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Abstract:
This Article presents the first empirical study of the domestic jurisdictional competition for trust funds. To allow donors to exploit a loophole in the federal estate tax, since 1986 a host of states have abolished the Rule Against Perpetuities as applied to interests in trust. To allow individuals to shield assets from creditors, since 1997 a handful of states have validated self-settled asset protection trusts. Based on reports to federal banking authorities, we find that, on average, through 2003 a state's abolition of the Rule increased its reported trust assets by $6 billion (a 20% increase) and increased its average trust account size by $200,000. By contrast, our examination of validating self-settled asset protection trusts yielded indeterminate results. Our perpetuities findings imply that roughly $100 billion in trust funds have moved to take advantage of the abolition of the Rule. Interestingly, states that levied an income tax on trust funds attracted from out of state experienced no observable increase in trust business after abolishing the Rule. Because this finding implies that abolishing the Rule does not directly increase a state's tax revenue, it bears on the study of jurisdictional competition. In spite of the lack of direct tax revenue from attracting trust business, the jurisdictional competition for trust funds is patently real and intense. Our findings also speak to unresolved issues of policy concerning state property law and federal tax law.

Abstract:
This Article presents the first empirical study of the domestic jurisdictional competition for trust funds. To allow donors to exploit a loophole in the federal estate tax, since 1986 a host of states have abolished the Rule Against Perpetuities as applied to interests in trust. To allow individuals to shield assets from creditors, since 1997 a handful of states have validated self-settled asset protection trusts. Based on reports to federal banking authorities, we find that, on average, through 2003 a state's abolition of the Rule increased its reported trust assets by $6 billion (a 20% increase) and increased its average trust account size by $200,000. By contrast, our assessment of validating self-settled asset protection trusts yielded indeterminate results. Our perpetuities findings imply that roughly $100 billion in trust funds have moved to take advantage of the abolition of the Rule. Interestingly, states that levied an income tax on trust funds attracted from out of state experienced no observable increase in trust business after abolishing the Rule. Because this finding implies that abolishing the Rule does not directly increase a state's tax revenue, it bears on the study of jurisdictional competition. In spite of the lack of direct tax revenue from attracting trust business, the jurisdictional competition for trust funds is patently real and intense. Our findings also speak to unresolved issues of policy concerning state property law and federal tax law.

Rule against perpetuities, jurisdictional competition, regulatory competition, trust funds, estate tax, generation skipping transfer tax, fiduciary income tax, self-settled trust, asset protection trust, wealth transfer taxes

Abstract:
This paper investigates the effect of changes in state prudent trust investment laws on asset allocation in noncommercial trusts. The old prudent-man rule favored "safe" investments and disfavored "speculation" in stock. The new prudent-investor rule directs trustees to craft an investment portfolio that fits the risk tolerance of the beneficiaries and the purpose of the trust. Using state- and institution-level panel data from 1986-97, we find that after adoption of the new prudent-investor rule, institutional trustees held about 1.5-4.5 percentage points more stock at the expense of "safe" investments. Our findings explain roughly 10-30 percent of the overall increase in stock holdings in the period studied. The rest of the increase appears to be attributable to stock market appreciation. We conclude that, even though trust fiduciary laws are nominally default rules, institutional trustees are nonetheless sensitive to changes in those rules.

prudence, trust investment law, modern portfolio theory, investment, prudent investor rule, prudent man rule, agency costs, fiduciary

Abstract:
This study evaluates the impact of tort reform on health insurance coverage using the Current Population Survey's March Demographic Files. Proponents of tort reform argue that reform will reduce medical malpractice insurance costs, damage awards, and costs associated with defensive medicine. If proponents are correct, these cost reductions should lower the price of healthcare and increase health insurance coverage. On the other hand, if the prior tort law was functioning well, reform may increase medical costs by reducing doctors' care-taking or increasing the number of unnecessary procedures. In this case, tort reform could actually decrease insurance coverage by raising the price of health care. We evaluate the effect of eight common tort reforms on private health insurance coverage between 1981 and 2004. In triple-difference specifications, we find that reform generally increased health insurance coverage for the most price-sensitive groups (the young, the self-employed, and the single). We also find that those uninsured around the time of reform were more likely to obtain private insurance after reform. Given the multicollinearity of many reforms, it is difficult to gauge the impact of individual reforms. However, the evidence suggests that limitations on punitive and non-economic damages do not affect private insurance coverage, while caps on total damages, collateral source reform, and reforms to liability and payment structure are associated with increased private insurance coverage for price-sensitive groups. Accordingly, we conclude that some tort reforms are effective in reducing healthcare costs. The magnitude of the effects on price sensitive groups suggests that some tort reforms can reduce health care costs by as much as two percent.

tort law, health law, health economics, insurance

Abstract:
This chapter provides an accessible overview of our previous work on the impact of the abolition of the Rule Against Perpetuities (RAP) on trust fund situs. The implementation of the Generation Skipping Transfer (GST) Tax by the Tax Reform Act of 1986 sparked a movement to repeal the RAP. Since 1986, nearly half the states have abolished or effectively abolished the RAP as applied to interests in trust. Prior to 1986, only three states had abolished the RAP. We find no evidence that abolishing the RAP prior to the 1986 GST tax attracted trust business. By contrast, between 1986 and 2003, abolishing states reported an average increase in trust assets of $6 billion (a 20 percent increase). In addition, average account size in abolishing states increased by $200,000, implying that abolishing the rule attracted relatively larger trusts. Our findings imply that roughly $100 billion in trust funds have moved to take advantage of the abolition of the RAP. Further, we can trace these results to the subset of abolishing states that did not levy a tax on income accumulated in trusts attracted from out of state. This finding, which implies that abolishing the RAP does not directly increase state tax revenue, bears on the scholarly debate over the mechanisms of jurisdictional competition. Our analysis also controls for whether a state validated the so-called self-settled asset protection trust (APT). We did not find consistent evidence that validating APTs increases a state's reported trust business, but in the period studied few states had validated APTs, so we draw no firm conclusions.

We conclude that the jurisdictional competition for trust funds is real and intense, with the primary margin of competition being the rules that bear on trust duration, and that the enactment of the GST tax sparked the rise of the perpetual trust. In future work using more refined data, we intend to revisit the jurisdictional competition for trust funds and to expand our inquiry to include directed trustee statutes and the recent reforms to trust-investment laws.

rule against perpetuities, jurisdictional competition, regulatory competition, trust funds, estate tax, generation skipping transfer tax, fiduciary income tax, self-settled trust, asset protection trust, wealth transfer taxes, bequest motive, trust modification, trust termination

Abstract:
By abolishing the Rule Against Perpetuities, 21 states have now validated perpetual trusts. The prevailing view among scholars is that enactment of the generation skipping transfer (GST) tax in 1986 prompted the movement to abolish the Rule by conferring a salient tax advantage on long-term trusts. However, an alternate view holds that demand for perpetual trusts stems from donors' preference for control independent of tax considerations. Proponents of both views have adduced supporting anecdotal evidence. Using state-level panel data on trust assets prior to the adoption of the GST tax, we examine whether a state's abolition of the Rule gave the state an advantage in the jurisdictional competition for trust funds. We find that, prior to the GST tax, a state's abolition of the Rule did not increase the state's trust business. By contrast, in a prior study we found that, between the enactment of the GST tax and 2003, states that abolished the Rule experienced a substantial increase in trust business. Accordingly, we conclude that the enactment of the GST tax prompted the rise of the perpetual trust. These findings bear on the debate over proposals to liberalize the law of trust termination and modification and to amend the GST tax. Our findings also contribute to the literature on the bequest motive.

rule against perpetuities, jurisdictional competition, regulatory competition, trust funds, estate tax, generation skipping transfer tax, fiduciary income tax, wealth transfer taxes, bequest motive, trust modification, trust termination

Abstract:
We present a positive political theory of criminal sentencing and test it using data from the United States Sentencing Commission. The theory predicts that the policy preferences of the sentencing judge matter in sentencing, that sentencing judges consider the policy preferences of the overseeing circuit court when making their own sentencing decisions, and that sentencing judges manipulate the underlying sentencing instruments associated with the United States Sentencing Guidelines - fact-oriented "adjustments" to a defendant's offense level, and law-oriented "departures" from the Sentencing Guidelines - to achieve their preferred outcomes subject to the constraint of circuit court review. Because a sentencing judge's use of adjustments is reviewed with great deference by appellate courts, sentencing judges use them to maximize their preferences without regard to the preferences of the overseeing circuit court. Departures, by contrast, are reviewed with greater scrutiny by the circuit courts and their use is dependent in part upon the amount of policy preference alignment between the sentencing judge and the circuit court - the greater the alignment of generalized sentencing preferences between the two courts, the more use of departures by the sentencing judges. The empirical test of our theory finds that, as predicted: (1) judges' policy preferences (measured by political ideology) matter in sentencing - liberal judges give different sentences than conservative judges for certain categories of crime; (2) the length of sentence given by sentencing judges depends in part on the amount of political-ideological alignment between the sentencing judge and the circuit court; and, (3) the use of law-oriented departures to determine sentence length is influenced by the degree of political alignment between the sentencing judge and the overseeing circuit court, while the use of fact-oriented adjustments is not so influenced.

Law and positive political theory, judges, judicial hierarchy, law and politics, criminal sentencing, sentencing guidelines

Abstract:
This article presents the first large-scale empirical study of federal guidelines sentencing that matches offenders to the sentencing judge. We confirm the widely-held belief that political ideology matters in criminal sentencing - specifically, Republican-appointed judges give longer sentences than Democrat-appointees with regard to certain crimes. More interestingly, we find evidence consistent with positive political theory that such decision making is nested within the broader political-ideological relationship of the sentencing judge and the overseeing circuit court. We find, for example, that Democrat-appointed judges depart from the Sentencing Guidelines to give shorter sentences more often and to a greater degree when the reviewing court is politically aligned (circuit majority Democrat-appointed) than when not aligned (circuit majority Republican-appointed). We then discuss the Supreme Court's evolving sentencing jurisprudence and the likely impact of alternatives to the present system. We conclude that Guidelines improves sentencing consistency and preserves the benefit of appellate review. We also proposes two potential reforms: first, mandating open access to judge identifiers in sentencing data for researchers to study sources of judicial bias; and, second, mandating ideologically mixed appellate panels for review of criminal sentences to prevent the more extreme instances of ideological alignment that frequently occur between district and circuit court panels that lead to more extreme outcomes in sentencing.

Judicial decision-making, criminal law, sentencing, political science

Abstract:
In the recent Booker, Rita, and Gall cases, the Supreme Court continued to loosen federal sentencing law without exploring the implications of broader trial-court sentencing discretion. Drawing on our previous work in positive political theory, this essay argues that binding sentencing guidelines are necessary to constrain trial-court discretion and permit meaningful appellate review. The Court has taken too rosy a view of trial-court sentencing discretion, undervaluing appellate review as a check on policy and ideological variations. Moreover, its case law discourages the transparency needed for appellate review and public scrutiny. Finally, this essay considers what guideline sentencing ought to look like if we could build it from scratch.

criminal law and procedure, sentencing, guidelines, discretion

Abstract:
We evaluate the effect of tort reform on employer-sponsored health insurance premiums by exploiting state-level variation in the timing of reforms. Using a dataset of healthplans representing over 10 million Americans annually between 1998 and 2006, we find that caps on non-economic damages, collateral source reform, and joint and several liability reform reduce premiums by 1 to 2 percent each. These reductions are concentrated in PPOs rather than HMOs, suggesting that can HMOs can reduce “defensive” healthcare costs even absent tort reform. The results are the first direct evidence that tort reform reduces healthcare costs in aggregate; prior research has focused on particular medical conditions.

health care reform, tort reform, insruance

Abstract:
The United States Sentencing Guidelines greatly restrict the sentencing discretion traditionally vested in district court judges. Since their adoption in 1987, federal judges have criticized the Guidelines more sharply than any other federal law. In 2003, Congress overwhelmingly passed the PROTECT Act. The Feeney Amendment to the Act, added late in the process, imposed further restrictions on judicial discretion in sentencing. Supporters of the Amendment argued that federal district court judges were increasingly departing below the ranges specified in the Sentencing Guidelines. Using data on all federal criminal sentences between 1993 and 2001, this essay argues that the empirical evidence put forward in support of the Feeney Amendment was deeply flawed. While the rate of downward departures increased, much of the increase can be explained by a number of potentially relevant variables such as type of offense, the offense level, district of sentencing, and offender characteristics. In addition, even though downward departures were more frequent, total prison sentences did not change during this time period because departures were smaller in magnitude. I find no evidence that the increasing number of Democratic appointees on the federal district court bench affected prison sentences or downward departures. Most importantly, there is no evidence to support the argument that judges were ignoring the Sentencing Guidelines. The percentage of prison sentences explained by explicit Guidelines factors changed little over the time period. I conclude that the radical reform undertaken by Congress was poorly informed.

Criminal Law, Procedure, Economics, Law

Abstract:
This paper employs a unique data set comprised of a large sample of hospital in-patients to analyze the effect of tort reform on physician behavior. We examine a sample of 550,000 individuals aged 30 to 64 diagnosed as having had a heart attack between the years 1998 and 2005. We consider a number of different measures of intensity of treatment, including (1) total charges; (2) whether any procedure was done; (3) the number of procedures; and (4) the choice of major interventions (angioplasty versus bypass). We find that tort reform decreases intensity of treatment. More importantly for inference, the effect is most pronounced for the young, the group that poses the greatest liability risk. In addition, we find no evidence that tort reform increased intensity of treatment for those covered by insurance, suggesting that tort reform did not increase “induced demand.”

defensive medicine, induced demand, offensive medicine, tort reform

Abstract:
We exploit changes in sentencing doctrine over the last eighteen years to examine the interplay of judicial ideology, standards of review, and the United States Sentencing Guidelines. We find substantial differences in sentencing practices among district judges along two lines: whether judges were appointed by Republican or Democratic presidents, and whether judges joined the federal bench before the Guidelines. Democrats and judges appointed prior to the Guidelines’ adoption depart more from the Sentencing Guidelines and give lower sentences. However, the differences between Republicans and Democrats increase substantially as the standard of review becomes more deferential. On the other hand, we find that judges appointed before the Guidelines were adopted are significantly less responsive to changes in the standard of review. Our results have broad implications for the study of judicial behavior by showing that district judges respond to standards of review and that aversion to reversal acts as a substantial constraint on sentencing decisions. However, the unresponsiveness of judges appointed prior to the Guidelines suggests that this constraint does not operate uniformly, but rather varies with a judge’s respect for the underlying legal regime.

Abstract:
By abolishing the Rule Against Perpetuities, twenty-one states have validated perpetual trusts. The prevailing view among scholars is that enactment of the generation skipping transfer (GST) tax in 1986 prompted the movement to abolish the Rule by conferring a salient tax advantage on long-term trusts. However, an alternate view holds that demand for perpetual trusts stems from donors preference for control independent of tax considerations. Proponents of both views have adduced supporting anecdotal evidence. Using state-level panel data on trust assets prior to the adoption of the GST tax, we examine whether a state's abolition of the Rule gave the state an advantage in the jurisdictional competition for trust funds. We find that, prior to the GST tax, a state s abolition of the Rule did not increase the state s trust business. By contrast, in a prior study we found that, between the enactment of the GST tax and 2003, states that abolished the Rule experienced a substantial increase in trust business. Accordingly, we conclude that theenactment of the GST tax prompted the rise of the perpetual trust. These findings bear on the debate over proposals to liberalize the law of trust termination and modification and to amend the GST tax. Our findings also contribute to the literature on the bequest motive.

Abstract:
We evaluate the effect of tort reform on employer-sponsored health insurance premiums by exploiting state-level variation in the timing of reforms. Using a dataset of healthplans representing over 10 million Americans annually between 1998 and 2006, we find that caps on non-economic damages, collateral source reform, and joint and several liability reform reduce premiums by 1 to 2 percent each. These reductions are concentrated in PPOs rather than HMOs, suggesting that can HMOs can reduce defensive healthcare costs even absent tort reform. The results are the first direct evidence that tort reform reduces healthcare costs in aggregate; prior research has focused on particular medical conditions.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Abstract:
We present a positive political theory of criminal sentencing and test it using data from the U.S. Sentencing Commission. Under the U.S. Sentencing Guidelines, judges can use offense-level adjustments (fact-based decision making) to lengthen or shorten the Guidelines' presumptive sentences. Judges also can use departures from the Guidelines (law-based decision making) to lengthen or shorten sentences. In general, departures are reviewed more strictly than adjustments by circuit (appeals) courts. Our theory predicts that a sentencing judge politically aligned with the circuit court will be more likely to alter sentences through sentencing departures than a judge not so aligned with the circuit; by contrast, our theory predicts that judges can more freely use fact-oriented adjustments to alter sentences, regardless of the circuit court's sentencing policy preferences. Our analysis of federal sentencing data largely supports the theory's predictions regarding the use of adjustments and departures and the impact of political alignment between higher courts and sentencing judges.

Abstract:
Studies of federal prison sentences consistently find unexplained racial and gender disparities in the length of sentence and in the probability of receiving jail time and departures from the Sentencing Guidelines. These disparities disfavor blacks, Hispanics, and men. A problem with interpreting these studies is that the source of the disparities remains unidentified. The gravest concern is that sentencing disparities are the result of prejudice, but other explanations have not been ruled out. For example, wealth and quality of legal counsel are poorly controlled for and are undoubtedly correlated with race. This paper uses the political, racial, and gender composition of the district court bench to estimate the effect of judicial demographics on sentencing and on observed racial and gender disparities. The evidence presented here suggests that judicial demographics have little influence on prison sentences in general, but do impact racial and gender disparities. The findings regarding gender in the case of serious offenses are quite striking: the greater the proportion of female judges in a district, the lower the gender disparity for that district. I interpret this as evidence of a paternalistic bias among male judges that favors women. The racial composition of the bench has mixed effects that are open to different interpretations. The race and gender results suggest, however, that a judge's background affects his or her sentencing decisions. Finally, there is little evidence that the political composition of the district affects sentencing disparities.

Discrimination, Law, Justice, Criminal, Procedure, Law and Economics