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Abstract:
Commentators have suggested that where two products are used in conjunction with one another (such as machines and aftermarket parts and service), tying good suppliers may establish a tie in order to protect the tying good's reputation for quality against the damaging effects of low-quality service. This article provides support for the courts' generally skeptical response to this explanation. In some circumstances purchasing inferior tied goods from independent suppliers may enhance the tying good's reputation and expected profits. In other circumstances externalities may arise that provide a quality-control rationale for tying; however, these externalities are imposed on the seller not by independent suppliers but by purchasers of the tied good. The article describes the conditions required for the quality-control explanation to be plausible and provides a context for the theory and its legal implications by examining a sample of U.S. tying cases.

Tying, product quality

Abstract:
Two types of theories of the firm have emerged in scholarship. Economic theories concern the allocation of control rights and residual claims: A firm is a group of assets under common ownership. Legal theories focus on the legal significance of firm boundaries: Each firm is a legal person. Thus, assets may be economically integrated under common control and yet be partitioned between distinct legal entities. This paper presents a theory of legal boundaries that focuses on the choice of capital structure, and traces the interplay between economic integration and legal partitioning. The law treats many capital structure decisions, including both financial and governance features, as in personam rather than in rem. Thus, these decisions must be made firm-wide: for example, the issuance of debt or of equity, the adoption of takeover defenses and the composition of the board of directors. Yet, the determinants of optimal capital structure are often asset-contingent: for example, the amount of leverage, the desirability of takeover defenses and the number of independent directors may vary with the industry. The resulting tension is significant in the choice of firm boundaries. If two groups of assets have divergent capital structure demands - in that the optimal design of financial and governance rights related to each group is different - then either the assets are put in separate firms that tailor capital structure to their respective asset groups or they are combined in a single firm with a blended capital structure. We suggest that "legal" integration in a single firm sacrifices efficiency in some cases, but not in others. Where the efficiency losses are large enough to offset countervailing advantages from legal integration, legal partitioning might occur. However, we also demonstrate that legal partitioning may undermine the benefits from economic integration, even if the discrete firms are kept under common control (as that concept is defined in law). Our theory thus suggests additional factors to be considered in explaining the structure of combinations (e.g. mergers or acquisitions) and divestitures (e.g., spin-offs, carve-outs or securitizations).

Abstract:
This paper assesses the current state of deregulation in Canadian markets for telephony, electricity and airlines. It is an opportune time to review the Canadian experience. Enough time has passed since the inception of deregulation, and sufficient problems have arisen in the transition towards competition, that lessons are available. The problems are evident: shortages and consumer intolerance to high prices in electricity markets; a slow (relative to prior expectations) rate of entry of competitors into local telephone service; and bankruptcies in the airline industry. Yet enough distance remains in the transition towards greater reliance on markets, and uncertainty in even how far the transition will take us, that these lessons will prove valuable in the future.

Abstract:
The US Supreme Court typically sits en banc. By contrast, it is unprecedented for the House of Lords in the UK to sit en banc; instead, its twelve members are assigned to fixed panels of five to hear the vast majority of appeals. The Supreme Court of Canada, which has nine members like the US Supreme Court, routinely sits in panels of five, seven, or nine justices, depending on the appeal; about half of the appeals are heard by panels of seven justices. This variation in high court practices gives rise to a puzzle. Is a fixed panel size optimal or is there some reason to prefer a system which allows panel size to vary? If panel size ought to be fixed, is the largest possible panel size generally preferable? Should a panel that is a subset of the court's members be deployed, or is sitting en banc better? In this paper, we develop a formal model of the optimal choice of panel size. The model suggests that in the presence of scarce judicial resources, panel sizes can be deliberately adjusted to improve allocational efficiency. Using data from more than 2000 appeals decided by the Supreme Court of Canada from 1984-2005, we show that the Court appears to be using varied panel sizes in a manner consistent with the predictions of our model.

Abstract:
Publicly-traded trusts, known as income trusts, have become very popular in recent years in Canada. Income trusts participate in a variety of industries, and do not simply fulfill specialized roles, like that of a special purpose entity in a securitization transaction. Because of the absence of mandatory statutory rules, these trusts have much greater freedom to choose particular governance terms than analogously situated corporations. In this article, we examine the individual Declarations of Trust (DOTs), which set out the governance regime for the firm, of 187 income trusts that listed on the Toronto Stock Exchange between 1996 and 2005. We compare private choices with respect to 25 mandatory terms found in the Canada Business Corporations Act (CBCA). Examining private choices of income trusts provides insight into the role of corporate law in supplementing/distorting private ordering in the corporate domain. On some dimensions, DOTs mimic the CBCA, but on other important dimensions, particularly remedial ones, they depart significantly from the CBCA.

We also examine particular characteristics of the trust (e.g., its jurisdiction, size, industry, whether it listed as an IPO or by way of conversion from a corporation) in order to determine whether certain characteristics are associated with greater resemblance to the governance regime established in the CBCA. We find generally that certain jurisdictions (particularly Quebec) are statistically significantly and negatively correlated with CBCA provisions relative to others (Ontario), while year (2003 and beyond) is statistically significant and positively correlated with CBCA provisions. We find that industry, measured by type and one-digit SIC code, is statistically significant throughout the analysis. Firm size is also significant, though its relationship with CBCA adoption may be positive or negative depending on the particular provision in question.

corporate governance, choice, income trust, empirical

Abstract:
This article assesses the economic efficiency of racebased antidiscrimination and affirmative action policies with a view to assessing relevant Canadian and American consitutional law. The article reviews economic arguments about why antidiscrimination laws may be efficient in addressing externalities, in hastening the exit of bigoted employers from the market, and in preventing the potentially inefficient use of race as a proxy for information; affirmative action may be efficient in accounting for differential signaling costs across race. The article concludes that economic analysis supports the approach in section 15 of the Charter which generally bans discriminatory government action, but recognizes that affirmative action is not inconsistent with the pursuit of substantive equality.