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Ian Ayres's
Scholarly Papers
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11,224 |
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1.
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Common Knowledge As A Barrier To Negotiation
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Ian Ayres Yale Law School Barry J. Nalebuff Yale School of Management
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11 May 97
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21 Aug 00
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1,047 ( 4,554) |
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Ian Ayres Yale Law School Barry J. Nalebuff Yale School of Management
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02 May 98
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07 Jun 00
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When we disclose information, we may also communicate information about information. The listener learns not only X but also that the speaker knows X. And the speaker also learns by speaking (for example, the speaker knows that the listener knows X). In this paper we present a series of examples where negotiators want to communciate X, but do not want to comunicate higher-order information about X. While it may be efficient for one negotiator to tell another the true consequences of failing to reach agreement, when such information is threatening or insulting it may be useful to prevent the threat or insult from becoming common knowledge. Game-theorists often model private information as the but-for cause of inefficient distributive bargaining. In these simple bargaining models, if each side's BATNA were common knowledge, the parties would instantaneously (and costlessly) reach agreement. But we show that while the lack of first-order information can impede trade, the presence of higher-order information (information about information) might be a barrier to negotiation, a transaction cost that might be avoided by ambiguous or indirect communication or by caucus mediation.
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Ian Ayres Yale Law School Barry J. Nalebuff Yale School of Management
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11 May 97
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21 Aug 00
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1,047
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Abstract:
When we disclose information, we may also communicate information about information. The listener learns not only X but also that the speaker knows X. And the speaker also learns by speaking (for example, the speaker knows that the listener knows X). In this paper we present a series of examples where negotiators want to communciate X, but do not want to comunicate higher-order information about X. While it may be efficient for one negotiator to tell another the true consequences of failing to reach agreement, when such information is threatening or insulting it may be useful to prevent the threat or insult from becoming common knowledge. Game-theorists often model private information as the but-for cause of inefficient distributive bargaining. In these simple bargaining models, if each side's BATNA were common knowledge, the parties would instantaneously (and costlessly) reach agreement. But we show that while the lack of first-order information can impede trade, the presence of higher-order information (information about information) might be a barrier to negotiation, a transaction cost that might be avoided by ambiguous or indirect communication or by caucus mediation.
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Shooting Down the More Guns, Less Crime Hypothesis
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Ian Ayres Yale Law School John J. Donohue III Yale Law School
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29 Oct 02
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10 Oct 09
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Ian Ayres Yale Law School John J. Donohue III Yale Law School
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29 Nov 03
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10 Oct 09
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John Lott and David Mustard have used regression analysis to argue forcefully that 'shall-issue' laws (which give citizens an unimpeded right to secure permits for concealed weapons) reduce violent crime. While certain facially plausible statistical models appear to generate this conclusion, more refined analyses of more recent state and county data undermine the more guns, less crime hypothesis. The most robust finding on the state data is that certain property crimes rise with passage of shall- issue laws, although the absence of any clear theory as to why this would be the case tends to undercut any strong conclusions. Estimating more statistically preferred disaggregated models on more complete county data, we show that in most states shall- issue laws have been associated with more crime and that the apparent stimulus to crime tends to be especially strong for those states that adopted in the last decade. While there are substantial concerns about model reliability and robustness, we present estimates based on disaggregated county data models that on net the passage of the law in 24 jurisdictions has increased the annual cost of crime slightly -- somewhere on the order of half a billion dollars. We also provide an illustration of how our jurisdiction-specific regression model has the capacity to generate more nuanced assessments concerning which states might profit from or be harmed by a particular legal intervention.
Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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Ian Ayres Yale Law School John J. Donohue III Yale Law School
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29 Oct 02
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07 Apr 03
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937
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Abstract:
John Lott and David Mustard have used regression analysis to argue forcefully that "shall-issue" laws (which give citizens an unimpeded right to secure permits for concealed weapons) reduce violent crime. While certain facially plausible statistical models appear to generate this conclusion, more refined analyses of more recent state and county data undermine the more guns, less crime hypothesis. The most robust finding on the state data is that certain property crimes rise with passage of shall-issue laws, although the absence of any clear theory as to why this would be the case tends to undercut any strong conclusions. Estimating more statistically preferred disaggregated models on more complete county data, we show that in most states shall-issue laws have been associated with more crime and that the apparent stimulus to crime tends to be especially strong for those states that adopted in the last decade. While there are substantial concerns about model reliability and robustness, we present estimates based on disaggregated county data models that on net the passage of the law in 24 jurisdictions has increased the annual cost of crime slightly - somewhere on the order of half a billion dollars. We also provide an illustration of how our jurisdiction-specific regression model has the capacity to generate more nuanced assessments concerning which states might profit from or be harmed by a particular legal intervention.
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3.
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The Employment Contract
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Ian Ayres Yale Law School Stewart J. Schwab Cornell Law School
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02 Feb 00
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27 Jul 00
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Ian Ayres Yale Law School Stewart J. Schwab Cornell Law School
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09 Apr 00
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27 Jul 00
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This article is an edited transcript of a lecture on the Employment Contract presented to a conference of state law judges. Part I introduces a model of a well-functioning labor market, which provides all employee benefits, and only those employee benefits, that employees value more than it costs employers to provide. Part II articulates ways in which labor markets might fail to provide such cost-justified benefits. Market failures can arise from asymmetric information, asymmetric performance, or collective goods. Such failures can justify legal intervention, although policymakers must worry about the cure being worse than the disease. Additionally, even without market failure policymakers might intervene for paternalistic or distributive reasons. Part III separates out "unequal bargaining power" as an argument for legal intervention, and argues it does not describe a market failure and is generally an incoherent justification for legal intervention. Part IV applies this framework to evaluate legal erosions of the employment-at-will doctrine. Many courts have upheld claims that a termination breached an implied-in-fact promise not to dismiss a worker without cause. Sometimes, these claims can be justified as correcting problems of opportunism arising from asymmetric performance, problems that vary during the life cycle of a career employee. Contract protections generally are default rules, in that parties can reject them through explicit clauses in a contract. The article articulates the basic theories of default rules, which include mimic-the-market rules and penalty defaults. Other courts have recognized the tort of wrongful discharge in violation of public policy. This tort can be justified as an effort to have employers internalize third-party effects of discharges.
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Ian Ayres Yale Law School Stewart J. Schwab Cornell Law School
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02 Feb 00
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18 May 00
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This article is an edited transcript of a lecture on the Employment Contract presented to a conference of state law judges. Part I introduces a model of a well-functioning labor market, which provides all employee benefits, and only those employee benefits, that employees value more than it costs employers to provide. Part II articulates ways in which labor markets might fail to provide such cost-justified benefits. Market failures can arise from asymmetric information, asymmetric performance, or collective goods. Such failures can justify legal intervention, although policymakers must worry about the cure being worse than the disease. Additionally, even without market failure policymakers might intervene for paternalistic or distributive reasons. Part III separates out "unequal bargaining power" as an argument for legal intervention, and argues it does not describe a market failure and is generally an incoherent justification for legal intervention. Part IV applies this framework to evaluate legal erosions of the employment-at-will doctrine. Many courts have upheld claims that a termination breached an implied-in-fact promise not to dismiss a worker without cause. Sometimes, these claims can be justified as correcting problems of opportunism arising from asymmetric performance, problems that vary during the life cycle of a career employee. Contract protections generally are default rules, in that parties can reject them through explicit clauses in a contract. The article articulates the basic theories of default rules, which include mimic-the-market rules and penalty defaults. Other courts have recognized the tort of wrongful discharge in violation of public policy. This tort can be justified as an effort to have employers internalize third-party effects of discharges.
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4.
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Ian Ayres Yale Law School Joseph Bankman Stanford Law School
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02 Apr 01
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05 Apr 01
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883 (6,129)
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When insider trading prohibitions limit the ability of insiders (or of a corporation itself) to use material non-public information to trade a particular firm's stock, there may be incentive to use the information to trade instead on the stock of that firm's rivals, suppliers, customers, or the manufacturers of complementary products. We refer to this form of trading as trading in stock substitutes. Stock substitute trading by a firm is legal. In many circumstance, substitute trading by employees is also legal. Trading in stock substitutes may be quite profitable, and there is anecdotal evidence that employees often engage in such trading. Our analysis suggests that substitute trading is less socially desirable than traditional insider trading. We recommend a set of disclosure rules designed to clarify existing law and provide information on the extent of stock substitute trading. We also discuss possible changes in the law that might limit inefficient trading in stock substitutes.
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Ian Ayres Yale Law School Fredrick E. Vars University of Alabama - School of Law Nasser Zakariya Harvard University
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01 May 03
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13 Aug 08
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661 (9,539)
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We collected data on over 1000 taxicab rides in New Haven, CT in 2001. After controlling for a host of other variables, we find two potential racial disparities in tipping: (1) African-American cab drivers were tipped approximately one-third less than white cab drivers; and (2) African-American passengers tipped approximately one-half the amount of white passengers (African-American passengers are 3.7 times more likely than white passengers to leave no tip). Many studies have documented seller discrimination against consumers, but this study tests and finds that consumers discriminate based on the seller's race. African-American passengers also participated in the racial discrimination. While African-American passengers generally tipped less, they also tipped black drivers approximately one-third less than they tipped white drivers. The finding that African-American passengers tend to tip less may not be robust to including better controls for passenger social class. But it is still possible to test for the racialized inference that cab drivers (who also could not directly observe passenger income) might make. Regressions suggest that a "rational" statistical discriminator would expect African Americans to tip 56.5% less than white passengers. These findings suggest that government-mandated tipping (via a "tip included" decal) might reduce two different types of disparate treatment. First, mandated tipping would directly reduce the passenger discrimination against black drivers documented in this study. Second, mandated tipping might indirectly reduce the widely-documented tendency of drivers to refuse to pick up black passengers.
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Ian Ayres Yale Law School Barry J. Nalebuff Yale School of Management
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30 May 08
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03 Jun 08
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481 (15,100)
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By employing leverage to gain more exposure to stocks when young, individuals can achieve better diversification across time. Using stock data going back to 1871, we show that buying stock on margin when young combined with more conservative investments when older stochastically dominates standard investment strategies - both traditional life-cycle investments and 100%-stock investments. The expected retirement wealth is 90% higher compared to life-cycle funds and 19% higher compared to 100% stock investments. The expected gain would allow workers to retire almost six years earlier or extend their standard of living during retirement by 27 years.
Diversification, Leverage, Retirement, Investment Strategy
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Ian Ayres Yale Law School Paul H. Robinson University of Pennsylvania Law School Carol Sanger Columbia Law School Kimberly Kessler Ferzan Rutgers, The State University of New Jersey - School of Law - Camden
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03 Jul 07
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02 Aug 07
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472 (15,450)
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This is an edited transcript of Crafting a Scholarly Persona, the Scholarship Section's program from the AALS Annual Meeting in 2007. During this program, three established scholars, Ian Ayres, Paul Robinson, and Carol Sanger, discussed their individual career paths - How they chose their article topics, what the goals of their scholarship are, how they view their research agendas, etc. The discussion was intended roughly to mirror Bravo's Inside the Actor's Studio.
scholarship, research agenda
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Ian Ayres Yale Law School Stephen J. Choi New York University - School of Law
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31 Aug 01
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13 Feb 02
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451 (16,463)
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The law takes a laissez faire approach toward the efforts of most investors in the securities markets to obtain an information advantage and trade based on this advantage. Indeed, the misappropriation theory of insider trading liability has the effect of assigning trading rights in the securities of a firm (the "traded firm") to the source of material, non-public information. When the source of the information is outside the traded firm?say, a stock analyst or an industry rival?trading on such information is clearly legal if the source consents. The outside trader, however, is often not well placed to decide whether such trading is socially beneficial, internalizing most of the benefits of such trading but not most of its costs. Coasean bargaining is not likely to solve the problem because the traded firm (whose shareholders' predominantly bear the costs of such trading) faces large transaction costs of identifying and bargaining with the undefined and potentially replenishing class of such outside traders. Our thesis is that it is more efficient to allow the traded firm to control whether particular types of informed trading takes place. Under our proposed regime, firms would have the right to impose ex ante restrictions against outsider trading on their stock on the basis of material, non-public information. Reassigning to the traded firm the right to control whether informed outsider trading occurs gives the initial trading decision to a party that internalizes much more of the costs of such trading and therefore is more likely to filter out socially inefficient trades. Reassigning the outsider trading right is also more likely to facilitate Coasean bargaining, because it is easier for potential outside traders to identify the traded firm than it is for the traded firm to identify the potential outside traders. Finally, reassigning the outsider trading right to the traded firm is more consistent with property-rights based notions of just deserts. The outside trader may have a Lockean ownership right in the deliberately acquired non-public information, but such ownership does not necessarily entitle her to trade on another firm's stock. The Lockean creators of the traded firm in initially issuing its stock should also have a right to put outside traders on notice that trading on the basis of non-public information is prohibited (or restricted in pre-specified ways).
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Barry E. Adler New York University - School of Law Ian Ayres Yale Law School
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14 Sep 00
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30 Apr 01
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451 (16,463)
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This article proposes a new mechanism for valuing firms in bankruptcy. Under the mechanism, a court would dilute the reorganized stock issued to senior claimants by issuing additional shares to junior claimants until there was no excess demand for the stock at a price that would implement absolute priority. This mechanism could also be adapted so that a court would issue additional debt to senior claimants until there was no excess supply of the debt at a price that would implement absolute priority. We show that the mechanism harnesses the private information of the claimants and of third parties to produce distributions consistent with absolute priority. The dilution mechanism can be superior to other information-harnessing devices (such as an option or auction approach) because it (i) is less susceptible to the problem of junior illiquidity than an option approach proposed by Lucian Bebchuk; (ii) is less susceptible to the problem of market manipulation and may better allocate control premia than a partial float proposal by Mark Roe; and (iii) may produce fewer transaction costs than a full auction approach proposed by Douglas Baird. Moreover, as a response to the Supreme Court's recent admonishment in LaSalle Street that bankruptcy courts employ market tests more often when creditors dissent to a reorganization plan, the dilution mechanism provides a uniquely workable solution within the current statutory framework.
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Tradable Patent Rights
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Stanford Law Review, Vol. 60, Pg. 863, 2007, U of Penn, Inst for Law & Econ Research Paper No. 07-23, Yale Law & Economics Research Paper No. 350, Yale Law School, Public Law Working Paper No. 145, U of Penn Law School, Public Law Research Paper No. 07-43
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Ian Ayres Yale Law School Gideon Parchomovsky University of Pennsylvania Law School
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10 Oct 07
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23 Jul 09
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Patent thickets may inefficient retard cumulative innovation. This paper explores two alternative mechanisms that may be used to weed out patent thickets. Both mechanisms are intended to reduce the number of patents in our society. The first mechanism we discuss is price based regulation of patents through a system of increasing renewal fees. The second and more innovative mechanism is quantity based regulation through the establishment of a system of Tradable Patent Rights. The formalization of tradable patent rights would essentially create a secondary market for patent permits in which patent protection will be bought and sold.
permits, thickets, license fees, licensing, social costs, infringement, renewal fees, tragedy of the commons, enforcement
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Ian Ayres Yale Law School Katharine K. Baker Illinois Institute of Technology - Chicago-Kent College of Law
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25 Aug 04
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07 Oct 04
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This article attempts to make progress on both the problems of sexually transmitted disease and acquaintance rape by proposing a new crime of reckless sexual conduct. A defendant would be guilty of reckless sexual conduct if, in a first sexual encounter with another particular person, the defendant had sexual intercourse without using a condom. Consent to unprotected intercourse would be an affirmative defense, to be established by the defendant with a preponderance of the evidence. As an empirical matter, first-encounter unprotected sex greatly increases the epidemiological force of sexually transmitted disease and a substantial proportion of acquaintance rape occurs in unprotected first encounters. The new law, by increasing condom use and the quality of communication in first sexual encounters, can reduce the spread of sexually transmitted disease and decrease the incidence of acquaintance rape.
aquaintance rape, sexually transmitted disease, criminal law
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Ian Ayres Yale Law School Gregory Klass Georgetown University - Law Center
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03 Aug 04
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07 Dec 04
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It is of course true that proving breach of contract is not sufficient to establish promissory fraud liability. But in this paper we argue that breach of contract should not even be a necessary element for proving promissory fraud. There are a variety of contexts without legally enforceable contracts where insincere promising should still be deemed tortuous because of the willful harm that it causes. Promisors who are free from contractual liability nonetheless are sometimes potentially liable for this promissory tort.
contract, promissory fraud, false promise
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Ian Ayres Yale Law School Paul M. Goldbart University of Illinois at Urbana-Champaign - Department of Physics
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09 Mar 01
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01 Jun 01
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The central allocative decision confronting a judge in a nuisance dispute should not concern the identity of the initial entitlement recipient but rather the identity of the more efficient chooser - the litigant who can more efficiently allocate the entitlement. We show that liability rules can produce four basic allocations which differ centrally in the ways in which courts delegate to litigants the authority to ultimately allocate the entitlement. Two classes concern "single chooser" rules that vest (in the absence of an agreement to the contrary) the allocative decision solely in one of the litigants. The other two classes concern a new type of rule, "dual chooser" rules, that allow either party to veto the transfer of an entitlement. Dual-chooser rules are more than a theoretical curiosity both because they exist in our current law and because at times they produce systematically greater allocative efficiency than either type of single-chooser rule. Two heads are sometimes better than one. A central result of the paper is that in choosing among different liability rules allocative concerns can be decoupled from distributive concerns. There exist an infinite number of liability rules which produce each of the four basic allocations, but every rule within a particular class divides differently between the litigants the expected value of the allocation. To successfully decouple, courts should at times impose "call option," "put option," "Pay or be Paid," and "Pay or Pay" rules.
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Ian Ayres Yale Law School Matthew Funk Simpson, Thacher and Bartlett - Exempt Organizations
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28 Apr 02
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02 May 02
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323 (25,127)
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Unsolicited solicitations in the form of telemarketing calls, email spam and junk mail impose in aggregate a substantial negative externality on society. Telemarketers don't bear the full costs of their marketing because they do not compensate recipients for the hassle of, say, being interrupted during dinner. Current regulatory responses that give consumers the all-or-nothing option of registering on the internet to block all unsolicited telemarketing calls are needlessly both over- and under-inclusive. A better solution is to allow individual consumers to choose the price per minute they would like to receive as compensation for listening to telemarketing calls. Such a "name your own price" mechanism could be easily implemented by crediting consumers' phone bills (a method analogous to the current debits to bill from 1-900 calls). Under this rule, consumers are presumptively made better off by a regime that gives them greater freedom. Telemarketing firms facing higher costs of communication are likely to better screen potential contacts to find consumers who are more likely to be interested in their solicitation. Consumers having the option of choosing an intermediate price will receive fewer calls, which will be more tailored to their interests and will be compensated for those calls they do receive. But giving consumers the right to be compensated may also benefit some telemarketers. Once consumers are voluntarily opting to receive telemarketing calls (in return for tailored compensation), it becomes possible to deregulate the telemarketers - lifting current restrictions on the time (no night time calls) and manner (no recorded calls). For example, if the prohibition against tape-recorded messages were repealed, we could imagine local grocery stores or movie theaters using the telephone to provide consumers with useful information about specials. And faced with increasing caller resistance, we imagine that survey groups, such as the Gallop Poll, might welcome the opportunity to compensate survey respondents so that they might be able to produce more representative samples. We apply similar "name your own price" solutions to internalize the externalities of unsolicited spam email and junk mail.
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15.
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Determinants of Citations to Articles in Elite Law Reviews
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Ian Ayres Yale Law School Fredrick E. Vars University of Alabama - School of Law
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Posted:
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22 Apr 99
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13 Aug 08
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312 ( 26,183) |
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Ian Ayres Yale Law School Fredrick E. Vars University of Alabama - School of Law
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22 Apr 99
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13 Aug 08
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Studies of citations to law review articles tend to suffer from two related shortcomings: (1) a failure to adjust raw citation counts for opportunities to be cited; and (2) an exclusive focus on the most-cited articles. This article addresses both of these shortcomings for pieces published from 1980 to 1995 in Harvard Law Review, Stanford Law Review, and The Yale Law Journal. First, we rank articles by citations in other law reviews using regression analysis to correct for time since publication, journal, and subject area. Next, we examine the flow of citations over time and the determinants of citations more generally. To summarize a few of our results: citations per year peak at four years after publication and an article receives half of its expected total life-time citations after 4.6 years; appearing first in an issue is a significant advantage; international law articles receive fewer citations; jurisprudence articles are cited more often; articles by young, female, or minority authors are more heavily cited. Articles with shorter titles, fewer footnotes per page, and without equations have significantly more citations than other articles. Total citations generally increase with an article?s length, but citations per published page peak at 53 pages. Finally, we note a pervasive identification problem in inferring a cause for these our results. Among the possible explanations for observing a positive correlation between a characteristic and citations are: higher quality for this type of article, editorial bias against this type of article (that is, a higher quality cut-off for acceptance), or bias in favor of citation by citing authors. Given this problem (and others), we counsel caution in ascribing meaning to our results.
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Ian Ayres Yale Law School Fredrick E. Vars University of Alabama - School of Law
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22 Apr 99
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13 Aug 08
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Studies of citations to law review articles tend to suffer from two related shortcomings: (1) a failure to adjust raw citation counts for opportunities to be cited; and (2) an exclusive focus on the most-cited articles. This article addresses both of these shortcomings for pieces published from 1980 to 1995 in Harvard Law Review, Stanford Law Review, and The Yale Law Journal. First, we rank articles by citations in other law reviews using regression analysis to correct for time since publication, journal, and subject area. Next, we examine the flow of citations over time and the determinants of citations more generally. To summarize a few of our results: citations per year peak at four years after publication and an article receives half of its expected total life-time citations after 4.6 years; appearing first in an issue is a significant advantage; international law articles receive fewer citations; jurisprudence articles are cited more often; articles by young, female, or minority authors are more heavily cited. Articles with shorter titles, fewer footnotes per page, and without equations have significantly more citations than other articles. Total citations generally increase with an article's length, but citations per published page peak at 53 pages. Finally, we note a pervasive identification problem in inferring a cause for these our results. Among the possible explanations for observing a positive correlation between a characteristic and citations are: higher quality for this type of article, editorial bias against this type of article (that is, a higher quality cut-off for acceptance), or bias in favor of citation by citing authors. Given this problem (and others), we counsel caution in ascribing meaning to our results.
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16.
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Threatening Inefficient Performance of Injunctions and Contracts
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Ian Ayres Yale Law School Kristin M. Madison University of Pennsylvania Law School
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18 Jan 99
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27 Jun 00
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295 ( 27,970) |
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Ian Ayres Yale Law School Kristin M. Madison University of Pennsylvania Law School
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11 Nov 99
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27 Jun 00
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Abstract:
Contract scholars have long understood that inefficient behavior might arise when promisors threaten to breach, but a parallel problem has gone virtually unnoticed: threatening to perform. A potential plaintiff owed a duty by another (such as a contractual promisee) may seek inefficient injunctive relief instead of damages to induce the defendant to pay an amount higher than court awarded damages. Threats of inefficient performance can produce inefficiency in the form of negotiation costs, failure to reach a bargain, and inefficient ex ante actions. We consider a legal reform that would undermine the credibility of inefficient threats by giving defendants two options: an option to make any injunctive relief inalienable, and an option to commit to paying higher damages. These options would retain the prime benefit of an alienable injunction, the elimination of the threat of undercompensation, while reducing the inequitable risk of overcompensation. As an alternative method of undermining threats, we suggest that judges consider imposing a settlement cap, or subjecting all injunctive settlements to the same type of remittitur analysis to which a jury award would be subjected.
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Ian Ayres Yale Law School Kristin M. Madison University of Pennsylvania Law School
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| Posted: |
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18 Jan 99
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27 Jun 00
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171
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2
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Abstract:
Contract scholars have long understood that inefficient behavior might arise when promisors threaten to breach, but a parallel problem has gone virtually unnoticed: threatening to perform. A potential plaintiff owed a duty by another (such as a contractual promisee) may seek inefficient injunctive relief instead of damages to induce the defendant to pay an amount higher than court awarded damages. Threats of inefficient performance can produce inefficiency in the form of negotiation costs, failure to reach a bargain, and inefficient ex ante actions. We consider a legal reform that would undermine the credibility of inefficient threats by giving defendants two options: an option to make any injunctive relief inalienable, and an option to commit to paying higher damages. These options would retain the prime benefit of an alienable injunction, the elimination of the threat of undercompensation, while reducing the inequitable risk of overcompensation. As an alternative method of undermining threats, we suggest that judges consider imposing a settlement cap, or subjecting all injunctive settlements to the same type of remittitur analysis to which a jury award would be subjected.
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17.
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Ian Ayres Yale Law School Paul M. Goldbart University of Illinois at Urbana-Champaign - Department of Physics
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09 Mar 01
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12 Mar 01
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260 (32,288)
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1
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Abstract:
Kaplow and Shavell have recently claimed that property rules tend to protect tangible entitlements more efficiently than do liability rules. They argue that while liability rules tend to efficiently harness the defendant's private information when courts are imperfectly informed as to litigants' valuations of intangible entitlements, this harnessing effect does not apply to tangible entitlements for two reasons. First, they argue that the prospect of multiple takings (by others or even the original entitlement holder taking back the entitlement) makes it impossible to implement liability rules with regard to tangible entitlements. Second, they argue that liability rules cannot harness private information when the disputants' valuations are correlated and that valuations of tangibles tend to be more correlated than valuations of intangibles. In this essay, we reject both the multiple-takings and the correlated-value claims. Our thesis is that, while both present real problems of implementation, the authors' own harnessing result can be extended to redeem the usefulness of liability rules even when values are correlated and even when there is the prospect of multiple takings. We will show that, even in the presence of these problems, enlightened courts can manipulate the damages that takers expect to pay so as to induce efficient takings. The authors' numeric examples purporting to show the dominance of property rules systematically understate the potential efficiency of liability rules. Their examples compare the more efficient property rules to liability rules that use inefficient damages and systematically delegate allocative authority to the less efficient litigant. If the more appropriate comparisons are made, in all of Kaplow and Shavell's examples liability rules (which anticipate non-consensual takings) dominate property rules.
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18.
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Ian Ayres Yale Law School
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17 Oct 00
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05 Dec 00
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196 (43,479)
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Abstract:
The cigarette manufacturer settlements with four individual states (Florida, Minnesota, Mississippi and Texas) and the subsequent multi-state agreement of November 1998 represent a legal innovation in cartelization technology. These new settlements allow state and local government to act as cartel ringmasters?writing enforceable contracts which will predictably (i) raise the market price toward the monopoly level, (ii) split the supra-competitive profits with the government, and (iii) deter new entry. It has been understood that anticompetitive settlements can be produced when competitors sue each other in intellectual property or merger contexts. And it has been understood that captured state agencies may cartelize in-state producers of a particular product. But the individual state settlements suggest that a state may profitably cartelize out-of-state producers. If such settlements are enforceable, states that have virtually no nexus with a set of industry producers - and in fact have not been injured by the industry - may nonetheless "race to the bottom" by suing and settling with an industry in order enjoy a share of the cartel profits. Unfortunately, it is far from clear that such settlements currently run afoul of the law. The imprimatur of the state shields the settlements from antitrust liability. And while one might object that the settlements usurp the legislative taxing function, the fact that the companies consented to the state settlements may be considered by the courts as a substitute for the legislative-political check. The strongest legal argument against the settlements is that they constitute extraterritorial taxation, but this argument faces grave procedural barriers. Accordingly, I recommend that federal legislation prohibit the types of settlement structures that are most likely to produce cartel-like results.
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19.
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John J. Donohue III Yale Law School Ian Ayres Yale Law School
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07 Apr 03
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12 Jun 03
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190 (44,886)
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Abstract:
John Lott, Florenz Plassman, and John Whitley ("LPW") have criticized our article, Shooting Down the More Guns, Less Crime Hypothesis, by arguing that some aggregated statistical models that we criticized support their "more guns, less crime" claim (which leads them to say we "misread" our results) and by offering new regressions on an expanded county data set. We maintain, however, as we did in our original article, that the aggregated models favored by LPW are flawed by a serious selection effect problem (and in any event we show that the findings LPW point to are undermined by controls for pre-existing state trends in crime). Indeed, we illustrate that simply dropping the states that adopted concealed carry laws during the crack epidemic leads to estimates that concealed carry laws strongly increase crime (which underscores the importance of the omitted crack phenomenon in driving the initial Lott and Mustard results). Moreover, we discovered that the ostensibly supportive results obtained by LPW after extending their county set to 2000 were caused by some mis-coding errors they made in extending their data. When we correct these errors, their findings are reversed: LPW's preferred spline model fails to generate a statistically significant effect for any crime category, while the only significant results in the other possible models show the laws to be associated with increases in various property crimes (and in one case for rape).
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20.
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Ian Ayres Yale Law School
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08 Jan 04
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15 Jun 04
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183 (46,670)
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Abstract:
Because disparate impact and disparate treatment claims have distinct elements, they require distinct methods of testing. This article analyzes three different ways of testing of unjustified disparate impacts in organ transplantation, which I will call: the traditional test, the omitted-variable test, and the outcome test.
disparate impact, discrimination, statistics
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21.
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Ian Ayres Yale Law School
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| Posted: |
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17 Sep 97
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25 Mar 98
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172 (49,610)
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Abstract:
Savvy judges realize that they are normally less informed than private litigants and will accordingly be prone to error in deciding cases. Judges in deciding contract cases should therefore try to harness the parties' private information. This paper applies this idea of harnessing private information to make three proposals about how judges should decide contracts cases. In particular, I favor (1) interpretive safe harbors, (2) extending Hadley v. Baxendale to benefit buyers as well as sellers; and (3) giving defendants the option of making injunctions inalienable.
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22.
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Ian Ayres Yale Law School Gregory Klass Georgetown University - Law Center
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12 Oct 06
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19 Dec 06
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170 (50,206)
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1
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Abstract:
This article summarizes our recommended reforms to the law of promissory fraud. We present these recommendations as a Draft Prestatement of the Law of Insincere Promising. The basic propositions of the Prestatement are taken, with some modification, from our book, Insincere Promises: The Law of Misrepresented Intent (2005). This article adds extensive comments, in the style of the Restatements, and a prose introduction identifying three reforms we deem most important. First, courts should drop their insistence that every promise represents an intent to perform, and treat that representation instead as a default. Second, courts faced with claims of promissory fraud should pay more attention to scienter. This means both that promissory fraud claimants should be required to produce separate evidence of intent or recklessness, and that courts should recognize the largely overlooked possibility of negligent promissory misrepresentation. Finally, courts should acknowledge that promissory representations of intent are material only because they say something about the objective probability of performance, and should interpret a representation of intent to perform as saying, absent evidence to the contrary, that there is at least a fifty-percent chance that the promisor will perform.
promissory fraud, contract, fraud
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23.
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Ian Ayres Yale Law School
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| Posted: |
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14 Apr 98
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Last Revised:
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04 Mar 08
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155 (54,796)
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1
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Abstract:
In the Calabresi and Melamed framework, liability rules are analogous to "call" options in that a potential taker is given the choice of taking and paying court determined damages. But it is possible to extend the 4 rule framework to include 2 additional "put option" (or "forced purchase") rules. A "put option" rule gives the initial entitlement holder the choice of retaining the entitlement or the choice of being paid to cede the entitlement. Previous analysts of the classic Boomer and Spur opinions have focused on who pays whom but have often ignored the equally important question of who decides whether a payment will be made. The dual thesis of this of this article is that put options are a traditional part of the common law and that they should remain so. Contrary to accepted wisdom, the common law does use "put options" -- the right to force a non-consensual purchase -- as a mechanism for protecting entitlements. 1) If Calabresi steals Melamed's watch, Melamed has the option of suing to recover the watch (replevin) or suing to receive the watch's value (trover). 2) If Calabresi is a holdover tenant in Melamed's apartment, Melamed has the option of suing to enjoin Calabresi's continuing trespass or (at least in some jurisdictions) suing to force Calabresi to rent for up to an entire additional year. 3) If Calabresi builds an encroaching wall on Melamed's land, Melamed has the option of suing to force Calabresi to remove the wall or suing to force Calabresi to permanently buy the encroached land. In each of these examples, after Calabresi takes Melamed's entitlement, the common law gives Melamed a put option -- the option to choose court-determined damages (for permanently ceding the entitlement to the defendant) or injunctive relief (to require the entitlement). Surprisingly, however, the victims of nuisance are not routinely given a similar put option. If Calabresi pollutes Melamed's land, Melamed is not given an analogous put option. Indeed, the famed Boomer decision gives this choice to the polluter instead of the adjoining residents. This article suggests that put options at times should be used to protect property in the nuisance context as well.
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24.
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When Does Private Discrimination Justify Public Affirmative Action?
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Versions (2)
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hide multiple versions |
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Ian Ayres Yale Law School Fredrick E. Vars University of Alabama - School of Law
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Posted:
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19 Apr 98
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Last Revised:
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13 Aug 08
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150 ( 56,548) |
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Ian Ayres Yale Law School Fredrick E. Vars University of Alabama - School of Law
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| Posted: |
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01 May 98
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13 Aug 08
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0
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Abstract:
Commentators and courts alike have ignored the Supreme Court's forthright assertion in City of Richmond v. J.A. Croson Co., 488 U.S. 469 (1989), that government can use its spending power to eradicate the effects of private discrimination. Croson makes it clear that private discrimination can be a constitutionally sufficient justification for government affirmative action, but provided little explanation. Filling out the contours of a private discrimination justification will largely decide the fate of affirmative action in government procurement. This is true because in some markets there is little evidence of current public discrimination, whereas private discrimination remains pervasive. Building on key language from Croson, this Article offers three private discrimination rationales: (1) to ensure that government spending does not directly or indirectly facilitate private discrimination (causal); (2) to correct for the depressive effect of private discrimination on the capacity of minority-owned firms (but-for); and, most radically, (3) to correct for discrimination in parallel private markets (single-market). An example helps to illustrate the less familiar single-market justification: If private purchasers discriminate against minority pencil sellers, the government should be able to buy more pencils from minorities to make up for this shortfall. Finally, we suggest possible applications of the private discrimination justifications to education and employment.
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Ian Ayres Yale Law School Fredrick E. Vars University of Alabama - School of Law
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| Posted: |
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19 Apr 98
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13 Aug 08
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150
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Abstract:
Commentators and courts alike have ignored the Supreme Court's forthright assertion in City of Richmond v. J.A. Croson Co., 488 U.S. 469 (1989), that government can use its spending power to eradicate the effects of private discrimination. Croson makes it clear that private discrimination can be a constitutionally sufficient justification for government affirmative action, but provided little explanation. Filling out the contours of a private discrimination justification will largely decide the fate of affirmative action in government procurement. This is true because in some markets there is little evidence of current public discrimination, whereas private discrimination remains pervasive. Building on key language from Croson, this Article offers three private discrimination rationales: (1) to ensure that government spending does not directly or indirectly facilitate private discrimination (causal); (2) to correct for the depressive effect of private discrimination on the capacity of minority-owned firms (but-for); and, most radically, (3) to correct for discrimination in parallel private markets (single-market). An example helps to illustrate the less familiar single-market justification: If private purchasers discriminate against minority pencil sellers, the government should be able to buy more pencils from minorities to make up for this shortfall. Finally, we suggest possible applications of the private discrimination justifications to education and employment.
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25.
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Ian Ayres Yale Law School Jeremy Bulow Stanford University
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| Posted: |
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17 Sep 97
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Last Revised:
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15 Mar 98
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146 (57,992)
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Abstract:
The privacy of the voting booth is now a core feature of our democracy. But surprisingly the secret ballot only became firmly entrenched in America toward the end of the nineteenth century: "Before this reform, people could buy your vote and hold you to your bargain by watching you at the polling place." Voting booth privacy disrupts the economics of vote buying -- making it much more difficult for candidates to buy votes because at the end of the day they can never be sure who voted for them. We can harness similar benefits by creating a "donation booth" -- a screen that forces donors to funnel campaign contributions through blind trusts. Like the voting booth, the donation booth would keep candidates from learning the identity of their supporters. Mandating anonymous donations -- through a system of blind trusts -- would make it harder for candidates to sell access or influence, because they would never know that the donor had paid the price.
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26.
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Ian Ayres Yale Law School
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| Posted: |
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08 Nov 99
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12 Dec 99
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138 (61,013)
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Abstract:
Professor BeVier has written a provocative article that reemphasizes and extends many of her well-known, laissez-faire ideas about campaign finance. I am most persuaded by her argument that recent efforts to distinguish election-related and political spending would not by themselves be sufficient to avoid the far reaching analysis of Buckley. However, Professor BeVier's larger and more important thesis is that the arguments of "regulationists" for restricting issue advocacy are both theoretically and empirically deficient. In this comment, I wish to do three things: (1) criticize Professor BeVier's "negative liberty" theory; (2) criticize some of her more specific arguments about inequality and accountability; and (3) suggest that mandating partial anonymity might be a better solution to the "problem" of issue advocacy.
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27.
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Ian Ayres Yale Law School Sophie Raseman Yale University - Law School Alice Shih Yale University - Law School
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16 Jul 09
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10 Aug 09
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126 (65,845)
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Abstract:
By providing feedback to customers on home electricity and natural gas usage with a focus on peer comparisons, utilities can reduce energy consumption at a low cost. We analyze data from two large-scale, random-assignment field experiments conducted by utility companies providing electricity (the Sacramento Municipal Utility District (SMUD) and electricity and natural gas (Puget Sound Energy (PSE)), in partnership with a private company, Positive Energy/oPower, which provides monthly or quarterly mailed peer feedback reports to customers. We find reductions in energy consumption of 1.2% (PSE) to 2.1% percent (SMUD), with the decrease sustained over time (seven months (PSE) and twelve months (SMUD)).
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28.
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Ian Ayres Yale Law School Colin Rowat University of Birmingham - Department of Economics Nasser Zakariya Harvard University
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| Posted: |
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17 Nov 04
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10 Jun 07
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114 (71,462)
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Abstract:
We study option management by committee. Analysis is illustrated by tenure decisions. Our innovations are two-fold: we treat the committee's problem as one of social choice, not information aggregation; and we endogenise the outside option: rejecting a candidate at either the probationary or tenure stage return the committee to a candidate pool. For committees with N members, we find: (1) a candidate's fate depends only on the behaviour of two `weather-vane' committee members - generalised median voters; (2) enthusiastic assessments by one of these weather-vanes may harm a candidate's chances by increasing others' thresholds for hiring him; and (3) sunk time costs may lead voters who opposed hiring a candidate to favour tenuring him, even after a poor probationary performance. We characterise the optimal voting rule when N=2. A patient or perceptive committee does best with a (weak) majority at the hiring stage and unanimity at the tenure stage. An impatient or imperceptive committee does best under a double (weak) majority rule. If particularly impatient or imperceptive, this rule implies that any hire is automatically tenured. Perversely, the performance of a patient, imperceptive committee improves as its perceptiveness further declines.
strategic voting, real options, tenure
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29.
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Ian Ayres Yale Law School
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| Posted: |
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29 Aug 01
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13 Jan 02
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107 (75,097)
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Abstract:
In the campaign finance debate, the only proposed measure that enjoys broad support is a requirement that all candidates disclose their contributors' identities. However, such disclosure would probably do little to deter quid pro quo corruption; instances of donation-induced "influence" (i.e., "face time") that could be proven under such a regime are legal, and voters have taken little interest in them historically, while vote-buying and other illegal actions would not be proven by the disclosures. A better approach may be a regime of contributor anonymity in which donors must funnel their contributions to campaigns through blind trusts. Such a regime would deprive the candidate of a vital piece of knowledge that enables corruption: the knowledge that a supposed donor actually fulfilled his promise to contribute a large amount of money. What is more, such a regime would be less restrictive on donors' free speech rights and their "right to spend."
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30.
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Ian Ayres Yale Law School Jennifer Gerarda Brown Quinnipiac University School of Law
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| Posted: |
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30 Apr 05
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06 Feb 06
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77 (94,237)
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Abstract:
A little-known piece of intellectual property, the certification mark, provides a viable mechanism for employers to commit to the exact substantive duties of the proposed "Employment Non-discrimination Act," which if passed would prohibit disparate treatment on the basis of sexual orientation. By signing the licensing agreement, an employer gains the right (but not the obligation) to use the mark and in return promises to abide by the word-for-word strictures of ENDA. Other certification marks (such as the Good Housekeeping Seal, the UL (Underwriters Laboratory), and the Orthodox Union (Kosher) marks) require the owner of the mark to police licensees, but our proposed "Fair Employment" mark allows employees and applicants to enforce the ENDA duties directly as express third-party beneficiaries of the license. The "Fair Employment" mark thus replicates the core enforcement mechanism of ENDA by creating private causes of action in the same class of individuals. The mark provides a mechanism for producing precedent about a statute before the statute is ever enacted. The cases enforcing the mark's requirements would provide legislators with information about how the statute might be interpreted, as well as a lower bound on the litigation rates it might engender. The mark represents a new form of federalism. Instead of jurisdictional federalism, the mark facilitates corporate federalism - whereby individual corporations can experiment with taking on the duties of a proposed bill. Employers might sign the license (and thereby take on the risk of discrimination liability) to: 1) induce more sales - including state and local EEO officers who are charged to contract only with non-discriminating employers; 2) recruit employees - including gay-friendly as well as gay applicants; and 3) appease input suppliers - including accreditation organizations and unions that already press for non-binding nondiscrimination provisions. Some employers might sign the license because their employees already have private rights of actions under state law or local ordinances. This article includes original empiricism suggesting that the litigation cost to employers in states that have prohibited sexual orientation discrimination has been quite modest. Still others may sign simply because it is the right thing to do. Many, many employers have already included sexual orientation in their non-binding nondiscrimination policies. For such employers, signing the license may mean only that the employer will never defend a claim by denying that it promised not to discriminate.
civil rights, gay rights, contracts, intellectual property, ENDA, law and economics
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31.
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Ian Ayres Yale Law School Jennifer Gerarda Brown Quinnipiac University School of Law
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25 Aug 04
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03 Aug 05
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71 (99,126)
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Abstract:
This essay reexamines the "unit cohesion" problem, which many members of Congress cited as the primary rationale for the "Don't Ask Don't Tell (DADT)" policy currently enforced in the U.S. Military. As an alternative to DADT, we propose the formation of two alternative command structures to which service members would be assigned to assign themselves, depending upon their stated willingness to serve with gay people. Soldiers who are willing to serve with gay people would be assigned to "inclusive" commands. Service members who are not willing to serve with gay people would be assigned to "exclusive" commands which would continue to operate under the DADT regime. The benefits of the inclusive units would be threefold: amelioration (of current discrimination), demonstration (that DADT is not necessary to preserve unit cohesion), and realignment of political allies and enemies (creating a common cause for pro-gay legislators on the left and pro-defense legislators on the right). The proposal is dynamic, not static. The hope is that inclusive commands would so effectively demonstrate the benefits of integration that, over time, increasing numbers of service members would opt for integrated units. From there, the step to universal, mandatory integration of sexual minorities into the armed forces would be smaller and more easily taken. The essay explores some of the implementation issues likely to arise with inclusive commands.
lesbian and gay rights, civil rights, military
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32.
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Ian Ayres Yale Law School Sydney Foster Harvard Law School
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27 Aug 08
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20 Mar 09
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58 (110,851)
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1
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Abstract:
The Supreme Court's affirmative action decisions in Grutter v. Bollinger and Gratz v. Bollinger changed the meaning of narrow tailoring. While the narrow tailoring requirement has always had multiple dimensions, a central meaning has been that the government must use the smallest racial preference needed to achieve its compelling interest. We might have expected, therefore, that if the Court were to uphold one of the two programs at issue in Grutter and Gratz, it would, all other things being equal, uphold the program with smaller racial preferences. We show, however, that the preferences in the admissions program upheld in Grutter were larger than the preferences in the admissions program struck down in Gratz. This result was not necessarily wrong, but the Court's analysis was wrong. The Grutter and Gratz Courts replaced the minimum necessary preference requirement with a requirement that admissions programs provide individualized consideration, which we show amounts to a Don't Tell, Don't Ask regime. The Court will not ask probing questions about the size and differentiation of preferences as long as the government decisionmaker does not tell the Court how much of a racial preference it is giving. Indeed, as an example of the differential standards the Court applied, we demonstrate that while the Court impugned the admissions program at issue in Gratz for making race decisive for virtually every minimally qualified minority applicant, in fact the fraction of qualified minority applicants for whom race was decisive was smaller in the admissions program struck down in Gratz than it was in the admissions program upheld in Grutter. We call for a return to the minimum necessary preference requirement. Instead of examining whether preferences are individualized, courts should determine whether the constitutionally relevant benefits of granting preferences of a given size outweigh the constitutionally relevant costs, both overall and at the margin.
affirmative action, Grutter, Gratz, narrow tailoring, individualized, strict scrutiny, Michigan
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33.
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Measuring Positive Externalities from Unobservable Victim Precaution: An Empirical Analysis of Lojack
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Ian Ayres Yale Law School Steven D. Levitt University of Chicago
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Posted:
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30 Oct 96
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Last Revised:
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24 Jul 00
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52 (116,738) |
34
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Ian Ayres Yale Law School Steven D. Levitt University of Chicago
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24 Jul 00
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24 Jul 00
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52
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Abstract:
Private expenditures on crime reduction have potentially important externalities. Observable measures such as barbed-wire fences and deadbolt locks may shift crime to those who are unprotected, imposing a negative externality. Unobservable precautions, on the other hand, may provide positive externalities since criminals cannot determine a priori who is protected. Focusing on one specific form of victim precaution, Lojack, we provide the first thorough empirical analysis of the magnitude of such externalities. Because installing Lojack does not reduce the likelihood that an individual car will be stolen, any decrease in the aggregate crime rates due to Lojack is an externality from the perspective of the individual Lojack purchaser. We find that the presence of Lojack is associated with a sharp fall in auto theft in central cities and a more modest decline in the remainder of the state. Rates of other crimes do not change appreciably. Our estimates suggest that, at least historically, the marginal social benefit of an additional unit of Lojack has been as much as 15 times greater than the marginal social cost in high crime areas. Those who install Lojack in their cars, however, obtain less than ten percent of the total social benefits of Lojack, causing Lojack to be undersupplied by the free market. Current insurance subsidies for the installation of Lojack appear to be well below the socially optimal level.
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Ian Ayres Yale Law School Steven D. Levitt University of Chicago
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| Posted: |
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30 Oct 96
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03 Jan 98
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0
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Abstract:
Private expenditures on crime reduction have potentially important externalities. Observable measures such as barbed-wire fences and deadbolt locks may shift crime to those who are unprotected, imposing a negative externality. Unobservable actions, on the other hand, provide positive externalities since criminals cannot determine a priori who is protected. Focusing on one specific form of victim precaution, Lojack, we provide the first thorough empirical analysis of the magnitude of such externalities. Because vehicles equipped with Lojack are not identifiable to criminals, any decrease in crime rates associated with Lojack is an externality from the perspective of the Lojack purchaser. We find that Lojack has large crime-reducing effects. Each one-percentage point increase in the Lojack installation rate in a market is associated with a 20 percent decline in auto theft rates in large cities and a 5 percent decline in the rest of the state. Rates of other crimes do not change appreciably. Our estimates suggest that the marginal social benefit of an additional unit of Lojack is 15 times greater than the marginal social cost. Those who install Lojack in their cars, however, obtain less than ten percent of the total social benefits of Lojack, causing Lojack to be dramatically undersupplied by the free market. Current insurance subsidies for the installation of Lojack appear to be well below the socially optimal level.
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34.
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Ian Ayres Yale Law School JJ Donohue affiliation not provided to SSRN
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| Posted: |
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29 Feb 08
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29 Feb 08
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19 (170,094)
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6
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Abstract:
No abstract available.
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35.
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Ian Ayres Yale Law School Sophie Raseman Yale University - Law School Alice Shih Yale University - Law School
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| Posted: |
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28 Sep 09
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Last Revised:
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27 Oct 09
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6 (205,759)
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Abstract:
By providing feedback to customers on home electricity and natural gas usage with a focus on peer comparisons, utilities can reduce energy consumption at a low cost. We analyze data from two large-scale, random-assignment field experiments conducted by utility companies providing electricity (the Sacramento Municipal Utility District (SMUD)) and electricity and natural gas (Puget Sound Energy (PSE)), in partnership with a private company, Positive Energy/oPower, which provides monthly or quarterly mailed peer feedback reports to customers. We find reductions in energy consumption of 1.2% (PSE) to 2.1% percent (SMUD), with the decrease sustained over time (seven months (PSE) and twelve months (SMUD)).
Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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36.
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Ian Ayres Yale Law School Barry J. Nalebuff Yale School of Management
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| Posted: |
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22 Jun 08
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Last Revised:
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10 Jul 08
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2 (213,870)
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Abstract:
By employing leverage to gain more exposure to stocks when young, individuals can achieve better diversification across time. Using stock data going back to 1871, we show that buying stock on margin when young combined with more conservative investments when older stochastically dominates standard investment strategies - both traditional life-cycle investments and 100%-stock investments. The expected retirement wealth is 90% higher compared to life-cycle funds and 19% higher compared to 100% stock investments. The expected gain would allow workers to retire almost six years earlier or extend their standard of living during retirement by 27 years.
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37.
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Ian Ayres Yale Law School
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| Posted: |
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27 Dec 99
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Last Revised:
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27 Dec 99
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0 (0)
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Abstract:
A lively and on-going scholarly debate centers on whether contract is dead or whether contract principles inform an ever increasing range of legal relationships. In reaching wildly variant conclusions, different scholars have used different definitions of "contract." In this paper, I adopt a weak version of the imperialist view of contract's domain and suggest that an area of law should be considered contractual if parties can privately reorder a substantial portion of their legal relations. This definition, in turn, provides a framework for the evaluation of normative contract issues, including: (1) whether particular rules should be mandatory or merely defaults; (2) and if defaults, which default should be chosen?; and (3) what should be the necessary and sufficient conditions for contracting around the default?
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38.
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Ian Ayres Yale Law School Paul Klemperer University of Oxford - Department of Economics
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| Posted: |
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06 Jun 99
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Last Revised:
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30 Sep 99
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0 (0)
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Abstract:
Allowing patentees to profit from their patents encourages innovation. However, legal scholars have failed to appreciate that unconstrained monopoly pricing is socially inefficient, in that the last bit of monopoly pricing produces large amounts of deadweight loss for a relatively small amount of patentee profit. Uncertainty and delay in patent litigation may be a way of giving patentees constrained market power to reduce this inefficiency. It is possible to limit patentee's market power without reducing their incentives to innovate. Because the profit curve is "stationary" at the profit-maximizing price, small reduction from the monopoly price will not substantially reduce the patentee's incentive to innovate (but will yield substantial decreases in the dead weight loss). And more substantial reduction in monopoly pricing can be efficiently offset by increases in patent duration. Society would be better off giving patentees limited market power for a longer period rather than giving patentees monopoly power for a shorter period.
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39.
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Ian Ayres Yale Law School
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11 May 98
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Last Revised:
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01 Aug 98
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0 (0)
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Abstract:
In the Calabresi and Melamed framework, liability rules are analogous to "call" options in that a potential taker is given the choice of taking and paying court determined damages. But it is impossible to extend the 4 rule framework to include 2 additional "put option" (or "forced purchase") rules. A "put option" rule gives the initial entitlement holder the choice of retaining the entitlement or the choice of being paid to cede the entitlement. Previous analysts of the classic Boomer and Spur opinions have focused on who pays whom but have often ignored the equally important question of who decides whether a payment will be made. The dual thesis of this of this article is that put options are a traditional part of the common law and that they should remain so. Contrary to accepted wisdom, the common law does use "put options" -- the right to force a non-consensual purchase -- as a mechanism for protecting entitlements. 1) If Calabresi steals Melamed's watch, Melamed has the option of suing to recover the watch (replevin) or suing to receive the watch's value (trover). 2) If Calabresi is a holdover tenant in Melamed's apartment, Melamed has the option of suing to enjoin Calabresi's continuing trespass or (at least in some jurisdictions) suing to force Calabresi to rent for up to an entire additional year. 3) If Calabresi builds an encroaching wall on Melamed's land, Melamed has the option of suing to force Calabresi to remove the wall or suing to force Calabresi to permanently buy the encroached land. In each of these examples, after Calabresi takes Melamed's entitlement, the common law gives Melamed a put option -- the option to choose court determined damages (for permanently ceding the entitlement to the defendant) or injunctive relief (to require the entitlement). Surprisingly, however, the victims of nuisance are not routinely given a similar put option. If Calabresi pollutes Melamed's land, Melamed is not given an analogous put option. Indeed, the famed Boomer decision gives this choice to the polluter instead of the adjoining residents. This article suggests that put options at times should be used to protect property in the nuisance context as well.
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