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Abstract: As law and economics turns 40 years old, its continued vitality is threatened by its unrealistic core behavioral assumption: that people subject to the law act rationally. Professors Korobkin and Ulen argue that law and economics can reinvigorate itself by replacing the rationality assumption with a more nuanced understanding of human behavior that draws on cognitive psychology, sociology and other behavioral sciences, thus creating a new scholarly paradigm called "law and behavioral science". This article provides an early blueprint for research in this paradigm. The authors first explain the various ways the rationality assumption is used in legal scholarship, and why it leads to unsatisfying policy prescriptions. They then systematically examine the empirical evidence inconsistent with the rationality assumption and, drawing on a wide-range of substantive areas of law, explain how normative policy conclusions of law and economics will change and improve under the law-and-behavioral-science approach.
Abstract: Williams v. Walker-Thomas Furniture Company is a casebook favorite, taught in virtually every first-year Contract Law class. In the case, the D.C. Circuit holds that courts have the power to deny enforcement of contract terms if the terms are "unconscionable," and it remands the case to the lower court to consider whether the facts of the case meet this standard. This article, written for a session of the 2004 AALS Annual Meeting sponsored by the Contracts Section, analyzes the question that the D.C. Circuit posed to the lower court in Williams - and that Contracts teachers routinely pose to their students - from a "traditional" law-and-economics perspective, and from a "behavioral" law-and-economics perspective.
Abstract: Economic theory suggests that, in most circumstances, market forces will ensure that stan-dard form contracts contain terms that are not only socially efficient but also beneficial to non-drafting parties as a class compared to other possible combinations of price and terms. This analy-sis in turn suggests that courts should enforce all form terms or, at a minimum, all form terms that non-drafting parties read and understand. Relying on social science research on decisionmaking, this Article argues that non-drafting parties (usually buyers) are boundedly rational decisionmak-ers who will normally price only a limited number of product attributes as part of their purchase decision. When contract terms are not among these attributes, drafting parties will have a market incentive to include terms in their standard forms that favor themselves, whether or not such terms are efficient. Thus, there is no a priori reason to assume form contract terms will be efficient. The Article then argues that the proper policy response to this conclusion is greater use of mandatory contract terms and judicial modification of the unconscionability doctrine to better respond to the primary cause of contractual inefficiency.
behavioral law and economics, contracts, unconscionability, bounded rationality
Abstract: In this essay, written for a symposium on The Emerging Interdisciplinary Cannon of Negotiation, we examine the role of heuristics in negotiation from two vantage points. First, we identify the way in which some common heuristics are likely to influence the negotiator's decision-making processes. Namely, we discuss anchoring and adjustment, availability, self-serving evaluations, framing, the status quo bias, contrast effects, and reactive devaluation. Understanding these common heuristics and how they can cause negotiators' judgments and choices to deviate from the normative model can enable negotiators to reorient their behavior so it more closely aligns with the normative model or, alternatively, make an informed choice to take advantage of the effort-conserving features of heuristics at the cost of the increased precision that the normative approach offers. Second, we explore how negotiators might capitalize on the knowledge that their counterparts are likely to rely on heuristics in their decision-making processes. We consider, in other words, how negotiators can exploit heuristic reasoning on the part of others for personal gain.
Heuristics, Negotiation
Abstract: The legal negotiation literature emphasizes the numerous tactical issues facing negotiators without providing a clear theoretical construct that can serve as an organizing principle. Professor Korobkin proposes a descriptive theory of legal negotiation centered on what he identifies as the two strategic imperatives of the process: defining the range of possible agreements ("zone definition") and agreeing on a single deal-point within that range ("surplus allocation"). Using a variety of examples, the article argues that all negotiation tactics can be understood as serving one of these two strategic goals.
Abstract: The rich law and economics literature on contract default rules - that is, terms that govern relationships between contracting parties only if those parties do not explicitly agree to other terms - presumes that the legal system's choice of default rules will not affect individual negotiators' underlying preferences for contract terms. Judgment and decision making literature on the "status quo bias" suggests that if bargainers perceive default terms as part of the status quo they will prefer the substantive content of those terms more than they would if other terms were the legal defaults. This paper presents a study designed to test this hypothesis. 151 law students were asked to provide advice to a client in a number of hypothetical contract negotiation scenarios with the content of the default terms manipulated between experimental groups. The results suggest that the choice of legal default terms affects not only what terms contracting parties will agree upon but also what terms they actually prefer. The paper presents the experimental results, considers various theoretical explanations for the results, and suggests how the results should impact legal scholars' analysis of what contract default rules are optimally efficient.
Abstract: Human embryonic stem cell research raises a raft of legal issues that cut across substantive areas of law. This paper categorizes and analyzes issues concerning the regulation of research, patent protection for stem cell innovations, informed consent of research subjects, and property rights in human tissue. Each part attempts to identify the most important and salient legal issues for researchers and policy makers, describe the current state of the law, and critically analyze that law.
Stem Cells, Patent Law, Human Subjects, Tissue Ownership, Cloning, Chimeras, Informed Consent, Common Rule, Scientific Research
Abstract: Most legal scholarship implicitly adopts the assumption of the Coase Theorem that the value an individual places on a legal entitlement is independent of whether or not the individual has physical possession of or a legal right to that entitlement. This is true of both traditional law and economics analysis concerned with the efficient allocation of resources and scholarship that is not self-consciously in the law and economics tradition but is concerned with law's effects on incentives. A robust body of social science scholarship, however, demonstrates that the assumption is incorrect, at least in many circumstances. The much studied "endowment effect" is that people tend to value goods more when they own them than when they do not. A consequence of the endowment effect is the "offer-asking gap", which is the empirically observed phenomenon that people will often demand a higher price to sell a good that they possess than they would pay for the same entitlement if they did not possess it at present. A third term - the "status quo bias" - is often used interchangeably with the other two, but actually has a slightly broader connotation: individuals tend to prefer the present state of the world to alternative states, all other things being equal. Whatever the label, this insight is the most significant finding from behavioral economics for legal analysis to date. This article reviews the empirical evidence of the endowment effect and considers a variety of possible causes of the effect. It then explores how the endowment effect can affect the positive and normative analysis of legal rules that (1) assign or transfer legal entitlements, (2) facilitate the private exchange of legal entitlements, and (3) enforce the rules of property and contract. The discussion demonstrates that the endowment effect is relevant to the analysis of virtually every field of law. It also shows that careful normative legal analysis based on the endowment effect must take into account the context-dependent nature of the effect and the causes of the effect, neither of which are fully understood. Thus, when the endowment effect is used as a basis for normative claims, these claims must often be qualified and contingent.
Endowment effect, status quo bias, behavioral law and economics, Coase Theorem
Abstract: Legal scholars interested in the behavior of citizens subject to the law's dictates have long relied on economic analysis to inform their normative analysis of legal problems, and in recent years they have begun to make use of insights provided by behavioral economics and evolutionary psychology as well. This article presents a framework for understanding how these disciplines individually and together can inform legal scholarship. First, the article draws a distinction between motivational theories of behavior (that underlie both traditional law-and-economics analysis and evolutionary psychology) and empirical observation (exemplified by experimental social sciences such as behavioral economics) and contends that neither approach to studying behavior is alone sufficient to inform sound legal policy. Second, the article presents a model of how motivational theory and empirical observation can be combined to create a more useful multi-disciplinary approach to the study of law-relevant behavior, and provides an example of how the model can be used.
Abstract: Some disputes should fail to settle in mediation because there is no agreement that is preferable to adjudication for all of the parties. Mediation can also fail as a consequence of strategic behavior or attorney-client conflicts of interest. This article examines impediments to mediation success rooted in cognitive and social psychology, combining academic research on the psychology of bargaining and dispute resolution with mediation practice. The article examines how the overconfidence bias, the fundamental attribution error, the framing of risky choices, reactive devaluation, and concerns with interactional justice can impede mediation success to the detriment of the litigating parties. It also proposes actions mediators can take to mitigate these impediments and help the disputants to reach mutually acceptable settlement agreements.
Mediation, Negotiation, Psychology
Abstract: One of the most perplexing consequences of the Employee Retirement Income Security Act's (ERISA) preemption provisions is the differential regulatory treatment afforded to employer-sponsored health care benefits provided directly to employees by the employer's "self-insured" plan and to benefits provided by a third party that sells an insurance policy to the employer. Under ERISA's savings clause, states may regulate insurance contracts, thus allowing regulators to guarantee "insured" employees a menu of state-mandated health-insurance benefits. But under ERISA's deemer clause, self-insured plans are immune to such requirements. Since ERISA's passage three decades ago, there has been an explosion in the number of employers choosing to self-insure their health benefits plans and then purchase "stop-loss" insurance for the plan in order to avoid both state mandates and insurance risk. Critics cry foul at the use of this regulation-avoidance tactic. This Article defends employers' exploitation of the "deemer clause loophole" on the grounds that it is consistent with ERISA's clear language, structure, and delicate balance of underlying goals. But it argues that ERISA contains a complementary "savings clause loophole" that state regulators can exploit by regulating stop-loss insurance companies, thus using a self-help remedy to close the deemer clause loophole substantially. One good loophole deserves another.
ERISA, Managed Care, Health Insurance
Abstract: This brief essay, written for a symposium on The Emerging Interdisciplinary Cannon of Negotiation, describes three categories of rules which comprise the law of bargaining. First, common law limitations govern virtually all negotiators: the doctrines of fraud and misrepresentation limit the extent to which negotiators may deceive, and the doctrine of duress limits the extent to which bargainers can use superior bargaining power to coerce agreement. Second, context-specific laws sometimes circumscribe negotiating behavior in specific settings when general rules are less restrictive. Third, the conduct of certain negotiators is constrained by professional or organizational regulations inapplicable to the general public. These categories are discussed in turn. The final section of the essay reflects on constraints on negotiator behavior in the absence of law.
Abstract: A large body of evidence, now familiar to the legal community,demonstrates that individual judgment and choice is often driven by heuristic-based reasoning as opposed to the pure optimization approach presumed by rational choice theory. The evidence of heuristic-based reasoning presents several challenges for consequentialist legal scholars who wish to make normative public policy recommendations. First, the fact that actors subject to the legal system often rely on heuristics suggests that their behavior will not always maximize their subjective expected utility, undermining the traditional assumptions of law-and-economics scholarship that private contracts are necessarily Pareto efficient and that legal taxes and subsidies can cause actors to behave in a way that maximizes social efficiency. Second, the fact that the decision makers who create law also rely on heuristics suggests that law will not necessarily maximize the desired ends of lawmakers, whether those ends are the collective good or the utility of favored groups, and that law that attempts to create incentives for certain behaviors might not be properly calibrated to its goal. Parts I and II of this essay describe these two problems that heuristics cause for law, and Part III considers steps that lawmakers can take to mitigate the problems. This essay was prepared for the June 2004 Dahlem Conference on Heuristics and the Law.
Heuristics, Bounded Rationality, Behavioral Law and Economics
Abstract: This brief essay, written for a symposium on The Emerging Interdisciplinary Cannon of Negotiation, argues that bargaining power stems entirely from the negotiator's ability to, explicitly or implicitly, make a single threat credibly: "I will walk away from the negotiating table without agreeing to a deal if you do not give me what I demand." The source of the ability to make such a threat, and, therefore, the source of bargaining power, is the ability to project that he has a desirable alternative to reaching an agreement, often referred to as a "BATNA." The essay elaborates on this claim.
Abstract: Litigants often view the choice between seeking an adjudicated outcome of a dispute and settling out of court as one between invoking the public rule of law as a dispute resolution mechanism on one hand and substituting private contract for law on the other. This dichotomy overstates the difference in the role law plays in adjudication and in alternative dispute resolution (ADR). Law significantly affects non-adjudicative settlements in two related but distinct ways. First, the parties' substantive legal entitlements affect out-of-court settlement outcomes, because a litigant with a strong case can demand more as a condition of agreeing to a private settlement than can a party with a weaker case. Lawyers are quite familiar with the fact that, for this reason, substantive legal entitlements affect disputants' bargaining power and thus influence the outcomes of private dispute resolution. Second, the legal rules governing settlement behavior and many of the rules governing the adjudication process also influence nominally private dispute resolution activities. This less-recognized effect of law on ADR is the subject of this article, written for the forthcoming Handbook of Dispute Resolution. More specifically, this article considers the ways in which these bodies of law create, shape, and constrain the ability of disputants to exercise bargaining power in ADR processes, which in turn affects both the likelihood that disputes will settle out of court and the terms of such settlements. In order to assess this role of law in ADR, the article begins by presenting a brief analytical model of bargaining that explains the process by which lawyers attempt to settle disputes outside of the adjudicatory process. It then considers the extent to which the law of bargaining behavior limits misrepresentation and coercion as sources of bargaining power in non-judicial fora, and the extent to which certain adjudication rules - such as fee shifting statutes and offer of settlement rules, evidentiary restrictions concerning settlement negotiations, and judicial review of some types of settlement agreements - affect disputants' bargaining power outside the courthouse.
Settlement, Alternative Dispute Resolution, Negotiation, Mediation, Misrepresentation, Nondisclosure, Duress, Fee Shifiting, Offer-of-Settlement, Federal Rule of Evidence 408
Abstract: The general acceptance won by the behavioral law-and-economics approach to legal analysis raises an important methodological question for law-and-economics scholars. For purposes of deriving policy recommendations, how should the researcher determine whether to assume strict rational choice (RCT) behavior or something more consistent with the behavioral decision theory (BDT) literature, such as bounded rationality or susceptibility to cognitive biases? Although most scholars now are willing to assume that strict rationality is not ubiquitous in the world and not even always the most useful behavioral assumption for purposes of crafting legal scholarship, this does not suggest that the opposite is true. That is, it is almost certainly the case that in many law-relevant situations, many actors evaluate information in a relatively unbiased way, make decisions that maximize their expected utility given available information, and implicitly measure utility in terms of their selfish interest. In a submission to the Florida State University Law Review's symposium issue on Behavioral Analysis of Law, Professor Jonathan Klick, responding to my previously published work on the subject of standard form contracts, implicitly provides two answers to this methodological question. The first response, can be paraphrased as follows: the scientific method should be used to determine whether an RCT-based or BDT-based assumption is empirically accurate in the law-relevant circumstances under consideration. The second response is that, until proven otherwise, researchers should presume that citizens act in accordance with RCT. In this rejoinder to Klick, I argue that the first response is unobjectionable but often not helpful for the purposes of legal scholarship, and that the second response should be rejected. Instead, I will argue that the choice between using an RCT-based behavioral assumption and a BDT-based behavioral assumption in law-and-economics analysis should turn on the relative plausibility of competing accounts in light of existing knowledge, which is often incomplete and indeterminate.
Behavioral Law and Economics, Bounded Rationality, Rational Choice Theory, Standard Form Contracts
Abstract: This article examines and analyzes empirical contract law scholarship over the last fifteen years in an attempt to guide scholars concerning how empiricism can be used in and enhance the study of contract law. Part I defines the parameters of the study. Part II categorizes empirical contract law scholarship by both the source of data and main purpose of the investigation. Part III describes and analyzes three types of criticisms that can be made of empirical scholarship, how these criticism pertain to contract law scholarship specifically, and what steps researchers can take to minimize the force of such criticisms.
Abstract: This article considers an important failure of bargaining that, inexplicably, receives little serious attention in scholarly journals: the decades-long inability of Israel and the Palestinians to negotiate a treaty to end their conflict and govern their relationship. We use interdisciplinary negotiation theory as a construct for understanding this failure and deriving the principles that should underlie any United States attempt to mediate the process and help create a new legal regime for the Middle East. Our approach to examining the Israeli-Palestinian impasse leads us to the following conclusions: The failure of the parties to date to reach an agreement based on the land-for-peace framework can be attributed to some combination of three common roadblocks to negotiation success: (a) the absence of a bargaining zone, such that no single set of agreement terms would be preferable to continued impasse for both parties; (b) internal division within one or both principal parties, such that an agent or a minority faction with the ability to block an agreement undermines a result that would benefit the party as a whole; and (c) mutual hard bargaining, such that both sides refuse to accept an agreement that would be preferable to impasse and instead hold out for an even more desirable agreement. Because the parties' rhetoric can be consistent with any of these explanations, only an omniscient observer could know for sure which of these three roadblocks (or combination thereof) are actually the but - for cause of the ongoing impasse. Consequently, any U.S.-sponsored peace initiative would be most likely to succeed in bringing peace to the Middle East if it were to include a conscious plan to overcome each of these roadblocks. We propose that such a plan should begin with the United States presenting a non-negotiable set of terms to the two disputing parties that they can either take or leave but not bargain over, maximize the chance that the parties will accept those terms by both including side payments to the parties as part of the proposed deal and simultaneously threatening to withhold political and economic support if the deal is rejected, and take specific steps to work with the disputants and allies to limit the power of Palestinians and Israelis who are opposed to an agreement to stand in its way.
Middle East, Israel, Palestine, negotiation, mediation
Abstract: When lawsuits are resolved out of court, what determines the settlement price? This article uses a laboratory simulation and path analysis to estimate the relative importance of measurable variables in determining who wins the battle for the cooperative surplus. In the simulated negotiation conditions, seven variables explained more than half of the variation in settlement outcomes achieved by participants, with negotiators’ predictions of their opponent's reservation prices the most important, followed by negotiator gender and amount of first offer. Although the specific context of this article is settlement, the insights generated are applicable to any two-party, distributive negotiation.
Abstract: When lawsuits are resolved out of court, what determines the settlement amount? As a first approximation, the legal merits of the lawsuit matter, of course. Settlements are negotiated in the shadow of the law. But there is much more to settlement negotiations than the facts of the dispute and the relevant legal rules. Within certain boundaries determined by the nature and strength of the plaintiff's claim, the plaintiff's lawyer attempts to obtain every dollar that the defendant will pay, and the defendant's lawyer attempts to avoid paying all but the most minimal amount. This article uses a bargaining experiment to attempt to identify the factors that can be assessed prior to the beginning of bargaining that determines who wins and who loses this battle. The analysis reveals that, in the conditions of the simulated negotiation, the negotiators' estimate of the opposing negotiator's reservation price is the best predictor of outcomes, follow by the gender of the negotiator and the size of the first offer made. The negotiator's target or aspiration, the negotiator's relative enthusiasm for litigating the case if need be, and the negotiator's relative confidence in his negotiating ability were also predictive of a successful outcome, although less important. The negotiators' pre-negotiation perception of what would constitute a fair outcome had a very small indirect effect on outcomes. Together these seven variables explain more than half of the variation in settlement outcomes achieved by the subjects who participated in the simulation. The specific context of this article is settlement bargaining, but the insights generates are applicable to any two-party negotiation. Thus, the results should be of interest not only to litigators and legal scholars, but to anyone who negotiates as part of his or her personal or professional life or studies negotiation in any context.
negotiation, settlement, bargaining, experimental
Abstract: Most Americans receive their health care from a managed care organization (MCO), which makes state regulation of MCOs a significant policy issue. Most Americans also obtain their MCO membership through an employer-sponsored benefits plan subject to federal regulation. Consequently, courts must determine whether and to what extent federal law preempts state MCO regulation. Over the last quarter-century, two questions have been particularly troublesome for the courts: (1) may patients sue their MCOs for negligence and related state law claims?; and (2) may states regulate the benefits provided by MCOs to employment groups? Judicial attempts to address these issues have resulted in a confusing and doctrinally inconsistent jurisprudence of managed health care, in which like cases are treated differently and Congressional intent is all but forgotten. This state of affairs that has led to substantial scholarly criticism and calls for federal legislative reform. In two recent decisions concerning managed care, the Supreme Court missed opportunities to rationalize this body of law, reinforcing the failures of its jurisprudence. This Article contends that the flaws in the Court's managed care jurisprudence stem from a single mistake of statutory construction; specifically, the failure to recognize that medical benefits promised to patients by MCOs are not employment plan benefits, even when paid for by an employer. Were the Supreme Court to recognize this simple mistake, a new jurisprudence of managed care would emerge that eliminates confusion, avoids doctrinal conflict and inconsistency, and effectuates Congressional intent. The new jurisprudence would also obviate much of the need for federal "Patients' Bill of Rights" legislation.
Health Care Law, Managed Care, ERISA, Patient's Bill of Rights, Pegram v. Herdrich, Rush Prudential HMO v. Moran
Abstract: Should our society establish positive rights to health care that each citizen could claim, as many health policy analysts believe? Or should it provide only background rules of contract and property law and leave the provision of health care to the free market, as Richard Epstein advocates in Mortal Peril? In this article, Professor Korobkin argues that this question should be addressed from the Rawlsian "veil of ignorance" perspective. That is, the question should be answered by asking what kind of society would individuals agree to form if they had no knowledge of their individual skills or endowments; if they did not know whether they were rich or poor, healthy or sick, weak or strong. Professor Korobkin contends that individuals behind such a veil of ignorance would balance their inherent risk aversion (which favors a safety net of "rights") against the inefficient incentives created by rights regimes that would reduce net social wealth (which favors a free market). Whether they would choose to establish rights to health care or not is ultimately an empirical question that turns on how inefficient any particular right would be. The question thus requires a case-by-case analysis of proposed rights. The article then considers the policy issues of (1) community rating of private health insurance and (2) the mandated provisions of emergency medical care. It concludes that in these cases the inefficient incentives created by establishing rights are probably small and/or controllable enough to lead individuals behind the veil of ignorance to favor a regime of positive rights.
Abstract: Should our society establish positive rights to health care that each citizen could claim, as many health policy analysts believe? Or should it provide only background rules of contract and property law and leave the provision of health care to the free market, as Professor Richard Epstein advocates in his recent book, Mortal Peril: Our Inalienable Right to Health Care? This article argues that this question should be addressed from the Rawlsian "veil of ignorance" perspective. That is, the question should be answered by asking what kind of society individuals would agree to form if they had no knowledge of their individual skills or endowments; if they did not know whether they were rich or poor, health or sick, weak or strong. The article contends that individuals behind such a veil of ignorance would balance their inherent risk aversion (which favors a safety net of "rights") against the inefficient incentives created by rights regimes that would reduce net social wealth (which favors a free market). Whether they would choose to establish rights to health care or not is ultimately an empirical question that turns on how inefficient any particular right would be. The question thus requires a case by case analysis of proposed rights. The article then considers the policy issues of (1) community rating of private health insurance and (2) the mandated provision of emergency medical care. It concludes that in these cases the inefficient incentives created by establishing rights are probably small and/or controllable enough to lead individuals behind the veil of ignorance to favor a regime of positive rights.
Abstract: Note: The following is a description of the paper and not the actual abstract. Should our society establish positive rights to health care that each citizen could claim, as many health policy analysts believe? Or should it provide only background rules of contract and property law and leave the provision of health care to the free market, as Professor Richard Epstein advocates in his recent book, Mortal Peril: Our Inalienable Right to Health Care? This article argues that this question should be addressed from the Rawlsian "veil of ignorance" perspective. That is, the question should be answered by asking what kind of society individuals would agree to form if they had no knowledge of their individual skills or endowments; if they did not know whether they were rich or poor, health or sick, weak or strong. The article contends that individuals behind such a veil of ignorance would balance their inherent risk aversion (which favors a safety net of "rights") against the inefficient incentives created by rights regimes that would reduce net social wealth (which favors a free market). Whether they would choose to establish rights to health care or not is ultimately an empirical question that turns on how inefficient any particular right would be. The question thus requires a case by case analysis of proposed rights. The article then considers the policy issues of (1) community rating of private health insurance and (2) the mandated provision of emergency medical care. It concludes that in these cases the inefficient incentives created by establishing rights are probably small and/or controllable enough to lead individuals behind the veil of ignorance to favor a regime of positive rights.
Abstract: This is the Keynote Address from the Indiana University School of Law-Bloomington's Symposium on the Next Generation of Law School Rankings. The Author responds to papers submitted by Richard Posner and Cass Sunstein also submitted to the symposium. Given the amount of popular and academic interest in the topic of educational rankings generally and law school rankings specifically, the discussions and debates tend to be quite narrowly drawn. The common implicit assumption in such debates is that educational rankings ought to reflect educational quality, and disagreement usually centers around whether educational quality is possible to measure and, if so, how best to do so. Articles prepared for the forthcoming Indiana Law Journal symposium on The Next Generation of Law School Rankings by Judge Richard Posner and Professor Cass Sunstein offer useful insights within the parameters of the conventional rankings debate, but they fail to break free from its implicit boundaries. In this symposium contribution response to those articles, I first address these authors' contributions within the framework in which they are situated, but I then go on to argue for an expanded vision of the future of educational rankings - one that views rankings as instrumentally useful to the purpose of encouraging socially beneficial competition among educational institutions. When designing rankings, the primary goal should be to harness this positive power.
Law school rankings
Abstract: This article responds to an argument made by Professors Swygert and Yanes that legal rules be constructed so as to take account of efficiency and equity simultaneously. First, we present an approach that lawmakers can use when allocating property rights if they wish to pursue an efficient allocation of such entitlements and simultaneously insure that the social benefits of assigning the entitlement efficiently are divided between the competing claimants. We call this theory the "market contrarian" approach to entitlement allocation, and distinguish it from the market mimicking and market facilitating approaches to entitlement allocation favored in most law and economics analyses. We then argue that the joint goals of efficiency and equity might be served by protecting entitlements, once allocated, with what we term "super liability" rules. Such rules have the effect of permitting a disappointed entitlement claimant to take an entitlement from a less efficient owner while insuring that the cooperative surplus created by such an exchange is shared by the parties. Second, we argue that strategies for constructing legal rules that simultaneously consider both equity and efficiency will usually be inferior to a strategy of creating efficient legal rules and then later using the tax and transfer system to create equity. There are two primary reasons for this: (1) doing equity in the context of a single legal rule will often have the effect of promoting broader inequities; and (2) constructing legal rules to promote equity creates substantial disincentives to the production of social resources.
Abstract: The common law and federal regulations create overlapping legal regimes that require researchers to obtain the informed consent of most human subjects of medical research. The fast growing field of biomedical research generally, and stem cell research in particular, raises a range of unresolved and contested legal issues concerning the extent and implementation of the informed consent requirement. This article identifies and assesses a series of these: Must researchers obtain the informed consent of participants in nontherapeutic research not covered by federal research regulations? As part of the process, must researchers disclose their financial interests in their projects? Must informed consent be obtained before researchers use tissues stored in tissue banks? Must informed consent be obtained from both gamete donors before research use may be made of a stored human embryo? The article argues that these questions can be best resolved by focusing the analysis on the core value of subject autonomy that underlies the principle of informed consent.
informed consent, stem cells, embryos, tissue banks, common rule
Abstract: The legal-academic literature on litigation settlement describes a range of factors that affect settlement outcomes, but litigant "aspirations", or ideal goals, are not among them. Negotiation scholars, however, routinely claim that high aspirations can improve bargaining outcomes. This article presents a theory of settlement that reconciles these competing approaches by situating negotiator aspirations within the standard legal-academic model of settlement. Based on that theory, the article offers a series of hypotheses concerning the role of aspirations in settlement negotiations, and then reports the results of experimental tests that demonstrate the hypotheses to be plausible. Finally, in light of the theory of the role of aspirations, the article reconsiders the usual prescriptive advice offered by negotiation scholars that litigants should set high aspirations for themselves in bargaining situations.
Abstract: An important aspect of stem cell research has become caught in the crossfire of a battle over human cloning. The House of Representatives has passed legislation twice that would prohibit therapeutic cloning - the cloning of cells for the purpose of creating disease-specific human embryonic stem cell lines and individualized stem cell treatments - along with cloning for the purpose of creating babies with genomes identical to a living person. This article evaluates the public policy and constitutional law issues implicated by the Human Cloning Prohibition Act. It concludes that there are no convincing policy justifications for bans that extent to therapeutic cloning, and that such a ban would negatively impact the important constitutional values of federalism, individual interests in pursuing medical treatments, and, indirectly, individual interests in reproductive autonomy.
stem cells, cloning, somatic cell nuclear transfer, federalism, substantive due process
Abstract: A series of expert committee reports and legislative proposals suggest an emerging consensus in the medical research and public policy communities that compensation of donors of tissues for stem cell and other biomedical research should be prohibited. Professor Korobkin challenges this consensus by outlining, analyzing, and ultimately rejecting, the leading arguments in favor of no compensation rules: that compensation is coercive, that it inappropriately commodifies the human body, that it will reduce the opportunity for altruistic donations, and that it will increase the cost of important medical research. He then evaluates second-best alternatives to allowing cash compensation for tissues and concludes by comparing the issues raised by compensation for research tissues with those raised by compensation for transplant organs.
stem cells, egg donation, embryos, coercion, commodification, altruism, organ donation, biomedical research
Abstract: For the past decade, the debate over federal funding of human embryonic stem cell (hESC) research has dominated the national discussion of biomedical science policy. In 2001, President Bush announced the federal government would place significant limitations on funding of hESC research. In 2006, Congress passed legislation to overrule this decision but failed to override a presidential veto. This article goes beyond the headlines to critique the assumptions and the internal logic of the President's position and Congress' failed alternative, finding that neither constitutes a logically coherent public policy. It also evaluates the impact that the Bush policy has had on scientific progress in the field.
embryos, stem cells, biomedical research, law and science
Abstract: In a series of publications, Cass Sunstein & Richard Thaler, and Colin Camerer et al., have proposed an approach to legal policy that encourages individuals to pursue actions that will maximize their expected utility while not imposing on those individuals' decisional autonomy. I contend that this policy approach - which has been called "libertarian paternalism" - implies a complementary approach as well, which I call "libertarian welfarism." Libertarian welfarism relies on the same set of policy tools as does libertarian paternalism but with a different goal: to encourage individuals to act in a way that maximizes social welfare. I show that libertarian welfarism leads to different policy prescriptions than does libertarian paternalism, and I argue that the former approach rests on a stronger normative foundation and is less subject to problems of indeterminacy than the latter.
behavioral law and economics, libertarian paternalism, asymmetric paternalism
Abstract: Law and economics models of litigation settlement, based on the behavioral assumptions of rational choice theory, ignore the many psychological reasons that settlement negotiations can fail, yet they accurately predict that vast majority of lawsuits will settle short of formal adjudication. What explains this? We present experimental data that suggests lawyers might evaluate the settlement vs. adjudication decision from a perspective more closely akin to "rational choice theory" than will non-lawyers and, consequently, increase the observed level of settlement. We then evaluate whether the hypothesized difference between lawyers and non-lawyers is likely to lead to more efficient dispute resolution, concluding that lawyers are efficiency enhancing when differences between lawyers and non-lawyers can be attributed to "cognitive error" on the part of the latter but not when those differences are due to differences in preference structures and litigation goals. Finally, we suggest a framework that lawyers concerned with efficient dispute resolution should adhere to when counseling clients during settlement negotiations.
Abstract: Last fall, I published the book Stem Cell Century: Law and Policy for a Breakthrough Technology, which analyzes a range of complicated legal issues that arise from stem cell technology: from the regulation of embryonic stem cell research and therapeutic cloning, to whether intellectual property rights in stem cells should be granted and, if so, who should profit, to whether we should permit tissues needed for important biomedical research to be bought and sold, to how the FDA and the tort system should regulate stem cell-based treatments likely to be developed in the future. In this field, neither science nor law stand still for long. This article discusses and analyzes three important developments that have taken place in the six months since Stem Cell Century's publication: the development by research of induced pluripotent stem cells (iPSCs) that behave like embryonic stem cells but are not created by destroying embryos; the creation of cloned blastocysts by a California biotech company; and three decisions by the U.S. Patent and Trademark Office upholding the validity of patents on embryonic stem cell lines in a reexamination procceding. These developments have important implications for three policy disputes concerning stem cell research: the appropriateness of embryo research, whether compensation of egg donors should be permitted, and whether human embryonic stem cell lines ought to be patentable.
stem cells, cloning, patents, embryos, egg donation, patents, nonobviousness, Wisconsin Alumni Research Foundation, Public Patent Foundation, Stemagen
Abstract: Traditional law and economics analysis assumes that negotiating parties' preferences for contract terms are formed independently of legal rules and the structure of negotiations. In this article, Professor Korobkin challenges this conventional wisdom, offering instead an "inertia theory" of contract negotiation. The inertia theory predicts that parties' preferences will be biased in favor of contract terms that will operate in the absence of specific agreement to the contrary. In some cases, this bias will cause parties to favor legal default terms; in other cases, this bias could cause parties to favor terms in form contracts that serve as a basis for negotiations or even terms provided by one party in an initial draft contract. The article first demonstrates the inertia theory by providing data from a series of laboratory experiments. These show that subjects playing the role of lawyers in contract negotiating settings place a higher value on contract terms that will take effect in the event of inaction on the part of the negotiators than on those that will take effect only if the negotiators act affirmatively. The article then develops a motivational theory to explain the power of inertia in the formation of preferences, drawing on psychological literature on regret. It contends that the inertia theory is understandable because decisions not to act cause less ex post regret than decisions to act. Experimental evidence consistent with this hypothesis is then presented.
Abstract: The 1990's have seen an explosion of state legislation mandating the provision of specific health insurance benefits, and the federal government appears poised to enact significant managed care patient protection legislation as well. Although patient protection is popular with voters, economists often decry such legislation as inefficient because it forces consumers to pay for benefits they do not purchase in the free market. In this article, Professor Korobkin argues that managed care regulation can enhance efficiency by requiring the provision of benefits likely to be inefficiently underprovided by the free market. First, relying on a simple game-theoretic model, the article contends that managed care organizations (MCOs) have an incentive to provide an inefficiently low quality of certain types of benefits because it is difficult for consumers to evaluate their quality prior to contracting, and because consumers who are able to evaluate quality after contracting are the customers that MCOs do not wish to retain. Second, relying on behavioral research on consumer decision making, the article claims that consumers' bounded rationality prevents them from rewarding MCOs in the market for providing a broader range of valued benefits, thus creating another incentive for MCOs to provide inefficiently low quality benefits. The article then compares the ability of regulatory mandates to mitigate the effects of these market imperfections with the promise of market facilitating approaches. Finally, it compares the relative institutional competence of courts, legislatures, and independent commissions to determine which mandates would be efficiency enhancing and which would not.
Abstract: This essay defends the widespread but recently maligned efforts to rank law schools, arguing that the critics misunderstand the utility of such efforts. The first part of the essay argues that rankings serve a valuable coordination function in the legal labor market. Students read and value rankings because they know that attending a highly-ranked school signals their quality to desirable employers, who also study the rankings in order to interpret these signals. This coordination function is served whether or not the rankings accurately measure the quality of law schools, however defined. The second part of the essay argues that, because any rankings methodology will serve this primary purpose, a methodology ought to be selected that will encourage the production of public goods that might otherwise be inefficiently underproduced by the market. Scholarship is both a public good that would be underproduced if schools could not capture reputational benefits from its production and a good that law schools are uniquely capable of producing. Consequently, the essay contends, rankings should be based primarily or exclusively on the production of scholarship by law school faculty.
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