• Selected
• Entire List

Abstract:
Under the traditional consideration doctrine, a promise is only legally enforceable if it is made in exchange for something of value. This doctrine lies at the heart of contract law, yet it lacks a sound theoretical justification — a fact that has confounded generations of scholars and created a mess of case law.

This paper argues that the failure of traditional justifications for the doctrine comes from two mistaken assumptions. First, previous scholars have assumed that anyone can back a promise with nominal consideration if they wish to do so. We show how social norms against commodification limit the availability of the consideration form. Some promises are made in social contexts in which invoking consideration — that is, exchanging a promise in return for something of value — violates social taboos. Specifically, we show that anti-commodification taboos operate where the social message sent by a transaction is more important than the desire to transfer goods or services. Whereas previous scholarship has assumed one can always invoke consideration, we argue that anti-commodification norms make even nominal consideration unavailable within these contexts.

Second, scholars have assumed that when parties utilize a formalism — such as nominal consideration — to make their promises legally binding, they necessarily desire to be bound. Using a game-theoretic model based on asymmetric information, we dispute the conventional wisdom that the law should honor parties' intentions as articulated at the time of contract formation. We show how parties' expressed intentions may not conform to their underlying desires. A promisor may render her promise legally enforceable — even though she does not want to — in order to signal her sincerity to the promisee. As a result, in a cycle of inefficient signaling, other promisors may feel forced to do the same. Thus, the mere fact that parties take advantage of a legally binding form does not imply that they desire the existence of that option. Having the option to legally enforce a promise may harm both promisors and promisees.

Having exposed these two flawed assumptions, we provide a new framework for determining which promises the law should enforce. Ultimately, what matters is not whether the parties actually do invoke consideration, but rather whether they can invoke consideration. Norms prevent parties from invoking consideration where the social message sent by a promise is more important than the substance of the transaction — and these are precisely the types of promises in which inefficient signaling is likely to occur. In other words, norms block the use of consideration precisely where the option for legal enforcement of promises is most likely to harm both promisors and promisees. Therefore, only when social norms allow the use of consideration should we conclude that parties truly desire the option to have their promises legally enforced.

Consideration, contract, law, game theory, signaling, social norms, commodification, Aghion, Hermalin, norms, prisoner's dillema

Abstract:
This chapter reflects on the ways in which California's fiscal constitution exacerbates the state's budget crises. Without institutional reform, California will likely experience repeated waves of increasingly severe budget crises throughout the coming decades. As such, this chapter presents and analyzes a number of alternatives for reforming California's fiscal constitution so as to ameliorate the dynamics currently leading to repeated harmful budget crises.

state budget, budget crisis, fiscal constitution, budgetary, california, initiative, referendum, proposition 13

Abstract:
Command-and-control regulations are generally inferior to incentive-based alternatives. This Note proposes an incentive-based approach for regulating campaign finance. In place of our current regime of contribution ceilings, the Note calls for a graduated system of contribution taxes. Rather than capping the size of political donations at a specified dollar level, we should tax donations based on a schedule of graduated rates - the larger the size of a contribution, the higher the level of taxation.

Contribution taxes generate two primary advantages over contribution ceilings. First, contribution taxes preserve more total surplus. This surplus can be shared by the donors and by society as a whole, with society benefiting from the tax revenue. Second, contribution taxes lead fewer donors to divert their contributions through loopholes. We cannot possibly prevent all diversions of this sort under our current constitutional precedents, and these diversions serve to undermine our system of campaign finance. The Note also refutes the arguments that contribution taxes would engender greater inequality or corruption; that contribution taxes would be found unconstitutional; and that contribution taxes would be defeated by our inability to quantify the harms caused by political donations.

Campaign finance, political donations, election law, contribution ceilings, campaign regulation, election, donation, McCain, Feingold, BCRA, contribution taxes

Abstract:
Forty-nine of the U.S. states have balanced budget requirements, and every state acts as though bound by such constraints. These constraints create fiscal volatility - the states must either cut spending or raise taxes during economic downturns, while doing the opposite during upturns. This paper discusses how states should cope with fiscal volatility on both the levels of ordinary politics and of institutional-design policy. On the level of ordinary politics, the paper applies principles of risk allocation theory to conclude that states should primarily adjust the rates of broad-based taxes as their economies cycle, rather than fluctuating public spending. States should raise their tax rates during economic downturns and lower them during periods of growth. On the level of institutional-design policy, the key question is how we define terms like “tax cuts” and “tax hikes.” By adopting a new baseline for defining these terms, states can increase the likelihood of using tax rate adjustments to cope with fiscal volatility rather than (more harmful) spending fluctuations.

Abstract:
This article analyzes the causes of California's budget crises and prescribes institutional mechanisms for improving California's budgetary management.