines how Coasian bargaining between the franchisor and franchisee can mitigate the effect of regulation. In particular, regulation may be apparently important but actually inconsequential because affected parties can easily waive the regulation or avoid it through contractual choice-of-law and choice-of-forum clauses. To examine this, we use state employment data to more broadly examine the effects of franchise regulation. We find that employment in franchise industries is significantly reduced when states enact restrictions on franchisor termination rights and the effect is larger when states limit the ability to contract around these restrictions.
Franchise, Termination, Labor, Opportunistic Behavior, Corporate Law
Abstract: There is a widespread belief that regulation of electronic commerce by individual states is unworkable because firms doing global business on the Internet easily can evade state regulation or, conversely, because firms are subject to excessive regulation due to states' overlapping jurisdiction. Instead, it is believed that electronic commerce is best regulated at the federal or even global level, and that any state regulation should be pursuant to uniform laws. This article challenges this conventional wisdom. It shows that regulation of electronic commerce by individual states has several advantages over federal or uniform state laws and that the problems of state regulation have been exaggerated. First, state regulation provides variety, evolution and competition that is especially well suited to the dynamic nature of electronic commerce. Second, courts can minimize jurisdictional overlaps by enforcing choice-of-law and choice-of-forum contracts. Third, markets alleviate concerns that enforcing contractual choice would lead to a "race-to-the-bottom" in state Internet regulation. Any remaining problems with state regulation should be analyzed in comparison with those that would result under federal or uniform state law.
Abstract: This chapter reviews the law and economics of predatory pricing. Areeda and Hovenkamp (2006, 323) noted that other areas of the law of monopolization are "in much the same position as the theory of predatory pricing was in the 1970s: no shortage of theories, but a frightening inability of courts to assess them." In the past two decades, scholarship on the economics of predatory pricing has evolved from the relatively settled consensus in which predatory pricing was thought to be irrational, rarely tried, and even more rarely successful, to a point where much less is settled. Recent theoretical work emphasizing strategic theory has shown that predation can be rational, and empirical studies have presented evidence consistent with successful predation. In this sense, the economics of predatory pricing has moved closer to other areas of monopolization. However, the legal response to predatory pricing, a relatively administrable and permissive rule based in part on the assumption that successful predation was rare, has remained relatively intact. While the recent economic literature may have eroded this basis for the adoption of permissive standards for predatory pricing, other reasons for adopting such a rule, based on the benefits of bright line rules that would be administrable by courts, still remain. Thus, even considering the recent advances in economic theory, it is unwise to minimize or ignore this underlying purpose of the Brooke Group rule.
anticompetitive exclusion, antitrust, bundling, long term gains, loyalty discounts, monopolization, optimal antitrust rules, predation, predatory pricing, short term profits
Abstract: This paper examines the law and economics of loyalty discounts. While there have been recent advances in the economic analysis of loyalty discounts, this literature is still relatively recent and sparse. Though some of these papers provide tests that would serve to identify either deviations from short run profit maximization or, in the case of bundled discounts, a reduction in consumer welfare or the exclusion of a hypothetically equally efficient competitor, these tests have several shortcomings. As a result, the economic literature currently does not provide a reliable way to gauge whether the potential harm from the use of loyalty discounts would outweigh any demonstrable benefits from their use. A review of the major cases involving loyalty and other volume discounts suggests the following general observations. In the single product case, courts have consistently applied the "not easy to establish" two-part test for predatory pricing set out by the Supreme Court in its Brooke Group decision. As a result, the courts have generally ruled that above-cost volume discounts, including those that use market share discounts and near exclusive thresholds, are lawful and do not violate the antitrust laws. In cases involving multimarket or bundled rebates, however, courts have not generally followed the Brooke Group Court's presumption that above cost bundled discounts are presumptively legal. However, they have generally followed the Brooke Group Court's focus on the actual facts or realities of the marketplace rather than on hypotheticals. Thus, while the lower courts have considered the theories and tests contained in the recent theoretical literature on loyalty discounts, they have generally refused to find liability absent sufficient proof that the conditions required by these tests apply, and that the underlying tests reflect market realities. This approach is consistent with the federal courts' generally cautious approach to expanding Section 2 liability, and the recognition of the underdeveloped and untested state of the academic literature. Moreover, there are significant flaws in the two cases where courts have found use of bundled loyalty rebates to be unlawful. In SmithKline, the court did focus on data and concluded that an equally efficient competitor would have been excluded by the bundled discounts evaluated in the case. However, economic theory suggests that the court may have used a flawed standard, and should have instead focused on the fact that changes to the bundled rebate programs served to increase rather than decrease prices. And the court's decision in LePage's not only suggested use of the same flawed standard, it found liability without requiring sufficient proof that the standard even applied to the facts of the case.
antitrust, bundling, foreclosure, loyalty discounts, predation
Abstract: The advantage of the adversarial regime of judicial decision-making is the superior information of the parties while the advantage of an idealized inquisitorial regime is its neutrality. We model the tradeoff by characterizing the properties of costly estimators used by each regime. The adversarial regime uses an ?extremal? estimator that is based on the difference between the most favorable pieces of evidence produced by each party. The inquisitorial regime uses the sample mean. We find that neither regime dominates the other.
Abstract: The recent imposition of record fines on large corporations has been publicly touted by the Antitrust Division as a measure of success. In this article, it is suggested that extension of this policy should be taken with some caution. Because criminal fines are not accurate measures of loss, and because of the vicarious nature of corporate liability, there is a great danger that higher-than-optimal penalties will induce corporations to incur excessive costs in an attempt to avoid these high fines. The potential overdeterrence costs resulting from higher-than-optimal fines is exaggerated by the Antitrust Division's expanded use of the Corporate Leniency Policy. Ironically, the costs of overdeterrence will result in higher prices to consumers, a decrease in welfare, and, ultimately, in the exact effects that the criminal antitrust laws are intended to prevent.
Abstract: In "In re Independent Service Organization Antitrust Litigation", the United States Court of Appeals for the Federal Circuit held that the Xerox corporation's refusal to sell or license its patented parts, copyrighted manuals, and patented and copyrighted software to independent service organizations did not violate the antitrust laws. Plaintiffs have filed a writ of certiorari based on the claim that the Federal Circuit's holding is in direct conflict with the Ninth Circuit's antitrust holdings in Image Technical Services v. Kodak. In this paper, we argue that this conflict is largely illusory. The decision in the Xerox case is exactly the result contemplated when the Federal Circuit was created - the recognition and uniform treatment of the patent holder's rights under the statutory patent grant. The Xerox decision does not go beyond this, and a comparison of these two decisions does not present a compelling case for the Court to unify their outcomes by reversing Xerox.
Abstract: The debate over the regulation of consumer marketing information so far has focused on what form any such regulation should take. Despite the lack of consensus on the basic framework for allocating rights to use consumer marketing information, there seems to be broad consensus that any regulation should be promulgated at the federal level. Privacy advocates have stressed uniform federal law as a solution to the potential for under-regulation by the states. Firms have advocated uniform federal law as a solution to the problems of over-regulation by some states and having to comply with multiple and inconsistent state laws. This paper argues that the focus on a uniform federal solution is misguided. Given the lack of consensus on a basic framework for allocating rights in this area, it would be counterproductive to straightjacket emerging technologies and business practices with a federal law. Rather, consumer marketing information is best regulated at the state rather than the federal level. A process of state experimentation, competition and evolution would allow discovery of appropriate and comprehensive responses to problems concerning consumer marketing information, in contrast to the growing patchwork of federal laws that inhibit the development of such responses. A state law approach will not lead to over-or under-regulation as some have predicted as long as merchants and consumers can contract for the applicable law and forum. Contractual choice of a jurisdiction that under-regulates privacy is constrained by market forces and by the political forces within that state. Enforcement of contractual choice of law and forum would allow firms and consumers to agree to the application of a particular state's law, thereby eliminating the costs of having to comply with inconsistent or excessively burdensome state laws.
Abstract: In Credit Suisse v. Billing, the Court held that the securities law implicitly precludes the application of the antitrust laws to the conduct alleged in that case. The Court considered several factors, including the availability and competence of other laws to regulate unwanted behavior, and the potential that application of the antitrust laws would result in "unusually serious mistakes." This paper examines whether similar considerations suggest restraint when applying the antitrust laws to conduct that is normally regulated by state and other federal laws. In particular, we examine the use of the antitrust laws to regulate the problem of patent holdup of members of standard setting organizations. Although some have suggested that this conduct illustrates a gap in the current enforcement of the antitrust laws, our analysis finds that such conduct would be better evaluated under the federal patent laws and state contract laws.
Securities, law, antitrust, restraint, regulation, patents, holdup, standard
Abstract: In Credit Suisse v. Billing, the Court held that the securities law implicitly precludes the application of the antitrust laws to the conduct alleged in that case. The Court considered several factors, including the availability and competence of other laws to regulate unwanted behavior, and the potential that application of the antitrust laws would result in unusually serious mistakes. This paper examines whether similar considerations suggest restraint when applying the antitrust laws to conduct that is normally regulated by state and other federal laws. In particular, we examine the use of the antitrust laws to regulate the problem of patent hold up of members of standard setting organizations. While some have suggested that this conduct illustrates a gap in the current enforcement of the antitrust laws, our analysis finds that such conduct would be better evaluated under the federal patent laws and state contract laws.
antitrust, federalism, opportunism, patent holdup, preemption, royalty stacking, standard setting
Abstract: This article examines the ongoing controversy over the Uniform Computer Information Transactions Act (UCITA) which has been adopted by the National Conference of Commissioners on Uniform State Laws (NCCUSL). The Act emerged after opposition to a new Article 2B of the Uniform Commercial Code (UCC 2B) led to the withdrawal of the American Law Institute from its joint project with NCCUSL. This article argues that the debate over particular terms focuses on the wrong issues and may ultimately be of little consequence. The important issues concern the forces of jurisdictional competition and the role of choice of law. We argue that the law should facilitate the parties' ability to choose the governing law rather than being forced to accept a single uniform law that emerges from an imperfect political process. Moreover, whatever NCCUSL or the ALI decide to do, jurisdictional competition is likely to play an important role in shaping the law. States interested in attracting and retaining information technology companies can pass statutes that favor freedom of contract and enforcement of computer software licenses. If adoption of a single standard proves to be desirable, firms will tend to move toward this standard even if state laws differ and the "uniform" law is adopted in only a few states.
Abstract: Outsiders often have and seek to trade on a firm's material, nonpublic information. For example, lawyers have traded on advance information about the filing of a lawsuit, a social activist has announced a plan to trade on advance information of a boycott, and a hedge fund operator has engaged in a controversial trading maneuver in a control contest. Trading on nonpublic information is generally permitted if the information was not misappropriated or accompanied by fraud, manipulation, or other misconduct. However, recent public focus on the above transactions signals possible regulation in certain outsider trading situations. More generally, Professors Ian Ayres and Stephen Choi propose giving firms broad rights to decide whether outsider trading in their stocks will be regulated. We argue against broad regulation on the basis that outsider trading can provide incentives for socially beneficial conduct. In particular, outsider trading provides an important way to capitalize on investments in information that are not otherwise protected by the intellectual property laws. Understanding these benefits is a crucial element in determining appropriate regulation limits.
Abstract: Private lawyers are significant participants in legislative and judicial lawmaking. However, since law is a public good, lawyers face a significant free-rider problem in investing time and other resources in law-creation other than to the extent necessary to win the case for their client. This Article focuses on the lawmaking incentive problem inherent in class actions, and specifically on class action complaints. Because a class action lawyer prepares a complaint without knowing whether a court ultimately will select her as counsel for the class, the lawyer may have less incentive to put effort into the complaint than if she had been hired prior to drafting the complaint. This Article discusses ways such lawyers can be given adequate incentives to maximize the law-creation value of their complaints. It shows that direct protection, as through intellectual property rights, is not legally available, primarily because of due process concerns for public access to the law. We suggest that protection is best provided by the institutions for choosing the lead plaintiffs and lead counsel in class actions.
Abstract: This Article provides empirical and theoretical support for the proposition that permitting actors to contract for the law that applies to their transaction would improve state rules and regulations by reducing interest group incentives to promote inefficient laws. In general, competition between lawmaking bodies limits the extent to which they can impose costs on those who have little influence on the lawmaking process because they reside outside of the jurisdiction. Enforcing bargains over applicable law is particularly effective in promoting jurisdictional competition because it significantly lowers exit costs and thereby increases jurisdictional competition as compared with a rule that forces individuals and firms physically to relocate to a particular jurisdiction in order to be subject to its laws. Although jurisdictions seek to block easy exit from their laws by imposing legal constraints on the enforceability of choice-of-law contracts, we show that a multi-stage process of jurisdictional competition tends to erode these constraints. Given our analysis, theory and data indicating that law is inefficient may be incomplete because they examine only jurisdictions' initial attempts to externalize costs rather than the ultimate outcome of jurisdictional competition. We support our conclusion by analyzing the competition effects on contractual choice of law in three areas -- corporate law, unincorporated firms, and franchise regulation. In addition to its general implications for jurisdictional competition, our analysis has specific implications for the appropriate mode of analyzing the efficiency of state law and of a federal system.
Abstract: Privacy raises particularly difficult and important questions in the employment context. Employees and employers have competing interests in disclosing and preventing disclosure of information. Maximizing the value of a firm often requires that confidential business information be widely disseminated within the firm, but not disclosed outside the firm. At the same time, excessive protection of the employers' information could reduce employees' mobility and the flow of valuable information in society. Employers, in turn, need information about employees in order to evaluate them for hiring and to monitor them while they are employed. But employees also may have an interest in keeping some information private to protect their personal space or to hide shirking or other bad acts that are detrimental to the firm. Appropriately balancing employers', employees' and society's interests in workplace privacy contributes to social wealth by encouraging efficient employment relationships. This requires sensitivity to the unique characteristics of the economic activity that gives rise to the specific organizational form chosen by a given firm. In some cases, the optimal solution to this problem can involve employment contracts that allow intrusions into an employee's privacy, and restrictions on an employee's freedom, including restrictions that extend beyond the employees tenure at the firm. To be sure, employees may prefer ex post not to be bound by restrictions on employment or disclosure and not to be monitored by the employer. But employees are better off ex ante to the extent that they share in the value of efficient arrangements through higher compensation. On the other hand, contractual restrictions on the dissemination of employer information or on employee mobility may benefit both employees and employers but reduce social wealth because of their negative effects on development of intellectual property and competition. However, regulation of these contracts may impose more costs than benefits. For example, restricting protection of employer information can inhibit firms from disseminating confidential business information to employees and, in turn, force revision of relationships with employees. Protecting the privacy of employees' information can inhibit monitoring of employees and force employers to resort to non-agency-type relationships. This paper is both normative and positive. It shows why contracts regarding these issues should be enforced. It also shows that the contracts are enforced despite seemingly mandatory state rules preventing enforcement. The key to understanding the positive analysis is to see the enforcement issue in the interstate context, where both employers and employees are free to choose the states in which they live, contract, and sue.
Abstract: The indictment of the Milberg, Weiss firm and two of its named partners for allegedly illegal payments to lead plaintiffs stands at the intersection of important recent developments in both the expanding criminalization of corporate conduct and the federalization of corporate law. Many have noted the irony and hypocrisy of the Milberg firm's alleged use of illegal tactics to prosecute corporate illegality. However, the more important hypocrisy is that Milberg's prosecutors are essentially paying the same witness - Vogel - that Milberg is being prosecuted for paying. This case illustrates the need to need to develop coherent standards regarding payments to litigants and witnesses. These standards should take account of the incentive effects of the payments, rather than being based on a desire to discourage or encourage particular types of actions.
Milberg Weiss, federalism, class actions, agency costs, lead plaintiffs, witness payments
Abstract: This Chapter, forthcoming in the ABA Handbook on the Antitrust Aspects of Standards Setting (2010) provides an analytical overview of the antitrust issues involving intellectual property and standard setting including, but not limited to, patent holdup, royalty stacking, refusals to license, and patent pools.
bundling, competition policy, disclosure rules, Essential Facilities Doctrine, innovation, licensing obligations, market power, monopsony power, network effects, property rights, Qualcomm, Rambus, SSOs, standard setting organizations, transactional costs
Abstract: The economic literature on bundling has made many theoretical advances. However, several omissions reveal themselves. The advances have largely been on the theoretical side. These models contain restrictive assumptions regarding the existence of monopoly in some markets, and the nature of rivalry in others. The models generally ignore obvious and ubiquitous reasons firms may use bundled discounts. These models have not been subject to robustness checks, nor have their assumptions been tested empirically. As a result, the literature that shows the possibility of anticompetitive harm does not provide a reliable way to gauge whether the potential for harm would outweigh any demonstrable benefits from the practice. As a result of the underdeveloped nature of the literature, simple rules that result in extreme tradeoffs between type I and type II errors may dominate more complex tests that attempt to differentiate procompetitive from anticompetitive behavior. Such complex tests may work well within the confines of a theoretical model, but not when applied to firms in actual antitrust cases. Improving the reliability of more complex tests for anticompetitive behavior will require economists to expand their understanding of both the anticompetitive and procompetitive reasons firms engage in bundling. This will entail studying the reasons bundling is adopted by firms without market power, relaxing the assumption of monopoly in theoretical models, and generating testable hypothesis and the data to test them.
antitrust, bundling, foreclosure, predation
Abstract: We present theory and evidence evaluating the work of the National Conference of Commissioners on Uniform State Laws (NCCUSL). Based on an analysis of Uniform Limited Liability Company Acts (ULLCA) promulgated in 1994 and 2006, we show that NCCUSL not only failed to move state laws toward uniformity, but reduced state uniformity that can arise in the absence of NCCUSL. We also present an institutional explanation of NCCUSL's strategy based on the provisions and history of the 2006 ULLCA. We show that the very NCCUSL institutions that are designed to produce uniformity actually may tend to undermine it.
LLC, Uniform Laws, Private Legislatures, NCCUSL
Abstract: Most of the work on jurisdictional competition for business associations has focused on publicly held corporations and the factors that have led to Delaware’s dominant position in attracting out of state firms. Is there an analogous jurisdictional competition to attract formations by closely held firms? Limited liability companies (LLCs) offer a good opportunity to examine this question. Most LLC statutes have been adopted and changed rapidly during the past 20 years. Unlike general and limited partnerships, which have been shaped by uniform laws, LLC statutes vary significantly, and states have devoted a lot of effort to drafting their individual statues. This variation provides an opportunity to test the statutory provisions and other factors that influence LLC’s choice of where to organize. We find little evidence that firms choose to form outside their home state in order to take advantage of variations in statutory provisions. Instead, we find evidence that large LLCs, like large corporations, tend to form in Delaware, and that they do so for the many of the same reasons – that is, for the quality of Delaware’s legal system.
Abstract: This article examines the Supreme Court's recent decision in Illinois Tool Works v. Independent Ink. In that decision, the Court extended its remarkable run of pro-defendant decisions in antitrust cases, holding that plaintiffs in patent tying cases must prove and not presume market power. The Court's rejection of the presumption of market power in the presence of a patent, as well as a special per se rule of illegality for patent ties is consistent with the broad consensus that views patents as distinct from monopolies, and recognizes the pro-competitive uses of tying. While this is a positive step, the Court's decision may be limited by the flawed and outdated modified per se rule used to evaluate tying arrangements generally. Moreover, while the Court undermined the underlying rationale for the modified per se rule against tying, it chose not to revisit this issue. In addition, while the Court's opinion implicitly adopts a robust standard for market power, it failed to address its contradictory holding in Kodak v. ITS, its most recent decision evaluating a tying arrangement.
tying, patents, antitrust, Illinois Tool Works, pro-defendant decisions, per se rule of illegality, Kodak, Supreme Court, market power
Abstract: The economic analysis of evidence law is relatively less developed than other areas of the law and economics literature, notwithstanding this subject's close relationship to other well-developed areas, most notably the economic analysis of procedural rules. This chapter first will develop some of the general issues raised by the economic analysis of evidence within the Anglo-American tradition of adversarial presentation. We will then proceed to consider the existing literature on specific topics in the law of evidence and related problems of pre-trial discovery and trial error.
pre-trial discovery, burden of proof, accuracy, hearsay, evidence, trial error
Abstract: The economic analysis of civil litigation has focused on the action of the litigants and on the effects of substantive and procedural rules on their behavior. This chapter focuses on the economic analysis of procedural rules and how these rules alter the incentives of the litigants to file, settle and litigate disputes. Such procedural rules affect the private costs and benefits of litigation through altering the net expected value and loss faced by the plaintiff and defendant. Procedural rules also affect the social costs and benefits of litigation by affecting the both the direct and error costs of litigation. The analysis in the chapter is organized around the US Federal Rules of Civil Procedure, and in reverse chronological order to reflect the economic analyses use of backwards induction to examine civil litigation. Topics examined in depth include sequencing rules, rules that affect the capitalization of litigation over parties and claims, the rules of discovery, and juries.
civil procedure, civil litigation, settlement, trials, procedural rules, disputes, Federal Rules of Civil Procedure, discovery, juries, sequencing rules
Abstract: This paper examines the incentives of private actors to invest in cybersecurity. Prior analyses have examined investments in security goods, such as locks or safes that have the characteristics of private goods. The analysis in this paper extends this analysis to examine expenditures on security goods, such as information, that have the characteristics of public goods. In contrast to the private goods case, where individual uncoordinated security expenditures can lead to an overproduction of security, the public goods case can result in the underproduction of security expenditures, and incentives to free ride. Thus, the formation of collective organizations may be necessary to facilitate the production of public security goods, and the protection of information produced by the collective organization should be a central feature of such organizations.
cybersecurity, public goods, security goods
Abstract: Since 1938, the Supreme Court has supervised the development of procedural rules for the federal courts by a system of committees that now operate under the Judicial Conference of the United States. In 1993, for the first time in the history of that process, the Court promulgated several new rules proposed by the committee system without endorsing the content of the rules. One of the 1993 amendments seeks to reduce the costs of "satellite" litigation under Federal Rule of Civil Procedure 11, which governs the imposition of sanctions for filing frivolous suits in the federal courts. Using a game-theoretic model, Professors Kobayashi and Parker show that the new Rule 11 is likely both to increase the rate of frivolous filings, and perhaps more importantly, to increase the rate at which litigants invoke Rule 11 to challenge their adversaries' pleadings. As a result, both the volume and cost of "satellite" Rule 11 litigation is likely to increase, rather than decrease, contrary to the expressed intention of the Amendment's drafters. The authors argue that this outcome suggests the need for more rigorous supervision of the rulemaking process by the Supreme Court.
Rule 11, Federal Rules of Civil Procedure, Supreme Court, Judicial Conference of the United States, satellite litigation, frivolous suits, rulemaking
Abstract: In Credit Suisse v. Billing, the Court held that the securities law implicitly precludes the application of the antitrust laws to the conduct alleged in that case. The Court considered several factors, including the availability and competence of other laws to regulate unwanted behavior, and the potential that application of the antitrust laws would result in “unusually serious mistakes.” This paper examines whether similar considerations suggest restraint when applying the antitrust laws to conduct that is normally regulated by state and other federal laws. In particular, we examine the use of the antitrust laws to regulate the problem of patent holdup of members of standard setting organizations. Although some have suggested that this conduct illustrates a gap in the current enforcement of the antitrust laws, our analysis finds that such conduct would be better evaluated under the federal patent laws and state contract laws.
Abstract: This paper examines whether the process of unguided state by state evolution of Limited Liability Company (LLC) Statutes has lead to efficient interstate uniformity. Our evidence suggests significant uniformity has been produced in cases where the net benefits of uniformity are positive, and that such uniformity has not been produced by herd behavior. Our results are consistent with Alchian's intuition about the role of market processes, and suggests that the survival of efficient rules, fostered by the rational behavior of decentralized economic actors, are produced by forces beyond the control or foresight of individual lawmakers or legislatures.
Abstract: Authors' description of their paper: Criminal defense expenditures have come under severe criticisms because differential expenditures are equated with unequal justice. Trials such as O.J. Simpson's draw particularly strong reactions: "Wealthy defendants can afford attorneys who are skilled at manipulating the system.... The result...is that the rich get a different, more friendly brand of justice." We argue that allowing disparities in criminal defense expenditures can ensure that innocent defendants face lower penalties from going to trial. These expenditures also mitigate the effects of systematic differences in risk aversion, thus increasing the probability that the efficient screening properties of a plea bargaining system are preserved. The innocent defendant not only has a more favorable assessment ofthe likelihood of his success at trial than the guilty one, based upon facts not observable to the prosecution, but, as we show, he also faces, ceteris paribus, resource costs from trial that are less than or equal to those borne by guilty defendants. Both the lower expected chance of conviction and the lower costs of going to trial reduce the incentive for the innocent defendant to falsely plead guilty.
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