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Abstract:
Americans have been getting fatter since at least the mid 1980s. To better understand this public health problem, much attention has been devoted to determining the underlying cause of increasing body weights in the U.S. We examine the role of relative food prices in determining an individual's body mass index, arguing that as healthful foods become more expensive relative to unhealthful foods, individuals substitute to a less healthful diet. Using data from the National Health Interview Survey (NHIS) for the period 1982-1996, we find that individual BMI measures, as well as the likelihood of being overweight or obese, exhibit a statistically significant positive correlation with the prices of healthful relative to unhealthful foods. These results are robust to endogenizing the relative price measure. While the magnitudes of our estimates suggest that relative price changes can only explain about 1 percent of the growth in BMI and the incidence of being overweight or obese over this period, they do provide some measure of how effective fat taxes would be in controlling the obesity epidemic. Our estimates imply, for example, that a 100 percent tax on unhealthful foods could reduce average BMI by about 1 percent, and the same tax could reduce the incidence of being overweight and the incidence of obesity by 2 percent and 1 percent respectively.

BMI, fat, diet, health, wild cluster bootstrap, fat tax

Abstract:
In July 2002 the trustees of the Milton Hershey School Trust announced a plan to diversify the Trust's investment portfolio by selling the Trust's controlling interest in the Hershey Company. The Company's stock jumped from $62.50 to $78.30 on news of the proposed sale. But the Pennsylvania Attorney General, who was then running for governor, opposed the sale on the ground that it would harm the local community. Shortly after the Attorney General obtained a preliminary injunction, the trustees abandoned the sale and the Company's stock dropped to $65.00. Using standard event study methodology, we find that the sale announcement was associated with a positive abnormal return of over 25% and that canceling the sale was followed by a negative abnormal return of nearly 12%. Our findings imply that instead of improving the welfare of the needy children who are the Trust's main beneficiaries, the Attorney General's intervention preserved charitable trust agency costs of roughly $850 million and foreclosed salutary portfolio diversification. Furthermore, blocking the sale destroyed roughly $2.7 billion in shareholder wealth, reducing aggregate social welfare by preserving a suboptimal ownership structure of the Company. Our analysis contributes to the literature of trust law by supplying the first empirical analysis of agency costs in the charitable trust form and by highlighting shortcomings in supervision of charities by the state attorneys general. We also contribute to the literature of corporate governance by measuring the change in the Company's market value when the Trust exposed the Company to the market for corporate control.

agency costs, charitable trust, corporate control, controlling shareholder, takeover, attorney general, event study, randomization inference, hershey, hershey trust, hershey company, nonprofit, charity governance

Abstract:
Many states have passed medical malpractice law reforms in an effort to retain and attract physicians. However, it is unclear what the net public health effect of such reforms is. While reforms are likely to help states retain doctors, they also diminish incentives to provide a high level of health care. We provide empirical evidence that some malpractice reforms have helped states retain doctors while others have not. However, retention of doctors comes at a cost. We show that some malpractice law reforms have lowered the level of care provided, as indicated by an increase in infant mortality. This suggests that some of the tort reforms lead to worsening health outcomes.

Malpractice, Tort Reform, Infant Mortality, Defensive Medicine, Physicians

Abstract:
Laws requiring minors to seek parental consent or to notify a parent prior to obtaining an abortion raise the cost of risky sex for teenagers. Assuming choices to engage in risky sex are made rationally, parental involvement laws should lead to less risky sex among teens, either because of a reduction of sexual activity altogether or because teens will be more fastidious in the use of birth control ex ante. Using gonorrhea rates among older women to control for unobserved heterogeneity across states, our results indicate that the enactment of parental involvement laws significantly reduces risky sexual activity among teenage girls. We estimate reductions in gonorrhea rates of 20% for Hispanics and 12% for whites. Although we find a relatively small reduction in rates for black girls, it is not statistically significant. We speculate that the racial heterogeneity has to do with differences in family structure across races.

Abstract:
Laws requiring minors to seek parental consent or to notify a parent prior to obtaining an abortion raise the cost of risky sex for teenagers. Assuming choices to engage in risky sex are made rationally, parental involvement laws should lead to less risky sex among teens, either because of a reduction of sexual activity altogether or because teens will be more fastidious in the use of birth control ex ante. Using gonorrhea rates among older women to control for unobserved heterogeneity across states, our results indicate that the enactment of parental involvement laws significantly reduces risky sexual activity among teenage girls. We estimate reductions in gonorrhea rates of 20 percent for Hispanics and 12 percent for whites. While we find a relatively small reduction in rates for black girls, it is not statistically significant. We speculate that the racial heterogeneity has to do with differences in family structure across races.

Gonorrhea, Pregnancy, STD, Teenagers, Sex, Abortion, Illegitimacy, Birth Rates

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:
Functional law and economics, which draws its influence from the public choice school of economic thought, stands as a bridge between the strictly positivist and normative approaches to law and economics. While the positive school emphasizes the inherent efficiency of legal rules and the normative school often views law as a solution to market failure and distributional inequality, functional law and economics recognizes the possibility for both market and legal failure. That is, while there are economic forces that lead to failures in the market, there are also structural forces that limit the law's ability to remedy those failures on an issue-by-issue basis. The functional approach then uses economic tools to analyze market and legal behavior in order to create meta-rules which limit the extent of the failures in each realm. These meta-rules are designed to induce individuals to reveal their preferences in cases where collective choices are necessary, and to internalize the effects of their actions generally. This mechanism design or functional approach to law and economics focuses on ex ante social welfare maximization, rejecting both the ex post corrective function of law assumed by the normative school of thought and the naturally evolving efficient system view espoused by the positive school.

functional law and economics, public choice

Abstract:
This paper reviews the existing law and economics literature on crime, noting where various models might apply to the terror context. Specifically, it focuses on two strands of the literature, deterrence and incapacitation. Challenging the conventional application of the basic rational agent model of crime in the context of terrorism, it considers anti-terror measures enacted by different countries, highlighting how the details of the laws correspond to the insights from economic models of crime. In conclusion, the paper proposes an efficient sorting mechanism in which individuals will be provided with adequate incentives to reveal their type to law enforcement authorities.

organized crime, basic crime model, communal liability, deterrence, incapacitation, penalty enhancements, terrorism

Abstract:
This paper recasts current theories of regulatory or legislative competition. Building on the recent contribution of Buchanan and Yoon (2000), we consider alternative ways in which decision-making competence can be allocated among multiple legislative or administrative bodies. The general model is used to consider the equilibria obtained under different allocations of competence and to formulate some policy considerations.

Regulation, Commons, Legislatures, Duopoly

Abstract:
Although most of the debates on abortion policy hinge on normative beliefs about the relative rights of women and their unborn children, the regulation of abortion access has large consequentialist implications as well. In recent years, economists have devoted significant attention to these positive aspects of abortion policy, using econometric techniques to estimate the effect of changes in abortion policy on sexual behavior, crime, opportunities for women, and public finance considerations. This article reviews this literature for a non-technical audience, highlighting the policy implications of the research and critiquing the methodologies used.

Abortion, Birth Control, Sex, Crime, Women, Welfare

Abstract:
Behavioral law and economics scholars who advance paternalistic policy proposals typically employ static models of decision-making behavior, despite the dynamic effects of paternalistic policies. In this article, we consider how paternalistic policies fare under a dynamic account of decision-making that incorporates learning and motivation effects. This approach brings out two important limitations on the efficiency effects of paternalistic regulations. First, if preferences and biases are endogenous to institutional forces, paternalistic government regulations may perpetuate and even magnify a given bias and cause other adverse psychological effects. Second, for some biases, it will be more efficient to invest resources in debiasing than to change legal rights and remedies or, in some cases, to do nothing in light of the natural variation in irrational propensities. We propose dynamic models for determining ex ante and ex post when accommodation of bias will be second-best efficient. These models direct decision-makers to consider (1) the efficiency cost of the bias; (2) the extent to which accommodation worsens the bias or, alternatively, the extent to which non-accommodation improves the bias or has other benefits; and (3) the potential for education or other mechanisms to debias an individual. We argue that the concept of "cognitive hazard" - the potential for the costs of a bias to increase as individuals are insulated from the adverse effects of the bias - should be added to the concept of moral hazard as important qualifications to paternalistic proposals.

Paternalism, Insurance, Behavioral Law and Economics, Psychology, Learning, Mistake

Abstract:
Proponents of laws requiring a waiting period before a woman can receive an abortion argue that these cooling off periods protect against rash decisions on the part of women in the event of unplanned pregnancies. Opponents claim, at best, waiting periods have no effect on decision-making and, at worst, they subject women to additional mental anguish and stress. In this article, I examine these competing claims using adult female suicide rates at the state level as a proxy for mental health. Panel data analyses suggest that the adoption of mandatory waiting periods reduce suicide rates by about 10 percent, and this effect is statistically significant. The result is robust to various attempts to control for unobservable heterogeneity and simultaneity.

Abortion, Stress, Fertility, Suicide, Depression, Pregnancy

Abstract:
In this article, we suggest that human attitudes of conformity can be understood as a product of adaptation. While existing models of conformity invoke preference falsification in which individuals hide their true preferences, we posit an adaptive mechanism for conformity. Specifically, because non-conformity leads to costs as a dissenting individual is shut out of social networks and majority coalitions in the collective choice context, individuals have an incentive to sublimate their original preferences to a meta-preference for conformity. However, this adaptation is not costless. Resisting original preferences imposes self-denial costs on an individual that may exceed the benefits of conforming. Further, a conforming individual foregoes the small probability that his first-best original preferences will be realized. Thus, this preference modification model of conformity predicts that individuals with high self-denial costs and lower levels of risk aversion will be less likely to conform.

Conformism, Endogenous Preferences, Social Networks, Preference Falsification

Abstract:
Existing treatments of the choice of an optimal voting rule ignore the effects of the rule on political bargaining.
Specifically, more stringent majority requirements reduce intra-coalitional free riding in political compromise, leading to greater gains from political trade. Once this benefit of increasing the vote share necessary to enact a proposal is recognized, we suggest that the optimal voting rule in the presence of transactions costs will actually be closer to unanimity than the optimal majority derived by Buchanan and Tullock (1962).

analysis of collective decisions, welfare economics

Abstract:
The risk of an unwanted pregnancy represents one of the major costs of sexual activity. When abortion was legalized in a number of states during the late 1960s and early 1970s (and nationally with the 1973 Supreme Court case of Roe v. Wade), this cost was reduced as women gained the option of terminating an unwanted pregnancy. We predict that abortion legalization led to an increase in sexual activity, accompanied by an increase in sexually transmitted diseases. Using CDC data on the incidence of gonorrhea and syphilis by state, we test the hypothesis that judicial and legislative decisions to legalize abortion lead to an increase in sexually transmitted diseases. We find that gonorrhea and syphilis incidences are significantly and positively correlated with abortion legalization. According to our estimates, abortion legalization might account for as much as one third of the average disease incidence.

Abstract:
Standard form contracts, or contracts of adhesion, appear to provide contradictory evidence for the operation of bargaining in the markets where they are common. Non-negotiated contract terms that seemingly benefit sellers to the detriment of buyers call into question the efficiency implications of the Coase Theorem, which forms the foundation of positive law and economics. Proponents of the behavioral school of law and economics have suggested that behavioral biases, observed in experimental contexts, provide the most plausible explanation for standard form contracts. However, price discrimination might provide a more parsimonious explanation for abusive terms in contracts. If there is heterogeneity in the value consumers place on time, individuals will have differing propensities to bargain over individual terms, allowing sellers to extract greater surplus from high time value people through standard form contracts, while allowing low time value people to change individual contract terms. One of the major virtues of this explanation (and of standard economic theory in general) is that it generates testable hypotheses about cross-sectional variation. Specifically, the likelihood of a seller offering a standard form contract should increase: 1) as consumer heterogeneity increases; and 2) as arbitrage becomes increasingly costly.

Price Discrimination, Contracts, Discount Rates

Abstract:
Conventional wisdom suggests that punitive damages are growing out of control. To stop juries from awarding blockbuster punitive damages, a number of states have passed caps to set a ceiling on the amount of punitives. In principle, if plaintiffs' attorneys and/or juries wish to circumvent such caps, they could simply increase the amount of compensatory damages awarded. To investigate this possibility, we examine data from the Civil Justice Surveys performed by the National Center for State Courts and present evidence in both difference-in-difference and triple differences frameworks that punitive damage caps are associated with an increase in compensatory damage awards. These results suggest that caps alone are a poor way to constrain damage awards.

Tort Reform, Blockbuster Awards, Punitive Damages, Punitives, Juries, Litigation

Abstract:
Economists generally agree that free trade leads to economic growth. This proposition is supported both by theoretical models and empirical data. Further, while the empirical evidence is more limited on this question, the general consensus among economists holds that trade restrictions are likely to hurt the poor. Even if the latter consensus turns out to be wrong, if free trade leads to superior growth, governments would have more resources to redistribute to the poor. It is surprising then that philosophers and human rights scholars do not advocate liberalizing trade as a way to improve the welfare of the poor as a class. While many scholars in these fields are silent with respect to the effect of free trade on the poor, some actually argue that liberalized trade is harmful for the poor, contrary to the claims of economists. In this article, we argue that any serious scholar concerned with the plight of the poor needs to address the theory and evidence regarding the effects of trade liberalization on economic growth, suggesting that the standard policy prescriptions of the philosophers and human rights scholars are, at best, of second order concern and, at worst, likely to be counterproductive in terms of improving the welfare of the poor.

trade policy, rent seeking, poverty, welfare, institutions

Abstract:
While much has been written about inter-jurisdictional competition for tax revenues, especially concerning the choice between harmonization and competition, the literature has largely ignored intra-jurisdiction issues. The few articles examining this issue focus on how lower level governmental entities react to the tax decisions of a national government. However, in some instances, multiple co-equal taxing authorities might share the same base. These bodies face a dilemma over whether to harmonize their policies or to compete. We present a simple model of revenue maximizing tax authorities and derive the conditions under which harmonization dominates competition.

Tax, Federalism, Harmonization, Rent-Seeking, Commons

Abstract:
This article presents an empirical overview of the Rehnquist Court's record on preemption. We examine the universe of preemption cases decided by the Rehnquist Court, rather than merely a sample of landmark cases. In deciding preemption cases, we find that the Court is particularly sensitive to whether or not a state is a party to the case and whether or not the Solicitor General takes an anti-preemption position. Lastly we examine the individual justices' votes in preemption cases, finding no consistent voting blocs among the justices, nor do we find that any individual justice consistently fills the swing vote position in close cases.

federalism, signalling, voting blocs, statutory

Abstract:
We argue that changes in the terror alert level set by the Department of Homeland Security provide a shock to police presence in the Mall area of Washington, D.C. Using daily crime data during the period the terror alert system has been in place, we show that crime drops significantly, both statistically and economically, in the Mall area relative to the other areas of Washington, D.C. This provides strong evidence of the causal effect of police on crime and suggests a research strategy that can be used in other cities.

Crime, Terrorism, Law Enforcement, Police, Terror Alert

Abstract:
We argue that changes in the terror alert level set by the Department of Homeland Security provide a shock to police presence in the Mall area of Washington, D.C. Using daily crime data during the period the terror alert system has been in place, we show that crime drops significantly, both statistically and economically, in the Mall area relative to the other areas of Washington, D.C. This provides strong evidence of the causal effect of police on crime and suggests a research strategy that can be used in other cities.

Crime, Terrorism, Law Enforcement, Police, Terror Alert

Abstract:
This paper examines the effect of workplace safety regulations on worker safety. Studies in this area must overcome the issue that regulations and worker safety are jointly determined and that regulatory resources are likely to focus on the worst offenders. We examine the effects of regulatory enforcement in the 1990s on occupational death rates by state in major industries, and propose an instrumental variables technique to isolate the causal effect of regulatory enforcement on worker safety. We find that more inspections lead to higher death rates at a statistically significant level. This counter-intuitive result suggests that increased worker safety measures induce riskier behaviors on the part of workers.

OSHA, Safety, Labor Regulation, Offsetting Behavior

Abstract:
We first discuss the role of single-firm event studies in law and finance scholarship and in securities litigation. We discuss the (previously known) invalidity of the standard, t-statistic-based approach to inference in single-firm event studies. We then use a broad cross-section of CRSP data for the 2000-2007 period to investigate the standard approach’s performance using real-world data. Our results show that the standard approach is plagued by systematic, downward bias in asymptotic Type I error rates relative to desired significance levels. We then offer a very simple but statistically sound alternative, called the SQ test. We show analytically that the SQ test’s asymptotic Type I error rate always equals the desired significance level. Using our CRSP data, we offer Monte Carlo evidence that in event studies with 99 pre-event observations, the SQ test performs very well at conventional significance levels. We then analyze the asymptotic power of the SQ test and the standard approach. The SQ test and the standard approach have the same size-corrected asymptotic power, which means that even when the standard approach is appropriate, there is no loss to using the SQ test. More relevant as an empirical matter, we show that the standard approach’s downward bias in asymptotic Type I error rates brings along severe power loss. As an empirical matter, then, use of the standard approach can be expected to lead to substantial anti-plaintiff bias in securities litigation, though either pro- or anti-plaintiff bias is possible as an analytical matter. By contrast, the SQ test has considerable asymptotic power, even against moderately sized fixed alternatives. We also show how to extend our methods to cases with multiple firms, and multiple events. Finally, we show that our SQ test is asymptotically equivalent to bootstrap procedures, including those evaluated in recent finance scholarship.

event study, abnormal return, bootstrap, non-parametric, securities litigation

Abstract:
In the original position meta-bargain among political agents, each can achieve higher expected utility by binding himself to a unanimity rule, rather than risk the chance of being an excluded party in later period-by-period bargains. This argument is illustrated for a three-agent, constant-sum game where there are three reasonable voting rule options: 1) dictatorship rule; 2) majority rule; or 3) unanimity rule. Given concave utility functions, by Jensen's Inequality, each player would prefer the coalition inclusion guaranteed by the unanimity rule as opposed to the possible exclusion inherent in the other two options. However, once transactions costs are considered, a unanimity rule will create situations where all voters might agree in principle to a policy proposition, yet they will fail to reach a unanimous consensus.

Abstract:
Economists have long recognized the ability of employers to construct benefits packages to induce workers to sort themselves. For instance, to encourage applications from individuals with a highly valued but largely unobservable characteristic, such as patience, employers might offer benefits that patient individuals are likely to value more than other individuals. By offering a compensation package with highly valued benefits but a relatively low wage, employers will attract workers with the favored characteristic and discourage other individuals from applying for or accepting the job. While economic theory generally views this kind of self-selection in value neutral terms, prejudiced employers could exploit this mechanism design framework to systematically discriminate against individuals on the basis of observable characteristics that the law prohibits employers from considering in their hiring decisions. As long as groups systematically differ in their preferences for various employment terms and conditions, employers can generate sorting in the application and employment acceptance stages, leading to the desired segregated outcome in a way that regulators will find difficult to prevent without dictating uniformity in benefits packages.

We develop a formal model as well as an intuitive discussion of the phenomenon. We provide a number of representative illustrations of how a prejudiced employer could exploit preference heterogeneity for discriminatory ends. These mechanisms include wage and benefit packages such as (1) high pension, low wages, (2) commission-based salaries, (3) Sundays off policies, and (4) free school tuition. We also note that some employers might end up with a segregated workforce even when they have no intention to sort workers or when they intend to sort for a non-discriminatory characteristic.

Finally, we conclude that current federal antidiscrimination law inadequately addresses either intentional or unintentional passive discrimination. Neither disparate treatment nor disparate impact frameworks are well suited to grappling with this form of structural discrimination. Passive discrimination facilitates rather than impedes employee choice and thus, might not be viewed as discrimination per se, even if it results in workplace segregation or means that individuals with protected characteristics who fail to self sort are least likely to value the form of compensation and fringe benefits they receive. We discuss some possible judicial and legislative approaches that may ameliorate passive discrimination, though many raise serious questions of their own.

Abstract:
In the face of rising diabetes rates, many states passed laws requiring health insurance plans to cover medical treatments for the disease. Although supporters of the mandates expect them to improve the health of diabetics, they have the potential to generate a moral hazard to the extent that medical treatments might displace individual behavioral improvements. Another possibility is that the mandates do little to improve insurance coverage for most individuals, as previous research on benefit mandates has suggested that often mandates duplicate what plans already cover. To examine the effects of these mandates, we employ a triple differences methodology comparing the change in the gap in body mass index (BMI) between diabetics and non-diabetics in mandate and non-mandate states. We find that mandates do generate a moral hazard problem with diabetics exhibiting higher BMIs after the adoption of these mandates.

Insurance, Mandates, Obesity, Offsetting Behavior

Abstract:
As club goods, religions face the problem of free riding. Smaller religious clubs, such as cults or sects, can often surmount this problem through communal pressures or by requiring their members to provide easily monitored signals. Generally, however, such tactics will be unavailable or too costly for large denominations, and, as such, these denominations must look for other techniques to avoid free riding. This paper argues that the Roman Catholic doctrine of justification by faith and works serves as an Olsonian selective incentive, and presents empirical evidence in support of this claim. It also examines the historical and theological development of the doctrine in an attempt to discern if the faith plus works model of salvation evolved in the Roman Catholic Church for economic, as opposed to theological, reasons.

Economics, Religion, Law, Free-riding, Institutions, Public Choice

Abstract:
A judge facing exogenous constraints on his pecuniary income has an incentive to reduce his workload to increase his private welfare. In the face of an increase in caseload, this incentive will induce judges to attempt to terminate some cases more rapidly. In class action cases, failing to grant an attorney's fee request will delay termination. This conflict is likely to lead judges to authorize higher fees as court congestion increases. Using two datasets of class action settlements, we show that attorney fees are significantly and positively related to the congestion level of the court hearing the case.

class action, attorney fees, judicial behavior, shirking

Abstract:
The health benefits of spas have been hypothesized for centuries. If this hypothesis is correct, spa therapy offers a low cost alternative to more expensive and potentially more invasive medical treatments for ailments such as back pain and arthritis. We use individual-level panel data to isolate the effect of spa therapy on missed work days and hospital visits in Germany. Simple correlations suggest a self-selection bias - spa visits are associated with increased absenteeism and hospitalization. However, when we exploit the longitudinal nature of the data, we find that spa therapy leads to a statistically significant reduction in both absenteeism and hospitalization, though it is not clear if these health benefits justify the cost of spa therapy.

alternative medicine, insurance, hospitalization, medical expenditures

Abstract:
A number of states have passed caps on non-economic and punitive damage awards in civil cases. The conventional wisdom is that the passage of these caps is driven by "out-of-control" jury awards that need to be reigned in. However, it could be the case that voters harboring anti-litigation, pro-tort reform sentiments are more likely to support the passage of caps even in the absence of an upsurge in awards. To examine the effect of jury awards on the passage of caps, we estimate semi-parametric hazard models of cap passage using data from the Jury Verdict Research Reporter.

punitive damages, caps, damage caps, jury awards

Abstract:
It is generally assumed that autocrats set low environmental standards. The rationale for this is straightforward. High environmental standards raise the cost of production in society, lowering national income. Because the autocrat expropriates a large fraction of national income, he faces a disincentive to protect the environment. However, this argument misses an important consideration of the autocrat. He may be willing to sacrifice some income in order to extend his rule. High environmental standards represent one tool the autocrat could use to placate his people without providing them with any revolutionary resources. This paper presents a model in which the autocrat explicitly recognizes the endogeneity of his tenure length when he chooses an environmental standard, leading to high environmental standards relative to more democratic regimes. The paper presents empirical evidence in support of this implication.

Environment, Dictator, Autocracy, Bandit

Abstract:
This study estimates the demand curve for prescription drugs among elderly Medicare beneficiaries. In contrast to previous work, the current analysis uses a measure of price rather than insurance status as the key explanatory variable to test for seniors' sensitivity to prescription drug price changes. The estimates show that a one percentage point increase in the coinsurance rate implies a 1.01 percent decrease in the number of prescriptions filled and a 0.69 percent decrease in total drug expenditures. This finding indicates that seniors are far more responsive to prescription drug price changes than suggested by studies that examine younger individuals or those that do not control for self-selection into supplemental insurance plans.

Insurance, Moral Hazard, Medicare, Price Elasticity

Abstract:
We include insurance for addiction treatment in the standard rational addiction model and show that an increase in the level of insurance for addiction treatment induces a forward-looking individual to consume more of a harmfully addictive good currently. We test this implication using cross-state variation in the adoption of mental health parity mandates. We examine the effects of these mandates on the consumption of alcohol and find that parity legislation leads to a statistically significant increase in alcohol consumption. To account for the possible endogeneity of the adoption of mental health parity mandates, we perform an instrumental variables analysis, and find that the Ordinary Least Squares significantly underestimates the insurance effect on alcohol consumption.

Rational Addiction, Alcohol, Mental Health, Insurance, Parity

Abstract:
As club goods, religions face the problem of free riding. Smaller religious clubs, such as cults or sects, can often surmount this problem through communal pressures or by requiring their members to provide easily monitored signals. Generally, however, such tactics will be unavailable or too costly for large denominations, and, as such, these denominations must look for other techniques to avoid free riding. This paper argues that the Roman Catholic doctrine of justification by faith and works serves as an Olsonian selective incentive, and presents empirical evidence in support of this claim. Specifically, I show that Catholics contribute significantly more to their churches as they approach death than do members of Protestant denominations. More generally, this paper suggests that church doctrines influence behavioral incentives and religious leaders may be able to capitalize on these behavioral effects for the benefit of their church.

Economics, Religion, Law, Free-riding, Institutions, Public Choice

Abstract:
All politicians, regardless of the nominal form of government within which they operate, face the trade-off between current period gains and tenure extension. That is, rulers can exploit their power for personal gain, but they risk being removed from their positions of power, either through a popular vote or a coup or revolution. If they temper their exploitation to remain in power, they sacrifice some of their current personal gain. Essentially all politicians are limited autocrats, where the limitations imposed on them differ according to the institutional structure under which they rule. This paper presents a formal model of this trade off in the Mancur Olson stationary bandit framework, where tenure length is explicitly endogenized in the politician's maximization problem.

Economics, Public Choice, Constitutional Political Economy, Autocracy, Dictatorship, Origin of the State

Abstract:
I augment the standard rational addiction model to include an insurance component whereby the effects of addiction can be mitigated. The model implies that increasing the level of insurance in the future induces a forward-looking individual to consume more of a harmfully addictive good currently. I test this implication using the adoption of mental health parity mandates in some states during the 1990s as an exogenous shock on the availability of future insurance. I examine the effects of this shock on the consumption of alcohol and find that parity legislation led to a statistically significant increase in alcohol consumption. To account for the possible endogeneity of the adoption of mental health parity mandates, I perform an instrumental variables analysis of beer consumption, and find that my original analysis underestimates the effect by a factor of ten.

Rational Addiction, Alcohol, Mental Health, Insurance, Parity

Abstract:
Using Federal Judicial Center data on class action settlements, we find that plaintiffs' lawyers who expect to be compensated using the lodestar, or hourly fee, method systematically delay settlement to accrue additional fees. Plaintiffs' attorneys who expect to be compensated on a percentage basis of any settlement or award, on the other hand, settle their cases more quickly as predicted by the Spier (1992) settlement model. These results cast doubt on the potential for lodestar calculations to police the conduct of plaintiffs' lawyers in class actions.

Class Action, Lodestar, Attorney Fees, Judges, Lawyers

Abstract:
Standard law and economics models imply that regulation and litigation serve as substitutes. We test this by looking at the incidence of insurance class actions as a function of measures of regulatory enforcement. We also look specifically at whether states with clear regulatory standards regarding the use of OEM parts experience less litigation over this issue. We find no evidence of substitution between regulation and litigation. We also examine the possibility that litigation is more frequent in states where regulators are more likely to be captured by industry interests, finding no support for this hypothesis either. Instead, litigation is more likely in states where similar litigation has been successful in the past, calling into question standard law and economics models in this area.

administrative law, insurance law, law and economics, products liability, torts, litigation frequency, substitution, regulatory enforcement, original equipment manufacturer parts, regulators, complex litigation

Abstract:
The felony murder rule would appear to be an anomaly in the common law. It represents one of the very few instances in criminal law where the element of intent is waived. Criticism of the rule is almost uniform among scholars and commentators, yet it endures in most jurisdictions throughout the United States. Typically, critics assert the rule's longevity is the result of political forces that make it difficult to change laws that make criminal prosecutions easier. Others claim the rule fills some psychological need to mete out retribution when harm occurs to innocent parties. If a justification for the rule is offered, it generally focuses on the deterrence properties of the rule, however empirical research suggests the rule does little to deter felonies or felony murders. We offer a model in which the felony murder rule serves to deter crimes against relatively weak victims, who would otherwise be more attractive targets of crime in the absence of the rule. This model predicts only a relatively modest decrease in felonies, as perpetrators substitute away from relatively weak victims toward less vulnerable victims.

crime, deterrence, equal protection, homicide

Abstract:
The Supreme Court's trilogy of evidence cases, Daubert, Joiner, and Kumho Tire appear to mark a significant departure in the way scientific and expert evidence is handled in federal court. By focusing on the underlying methods used to generate the experts' conclusions, Daubert has the potential to impose a more rigorous standard on experts. Given this potential, some individuals have called for states to adopt the Daubert standards to purge "junk science" from state courts. However, there is relatively little empirical support for the notion that Daubert affects the quality of expert evidence. Using a large dataset of state court litigation, we examine whether state adoption of the Daubert standards has a systematic effect on the observable characteristics of experts retained in civil cases. We find very little evidence in support of a significant Daubert effect. This is true even when we do a more detailed analysis of experts in products liability cases, an area of particular concern in the expert evidence debate. These results suggest that, at the state level at least, adoption of the Daubert standards has not led to increasing rigor in expert testimony.

Scientific and expert evidence, federal courts, state courts, standards of admissibility, quality of expert testimony, products liability, judges

Abstract:
Most industrialized countries have increased access to abortion over the past 30 years. Economic theory predicts that abortion laws affect sexual behavior since they change the marginal cost of having risky sex. We use gonorrhea incidence as a metric of risky sexual behavior. Using a panel of 41 North American, European and Central Asian countries over the period 1980-2000, we estimate the impact of abortion law reform on risky sex. Compared to the most restrictive legislation that permits abortion only to save the pregnant woman’s life or her physical health, more liberal abortion laws are associated with at least thirty additional gonorrhea cases per 100,000 individuals. The marginal effect of laws which make abortion available on request is larger than the effect of laws which allow abortion on socioeconomic and mental health grounds. Our results are robust against a set of alternative sample constructions and model specifications.

abortion, sex, STD, sexually transmitted diseases, pregnancy

Abstract:
The IOM report Unequal Treatment: Confronting Racial and Ethnic Disparities in Health Care argues that medical studies document a systematic causal relationship between race and disparities in health inputs and outcomes among individuals of different races. We argue that the majority of studies are not powerful enough to establish a causal link since they do not sufficiently control for differences among patients that happen to correlate with race. We outline a powerful audit study that could isolate any effect of race on health care decisions. Lastly, we point out that even if there are race-based disparities in health inputs, evaluations of welfare and policy prescriptions should be based on health outcomes since the relationship between care and health is, at least in some cases, weak.

Disparities, Discrimination, Health

Abstract:
As recent events illustrate, state finances are pro-cyclical: during recessions, state revenues crash, worsening the effects of economic downturns. This problem is well-known, yet persistent. We argue here that, in light of predictable federalism and political economy dynamics, states will be unable to change this situation on their own. Additionally, we note that many possible federal remedies may result in worse problems, such as creating moral hazard that would induce states to take on excessively risky policy, both fiscal and otherwise. Thus, we argue that policy makers should consider so-called “automatic” stabilizers, such as are found in the federal tax system.

We present an argument from micro-economic foundations suggesting that the federal Alternative Minimum Tax has potentially salutary - and heretofore unrecognized - effects that counteract pathologies of state budgets over the business cycle. Namely, as incomes grow and the AMT hits more state residents, state spending becomes more expensive in flush times as the federal tax subsidy for state and local taxes is reduced. Conversely, when state fiscal health deteriorates, the federal tax subsidy grows as fewer state residents fall under the AMT, boosting taxpayer support for state spending. This stabilizing mechanism has the potential to overcome problems state politicians face committing to saving during boom times and spending during bust times. We present empirical evidence suggesting that the AMT does indeed provide some degree of fiscal stabilization in accordance with micro-theory. We provide policy suggestions regarding how the AMT could be modified to leverage this stabilization effect.

Calls to “reform” the Alternative Minimum Tax pre-date the recent economic downturn. AMT reform has appeared in many congressional stimulus proposals, but significant cut-backs are unlikely as federal deficits are projected to grow for the foreseeable future. Our argument here implies that any AMT reform effort should consider whether the AMT’s stabilizer function could be replaced by any other viable mechanism.

State finances, revenue, taxation, recession, pro-cyclical, federal remedies, moral hazard, risk, automatic stabilization, alternative minimum tax, AMT reform, ATM, Fiscal federalism tax, Tax, Social Insurance

Abstract:
Dura Pharmaceuticals v. Broudo has been heralded as the most important securities case of the past decade. Many have suggested that its requirement that plaintiffs provide evidence of a significant stock price decline associated with a corrective disclosure will make it significantly harder to bring securities fraud cases. We use event study techniques to examine how hard it would have been to meet this requirement in a comprehensive dataset of 10b-5 cases in the two decades before Dura was decided. If those cases are representative of what cases might be brought post-Dura, our findings suggest that Dura will not have much of an effect.

event study, statistical evidence, securities fraud, 10b-5, Dura, loss causation

Abstract:
Many states have passed laws mandating insurance companies to provide or offer some form of mental health benefits. These laws presumably lower the price of obtaining mental health services for many adults, and as a result, might improve health outcomes. This paper analyzes the effectiveness of mental health insurance mandates by examining the influence of mandates on adult suicides, which are strongly correlated with mental illness. Data on completed suicides in each state for the period 1981-2000 are analyzed. Ordinary least squares and two-stage least squares results show that mental health mandates are not effective in reducing suicide rates.

Abstract:
In the United States insurance is regulated both by state insurance commissions and class action litigation. The interaction of these two systems has not been extensively studied. The authors examine four different facets of the regulation litigation tradeoff. The first is to examine whether regulator’s interest in a particular cause of action reduces the likelihood that class actions covering this cause of action will be filed in the regulator’s home state. They also examine several measures of regulatory stringency in the state to determine whether there is a substitution effect between regulatory action and litigation. They also examine whether class actions are less frequent when regulators issued an administrative decision on a particular issue previously or if there are no existing state laws on the particular issue. They examine the impact of electing judges on patterns of filing. The hypothesis is that elected judges are more sympathetic to plaintiffs and hence class actions are more likely to be filed in states that elect their judges. Lastly, they examine the impact of pervious litigation both in the state and the specific line of litigation.

Abstract:
Unwanted pregnancy represents a major cost of sexual activity. When abortion was legalized in a number of states in 1969 and 1970 (and nationally in 1973), this cost was reduced. We predict that abortion legalization generated incentives leading to an increase in sexual activity, accompanied by an increase in sexually transmitted diseases (STDs). Using Centers for Disease Control data on the incidence of gonorrhea and syphilis by state, we test the hypothesis that abortion legalization led to an increase in sexually transmitted diseases. We find that gonorrhea and syphilis incidences are significantly and positively correlated with abortion legalization. Further, we find a divergence in STD rates among early legalizing states and late legalizing states starting in 1970 and a subsequent convergence after the Roe v. Wade decision, indicating that the relation between STDs and abortion is causal. Abortion legalization accounts for about one-fourth of the average disease incidence.

Abortion, Sex, Sexual Behavior, STD, Gonorrhea, Syphilis, Disease, Moral Hazard, Roe v. Wade