• Selected
• Entire List

Abstract:
Nonprofit firms may not distribute profits to owners but instead must retain them or reinvest them. Nonprofits that are "charitable organizations" under Section 501(c)(3) of the tax code may receive donations from individuals who are allowed to deduct their donations from their income for tax purposes. We argue that the law should not link tax benefits to corporate form in this way. There may be good arguments for recognizing the nonprofit form and good arguments for providing tax subsidies to charities or donors to charities, but there is no good argument for making those tax subsidies available only to charities that adopt the nonprofit form. Consequently, the "for-profit charity" may well be a desirable institution. Currently, no such entity exists, but the reason is surely discriminatory tax treatment; the charitable activities of many commercial firms suggest that in the absence of discriminatory tax treatment for-profit charities would flourish. Current tax benefits for charitable nonprofits should be extended to for-profit charities, and to the charitable activities of for-profit commercial firms.

tax benefits, nonprofits

Abstract:
Most scholarship on statutory interpretation discusses what courts should do with ambiguous statutes. This paper investigates the crucial and analytically prior question of what ambiguity in law is. Does a claim that a text is ambiguous mean the judge is uncertain about its meaning? Or is it a claim that ordinary readers of English, as a group, would disagree about what the text means? This distinction is of considerable theoretical interest. It also turns out to be highly consequential as a practical matter. To demonstrate, we developed a survey instrument for exploring determinations of ambiguity and administered it to nearly 1,000 law students. We find that asking respondents whether a statute is “ambiguous” in their own minds produces answers that are strongly biased by their policy preferences. But asking respondents whether the text would likely be read the same way by ordinary readers of English does not produce answers biased in this way. This discrepancy leads to important questions about which of those two ways of thinking about ambiguity is more legally relevant. It also has potential implications for how cases are decided and for how law is taught.

statutory interpretation, empirical legal studies

Abstract:
It is well-established that non-profit hospitals employ performance bonuses with much lower frequency than for-profit hospitals. Weisbrod (1999, 2003a, 2003b) suggest that this implies that principals of non-profit and for-profit firms have different objectives or purposes. Brickley and Van Horn (2002) dispute the different-objectives hypothesis. They present evidence that the salaries and turnover of executives at non-profit hospitals reward financial performance but not altruistic activities. Employing a unique data set of executive compensation at 2,700 nursing homes in 2001 and 2002, this paper improves on Brickley and Van Horn's analysis in three important ways. First, we provide an explanation for how non-profit firms and for-profit firms may both seek to reward financial performance but write different executive compensation contracts. This explanation relies upon tax penalties on the use of financial rewards for executives by non-profit firms. Second, we introduce direct comparisons of wages at non-profit and for-profit facilities as well as superior controls for quality of patient care and the risk profile of patients. Third, we consider the implications of observed patterns in executive compensation for alternative theories of non-profit behavior, such as quality/quantity maximization. We conclude that executive compensation at non-profit firms supports that the hypothesis that principals at non-profit firms either care about profits just like principals at for-profit firms (the strong version of the for-profit-in-disguise model) or behave as if they do (the weak version).

non-profit, nursing home, tax, executive compensation

Abstract:
Academics and businesspeople have long debate the merits of corporate philanthropy. It is our contention that this debate is too narrowly focused on the role of corporations. There is a robust market for philanthropic works - which we call the market for altruism - in which non-profit organizations, the government, and for-profit corporations compete to do good works. We describe this market and the role corporations play in satisfying the demand for altruism. We conclude that corporations should only engage in philanthropy when they have a comparative advantage over non-profits and the government. Moreover, the government must avoid discriminating - particularly when setting tax policy - between non-profits and corporations that do good deeds.

Abstract:
Exemption laws enable people who default on loans to protect certain assets from liquidation, both inside and outside bankruptcy. Every state has its own set of exemption laws, and they vary widely; the federal bankruptcy law also establishes a set of exemptions, which debtors in bankruptcy are permitted to use instead of their state's exemptions unless the state has formally "opted out" of the federal system. We test a wide range of public interest and public choice explanations for exemption laws, using a data set consisting of the exemption laws in all states over twenty-two years, and also exploiting the opt out choice of the different states. We find that states are more likely to opt out, and to increase their exemptions in the process, if they are conservative, start with low exemptions, and have a high bankruptcy filing rate. We find little evidence for popular theories of exemptions levels; the most important factor correlated with exemption level is the historical generosity of a state's exemption laws.

Bankruptcy, exemption laws, credit, opt out laws

Abstract:
If two defendants share a joint and several liability and the first becomes insolvent, his unpaid liabilities are reallocated to the second. While the second defendant's assets may cover its share of liability, they may not cover the first defendant's share. Thus, the one defendant's insolvency may trigger the other's. We quantify this externality in the context of asbestos-related torts. We choose this example because 61 companies with major asbestos liabilities have gone bankrupt since 1982 and nearly 8,000 other companies have been named in asbestos suits. Using data from 10-K forms and asbestos trials, we estimate that payments on asbestos claims grew 5 - 10 percent annually - over 150 percent total - during 1990 - 2002 due to the bankruptcy of jointly liable defendants. We discuss the implications for the priority of tort claimants in bankruptcy and piecemeal tort litigation as a compensation mechanism for mass torts.

Joint and several liability, bankruptcy, asbestos, tort

Abstract:
Most scholarship on statutory interpretation discusses what courts should do with ambiguous statutes. This paper investigates the crucial and analytically prior question of what ambiguity in law is. Does a claim that a text is ambiguous mean the judge is uncertain about its meaning? Or is it a claim that ordinary readers of English, as a group, would disagree about what the text means? This distinction is of considerable theoretical interest. It also turns out to be highly consequential as a practical matter.

To demonstrate, we developed a survey instrument for exploring determinations of ambiguity and administered it to nearly 1,000 law students. We find that asking respondents whether a statute is “ambiguous” in their own minds produces answers that are strongly biased by their policy preferences. But asking respondents whether the text would likely be read the same way by ordinary readers of English does not produce answers biased in this way. This discrepancy leads to important questions about which of those two ways of thinking about ambiguity is more legally relevant. It also has potential implications for how cases are decided and for how law is taught.

Abstract:
Why do firms take non-profit status? One of the most popular theories in the law and economics literature is that non-profit status is a signal of quality (Hansmann 1980; Glaeser & Shleifer 2001). This paper offers a simple, empirical test of this theory. If non-profit status signals quality, surely non-profit firms would want to ensure that consumers were aware of their non-profit status. A simple way firms could broadcast such a signal would be to add it to their names, but this sort of signaling is unheard of. Alternatively, firms might indicate their non-profit status on, e.g., their website or in yellow pages listings. Taking this cue, we conduct a survey of over 2800 firms in the hospital, nursing home and childcare industries. Our aim is to determine whether non-profit firms communicate their status to consumers on their websites or yellow pages listings.

We conclude that non-profit status may signal quality, but the value of the signal is very poor. We infer this from the fact that firms that have other signals of quality, such as a religious or academic affiliation, are less likely to signal that they are non-profit. Firms only signal non-profit status, however, when it is cheap to do so. The most costly signals we examine are those in yellow pages listings, followed by home pages and then about-us pages on websites. Yet less than 7.5 percent of non-profit firms signal their status in yellow pages listings; only 25 percent do so on their home pages and 30 percent on their about-us pages. Indeed, over 35 percent never signal their non-profit status. Even among firms that have no other indicators of quality, roughly 70 percent of hospitals and 30 percent of nursing homes never signal their status on their websites.

Non-Profit Status, Quality Signaling, Advertising

Abstract:
This paper estimates the degree of altruism among spouses by examining how often the driver of a car sacrifices himself or herself in order to save a spouse. Holding constant the magnitude of a collision, a driver can maneuver the car to distribute the risk from a collision between the driver and a passenger. We quantify spousal altruism by the degree to which drivers riding with their spouse redistribute the risk from a fatal accident to themselves - as measured by ex post mortality - as compared to drivers not traveling with their spouse. We find that drivers with their spouses are at least 37% more likely to sacrifice themselves. This implies that they value the lives of their spouses at least 37% more than the lives of other individuals.

Abstract:
The conventional approach to evaluating a law is to examine its effect on proximate behavior. To evaluate a new criminal law, for example, the conventional approach would look to changes in the crime rate. This paper argues instead that laws should be judged by the extent to which they raise housing prices and lower wages. The logic is that the value of a law, much like the value of a lake or a public school, is capitalized into local housing and labor markets. Desirable laws increase housing prices and decrease wages because more people want to live in the relevant jurisdiction; undesirable laws have the opposite effects. Evaluating laws in the manner has several advantages over the conventional approach. First, it employs a more direct proxy for utility. Second, it accounts for all the effects of a law, including hard-to-measure outcomes, unintended consequences, and enforcement costs. Third, it permits direct comparison of different types of laws, which is important in instances where law-makers have limited resources to invest in law-making. Lastly, it sheds light on the distributional consequences of a law. In particular, it makes clear that a significant portion of every law's benefits are reallocated through housing and labor markets to property owners.

Abstract:
Settlement is the norm is criminal trials. Over 90 percent of criminal defendants plead guilty. A large portion do so as part of a plea bargain, i.e., a settlement, with prosecutors. In exchange for foregoing a criminal trial, prosecutors offer defendants a lower sentence. Settlement, however, is not the norm in habeas proceedings. Although every prisoner was once a defendant, prisoners very rarely settle with government attorneys after filing a habeas petition. This paper explores why there is a difference in norms in criminal and habeas cases and argues that parties to habeas litigation should be encouraged to resolve their claims out of court. Settlements offer prisoners with serious habeas claims quicker and more certain reductions in their prison sentences. The paper estimates that a norm of settlement would reduce habeas caseloads by nearly one-third.

In order to promote settlement of habeas cases, this paper proposes, among other things, modifying Federal Rule 35 of Criminal Procedure to permit courts to amend sentences upon a habeas settlement, regardless of whether the modified sentence is within the guideline range for the prisoner's offense. In order to ensure that habeas settlements, like plea bargains, are safe for prisoners and constitutionally sound, Rule 35 also should be revised to require that courts conduct Rule 11-type colloquies with prisoners before accepting habeas settlements. Moreover, courts should not permit prisoners to waive their right to challenge habeas settlements on the grounds of ineffective assistance of counsel.

Habeas corpus, plea bargaining, settlement

Abstract:
The FDA largely approves or disapproves drugs based on average treatment effects. Given widespread heterogeneity in treatment response, this approach can result in the approval of drugs with significant negative effects for identifiable subgroups (false positives) and in the non-approval of drugs with significant positive effects for identifiable subgroups (false negatives). Despite the FDA's position, drug companies frequently conduct post hoc subgroup analysis - a search for responsive subgroups - after their clinical trials find no positive average treatment effects. The FDA rejects such analysis due to the risk of spurious results. With sufficient covariate measurements, a drug company can always find some subgroup that benefits from a drug. This paper asks whether there workable compromise between the FDA and drug companies. Specifically, we seek a drug approval process that can use post hoc subgroup analysis to eliminate false negatives but does not risk opportunistic behavior and spurious correlation. The primary reform we recommend is a statistical analysis of a random subset of the data set from a clinical trial by an independent researcher. The subsample examined by the independent researcher can eliminates the risk of spurious findings due to multiple testing in the remainder of the sample. We apply our approach to the results of a recent clinical trial of a cancer drug, Xcytrin, that failed to find positive average treatment effects, and discover positive treatment effects for an important subset of patients.

Abstract:
In this paper I explore estimation of treatment response in blinded clinical trials when there exist placebo effects, i.e., when health outcomes are a function of not just the physiological effects of treatment, but also beliefs about treatment efficacy and treatment state. First, I argue that the appropriate parameter of interest in the short-run includes not only the physiological effect of treatment, but also individuals' beliefs about the efficacy of treatment. Second, the standard estimator of treatment response - differencing average outcomes in the treatment and placebo-control groups - is biased. The main component of this bias is a product of blinding. Individuals in the treatment arm of a blinded trial do not respond as well to treatment as individuals outside the trial context because they think there is a chance they are not being treated. Conversely, individuals in the placebo-control arm respond better than individuals outside the trial context because they think there is a chance they are being treated. Differencing average outcomes across the arms underestimates the impact of treatment. The second bias is due to selection. While selection may be a problem even in the absence of placebo effects, the problem is exacerbated by placebo effects because the beliefs that drive the participation decision now have an additional, direct impact on outcomes. The sign of this effect, however, is ambiguous. My third contribution is an experimental trial design that permits unbiased estimation of the proper parameter of interest in clinical trials.

Abstract:
Drug control agencies such as the U.S. FDA typically decide whether to approve a new therapeutic based upon the average treatment effect of the new therapeutic. Unless the mean effect of the new therapeutic is greater than a conventional treatment or placebo, the agency will not permits the new therapeutic's use. In the presence of ex post heterogeneity in treatment effects, however, average treatment effects fail to account for the full value a new therapeutic. Even if the new therapeutic is no better than placebo for the average patient, there may be a number of patients who are better off under the new therapeutic than any conventional treatment. If this is the case, prohibiting use of the new therapeutic imposes a welfare loss on these patients. This paper examines the major influences on this loss, which we call the option value of the new therapeutic. It proposes simple estimators for this value and calculates the option value of drugs examined in the Cardiac Arrhythmia Suppression Trial (CAST) I. Finally, the paper examines drawbacks of relying on option value to make drug approval decisions.

food and drug law, averate treatment effects, option, pharmaceuticals, cardiology

Abstract:
The FDA employs an average-patient standard when reviewing drugs: it approves a drug only if the average patient (in clinical trials) does better on the drug than on control. It is common, however, for different patients to respond differently to a drug. Therefore, the average-patient standard can result in approval of a drug with significant negative effects for certain patient subgroups (false positives) and disapproval of drugs with significant positive effects for other patient subgroups (false negatives). Drug companies have a financial incentive to avoid false negatives. After their clinical trials reveal that their drug does not benefit the average patient, they conduct what is called post hoc subgroup analysis to highlight patients that benefit from the drug. The FDA rejects such analysis due to the risk of spurious results. With enough data dredging, a drug company can always find some patients that benefit from their drug.

This paper asks whether there workable compromise between the FDA and drug companies. Specifically, we seek a drug approval process that can use post hoc subgroup analysis to eliminate false negatives but does not risk opportunistic behavior and spurious correlation. We recommend that the FDA or some other independent agent conduct subgroup analysis to identify patient subgroups that may benefit from a drug. Moreover, we suggest a number of statistical algorithms that operate as veil of ignorance rules to ensure that the independent agent is not indirectly captured by drug companies. We illustrate our proposal by applying it to the results of a recent clinical trial of a cancer drug (motexafin gadolinium) that was recently rejected by the FDA.

Abstract:
Highly pathogenic avian influenza travels from migratory birds via domesticated fowl to humans. A prominent strategy for protecting humans from bird flu is to cull chickens. A hurdle to culling chickens is procuring chickens to be culled. Governments have two extreme options: pay for chickens or seize chickens without compensation. This paper explores the economic and economically-mediated ecological costs of the two different methods of procuring chickens for a cull. Because the question we ask has both economic and ecological components, our approach is to marry an ecological model of flu in chickens with an economic model of markets for chicken meat in developing countries. Because the technology to diagnose flu in chickens is imperfect and not widely available, our analysis assumes that there are false negatives in identification of infected chickens. We draw three primary conclusions. First, purchasing chickens may encourage the production of more chickens, increasing the number of sick chickens, a direct threat to humans. Second, seizing chickens avoids this concern, but may encourage farmers to export chickens to neighboring districts or to delay selling chickens until the culling program is terminated. Therefore and important complement (and cost) seizing chickens is a quarantine to prevent export or an extended culling program to limit storage.

Abstract:
This paper examines the incentives for countries to report disease outbreaks such as swine flu, avian flu and SARS to the international community. Even cursory analysis suggests countries have conflicting incentives regarding whether to report an outbreak. Reporting an outbreak may bring medical assistance, but also trigger trade sanctions to contain an outbreak. Modeling the decision as a signaling game where a country has private but imperfect evidence of an outbreak provides additional insights. First, not all sanctions discourage reporting. Sanctions based on fears of an undetected outbreak (false negatives) encourage disclosure by reducing the relative cost of sanctions that follow a reported outbreak. Second, improving the quality of detection technology may not promote the disclosure of private information about an outbreak because more informative reports could also trigger harsher sanctions. Third, informal surveillance - an important channel for publicizing outbreaks - functions as an exogenous, public signal that is less likely to discourage disclosure than better technology. Informal surveillance can counter false positive and false negative formal disclosures, reducing the relative sanctions for disclosing an outbreak.

infectious disease, epidemic, signalling, disclosure, predictive value, sensitivity, false negative, rumor

Abstract:
A medical treatment is said to have placebo effects if patients who are optimistic about the treatment respond better to the treatment. This paper proposes a simple test for placebo effects. Instead of comparing the treatment and control arms of a single trial, one should compare the treatment arms of two trials with different probabilities of assignment to treatment. If there are placebo effects, patients in the higher-probability trial will experience better outcomes simply because they believe that there is a greater chance of receiving treatment. This paper finds evidence of placebo effects in trials of antiulcer and cholesterol-lowering drugs.

Abstract:
In this paper I criticize the methodology of existing studies that purport to find evidence of placebo effects in medical trials. Among other things, because these studies fail to define and properly model placebo effects, it is hard to determine the power of their results. I address the problem by proposing a model of health outcomes that formalizes the dominant medical theory of how placebo effects operate. (This theory posits that health outcomes rise in individuals' expectations about their beliefs about the probability that they are getting a beneficial treatment and their beliefs about how beneficial that treatment is.) I then model randomized, double-blind, parallel-arm, placebo-controlled trials and set forth conditions under which placebo effects alter observable outcomes in such trials given self-selection of subjects into the trials. I argue that a powerful method of testing for the existence of placebo effects is checking whether outcomes in trials where a higher fraction of subjects are randomized into active treatment are superior to outcomes in trials with a lower fraction given active treatment. I apply this test to data from over 60 trials of ulcer medication and find strong evidence of placebo effects in trials of H2-receptor antagonists such as Zantac and Tagamet, two widely-used ulcer medications.

Placebo effects, clinical trials, blinding, ulcer