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Abstract:
The crashes and frauds of Enron, WorldCom and other companies have reinvigorated the debate over regulating corporate governance. Many pundits have called for corporate regulation to restore confidence in the securities markets. These recommendations appear to be supported by the fact that neither the contracting devices that were supposed to control managers, nor efficient securities markets, worked to prevent or spot the problems. Congress responded with the Sarbanes-Oxley Act of 2002. But this article shows that, given the limited effectiveness of new regulation, its potential costs, and the power of markets to self-correct, new regulation of fraud in general, and Sarbanes-Oxley in particular, is unlikely to do a better job than markets.

Abstract:
The crashes and frauds of Enron, WorldCom and other companies have reinvigorated the debate over regulating corporate governance. Many pundits have called for corporate regulation to restore confidence in the securities markets. These recommendations appear to be supported by the fact that neither the contracting devices that were supposed to control managers, nor efficient securities markets, worked to prevent or spot the problems. Congress responded with the Sarbanes-Oxley Act of 2002. But this article shows that, given the limited effectiveness of new regulation, its potential costs, and the power of markets to self-correct, new regulation of fraud in general, and Sarbanes-Oxley in particular, is unlikely to do a better job than markets.

Enron, securities regulation, securities fraud, Sarbanes-Oxley Act, corporate governance, corporate law

Abstract:
This article reports on the experience with the Sarbanes-Oxley Act of 2002 in the three years since its passage. In general, the costs have been significant and the benefits elusive. This suggests some lessons for future regulation.

Abstract:
This article reports on the experience with the Sarbanes-Oxley Act of 2002 in the three years since its passage. In general, the costs have been significant and the benefits elusive. This suggests some lessons for future regulation.

Abstract:
A major problem of modern corporate governance is how to reconcile making corporate managers more accountable to shareholders with ensuring that managers respond to society's needs. Managerial agency costs and the existence of markets for social responsibility argue against drastically reducing managers' accountability to shareholders. But it is still not clear precisely where to draw the line between accountability and responsibility. This article's main contribution is showing how resolving this issue turns on analyzing the available options for making managers accountable to shareholders. The logistics of modern corporate governance, particularly including the inherent weakness of fiduciary duties, shareholder voting and the market for corporate control, significantly free managers from shareholder control regardless of whether society demands this freedom. Social responsibility's importance to corporate governance ultimately depends on whether high-powered partnership-type accountability mechanisms such as mandatory distributions and cash-out rights are feasible in public corporations given the double corporate tax and business arguments for locking capital in the firm.

Abstract:
The spectacular crashes and frauds of Enron and other US companies triggered a legislative response in the US in the form of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"). This Act is likely to have unintended effects not only in the US, but also in international securities markets in which the US is a dominant player. Sarbanes-Oxley reflects a potential shift in the philosophy underlying the US securities law from disclosure to substantive regulation of corporate governance. This shift could deter foreign firms from listing in the US, or otherwise becoming subject to US law. This is significant because some foreign firms in effect "rent" US law in order to overcome deficiencies in their home country law. By raising this rent, Sarbanes-Oxley may reduce the demand for US law, blocking non-US firms from moving toward more efficient governance and impeding the internationalization of securities markets and laws. Alternatively, the SEC and perhaps Congress may forestall such flight by subjecting foreign-based firms to a lower level of regulation. This may encourage the development of country-based choice of governance rules, and therefore a kind of jurisdictional choice regime. The adoption of separate regulatory regimes for foreign and US issuers may, in turn, cause US regulators to reduce regulation of US as well as of foreign firms. Thus, international effects ultimately may constrain US regulation, most likely by curtailing the move from disclosure to substantive regulation of governance.

Securities regulation, jurisdictional competition, international securities regulation, cross-listing, Sarbanes-Oxley, corporate governance, law and finance

Abstract:
Large law firms face unprecedented stress. Many have dissolved, gone bankrupt or significantly downsized in recent years. These events reflect more than just a shrinking economy: the basic business model of the large U.S. law firm is failing and needs fundamental restructuring. There are at least three prerequisites to establishing the viable large legal services firm of the future. First, the firm must own a core of durable, firm-specific property. Second, the firm must be able to secure non-lawyer financing in a variety of forms. Third, coherent legal structures must evolve that are suitable for large law firms. Big Law’s ability to meet these conditions is contingent on significant changes in the regulation of law practice. The article discusses the current stresses on Big Law, potential business models for legal services, and the forces that may usher in the introduction of these models.

Abstract:
This Abstract introduces the authors' new book, The Sarbanes-Oxley Debacle: What We've Learned; How to Fix It (The AEI Press 2006). The Sarbanes-Oxley Act of 2002 ("SOX") is a colossal failure, poorly conceived and hastily enacted during a regulatory panic. Everyone now concedes that the direct compliance costs of SOX have been much greater than anticipated. While that alone should give any serious policy analyst pause, the Act's defenders press the case that SOX was worth its problems. This book demonstrates that the supporters are wrong in their assessment: Both logic and evidence make it clear that SOX was a costly mistake.

Abstract:
Weblogs have proliferated rapidly in recent years, attracting significant attention and generating important legal issues. Yet there is so far no coherent economic framework for addressing these issues. This article begins to develop such a framework. It views blogs as the vanguard of what might be called "amateur journalism." Because of the low entry barriers enabled by the Web and related technology, blogs can be an important source of specialized knowledge. However, because bloggers do not work within a monitoring structure as in large news organizations, individual blogs may be less accurate than conventional news sources. On the other hand, blogs as a whole are subject to strong self-correction mechanisms, including rapid feedback through comments on posts and by other blogs. Also, because most bloggers have low-powered incentives, regulation can easily deter them and thereby reduce the value of these self-correction and market mechanisms. The article applies these insights to a variety of legal issues, including the journalist's privilege, election laws, defamation and licensing laws, media ownership restrictions, copyright and vicarious liability.

Law and economics, weblogs, professional licensing, defamation, election law, worldwide web, media regulation, intellectual property, partnership, evidentiary privileges, First Amendment

Abstract:
This article shows that the ULPA 2001's restrictions on contracting regarding fiduciary duties are seriously misguided because they are based on a fundamental misunderstanding of the special nature and functions of the limited partnership form. Even if restrictions on fiduciary duty waivers are appropriate in some contexts, they clearly are inappropriate in limited partnerships, which are designed for relatively sophisticated firms that frequently would want to limit general partners' fiduciary duties. Even if there are valid concerns about protecting limited partners from general partner misconduct, restrictions on waiver should be designed to balance the costs and benefits of waiver. This article shows that courts have managed to do this under UPA and under the more nuanced approach of Delaware law. By contrast, the heavy-handed approach of RUPA and ULPA 2001 precludes such balancing.

fiduciary duties, limited partnerships, uniform laws, corporate governance, partnerships

Abstract:
This article examines private equity firms as an example of partnership-type, or uncorporate, structures in the governance of large firms. Other examples include publicly traded partnerships, real estate investment trusts, hedge funds and venture capital funds. These firms can be seen as an alternative to the corporate form in dealing with the central problem of aligning managers' and owners' interests. In the standard corporate form, shareholders monitor powerful managers by voting on directors and corporate transactions, suing for breach of fiduciary duty and selling control. These mechanisms deal with managerial agency costs by relying on other agents, including auditors, class action lawyers, judges, independent directors and shareholder intermediaries such as mutual and pension funds. Uncorporations substitute other devices for corporate-type monitoring, including more closely tying managers' economic well-being to the firm's fortunes and greater assurance of distributions to owners. Continued concerns with managerial agency costs, the inadequacy of regulatory responses such as the Sarbanes-Oxley Act, changing costs and benefits of public ownership, leverage and capital lock-in all contribute to the rise of uncorporate structures in large firms. Political considerations may, however, constrain these developments.

corporate governance, private equity, takeovers, partnerships

Abstract:
American films have long presented a negative view of business. This article is the first comprehensive and in-depth analysis of filmmakers' attitude toward business. It shows that it is not business that filmmakers dislike, but rather the control of firms by profit-maximizing capitalists. The article argues that this dislike stems from filmmakers' resentment of capitalists' constraints on their artistic vision. Filmmakers' portrayal of business is significant because films have persuasive power that tips the political balance toward business regulation.

Film, business regulation, corporate social responsibility

Abstract:
This article suggests that reform of the governance of publicly held firms might appropriately include a move from the corporate to the partnership form. The corporate form is susceptible to regulation, rigidly centralized and not readily adaptable to firms' varying circumstances. These features are unsuitable for new economy firms that rely on markets and networks rather than integration. Partnership's greater flexibility and freedom from government interference arguably make it a better choice than corporation for many publicly held firms. Thus, the persistence of incorporation may owe more to politics and regulation than to efficiency. The rigidity of the corporate form makes it easier to regulate and therefore provides more rent-seeking opportunities for politicians and interest groups than if parties could freely choose their business form. Taxation of corporate distributions reduces owners' incentives to take control of corporate earnings through partnership-type firms. Also, by protecting managers' power, preserving the corporate form co-opts the interest group that is best able to lobby for change. However, new corporate tax rules, increased federal regulation of corporate governance and the changing nature of U.S. business may give firms new incentives to use the partnership form. Lawyers may be the agents of change, as they have been in promoting partnership-based business forms for closely held firms.

corporations, partnerships, corporate governance, lawyers, public choice, tax, economic history

Abstract:
Despite many cases with seemingly contrary dicta, corporate directors of failing firms do not have special duties to creditors. This follows from the nature of fiduciary duties and of the business judgment rule. Under the business judgment rule, the directors have broad discretion to decide what to do and in whose interests to act. There is some authority for a limited creditor right to sue on behalf of the corporation to enforce this duty. However, any such right does not make the duty one owed to creditors. The creditors individually may sue the corporation for breach of specific contractual, tort and statutory duties, particularly on account of fraudulent conveyances. But the creditors are not owed general fiduciary protection even if they are subject to a special risk of abuse in failing firms.

Abstract:
This is the introductory essay for the Economics of Federalism, a book edited by the authors and forthcoming in Edward Elgar Publishing's ECONOMIC APPROACHES TO LAW series. This essay discusses the major issues and theories concerning federal political systems, which we define as systems that have a hierarchy of at least two distinct state and central levels, each with a well-defined scope of authority. The essay discusses two branches the economics literature. The first branch, on competitive federalism, stems from Tiebout's 1956 article. It focuses on the horizontal structure of federalism and examines jurisdictional competition between state governments for mobile individuals and resources. The second branch of the literature, on fiscal federalism, examines the vertical structure of federalism, or the division of public services and taxing power between the central and state governments. The essay also examines applications of the economic analysis of federalism to specific areas of the law, including corporate law, antitrust law, environmental law, choice of law rules, contractual choice of law, and public choice theory.

Abstract:
The 1987 film Wall Street is one of the most popular films dealing with business, and for many people provides an enduring image of capitalism. The film is therefore a good illustration of filmmakers' portrayal of business, and how this portrayal can influence public perceptions and misconceptions. This is important as public misconceptions of business, in turn, can contribute to the regulatory environment. This article discusses the view of business presented in the film, contrasts this view with an alternative, and more realistic, narrative, and shows how the film may have influenced subsequent regulation.

Film, business regulation, corporate social responsibility

Abstract:
Fiduciary duties might be said to grow out of a variety of relationships involving one party's exercise of some measure of control. Fiduciary duties therefore are "structural" in the sense that they arise from the structure of the parties' relationship rather than from the parties' individual attributes, such as ignorance and lack of sophistication. This view of fiduciary duties is bound with the contractual nature of fiduciary duties. Moreover, this article shows that there are significant costs in extending fiduciary duties beyond the specific situation in which they are most appropriate - that involving clear separation of management powers and ownership. Extending fiduciary duties beyond this paradigm case increases litigation and contracting costs, decreases the effectiveness of owners' governance rights, and dilutes true fiduciaries' legal and extralegal incentives.

Fiduciary duties, theory of the firm, norms

Abstract:
This Article provides the first detailed empirical analysis of firms' choice of organizational form. It provides important evidence on whether there is an efficient market in organizational forms or firms' choice of form is impeded by network externalities. We focus on formations of limited liability partnerships (LLPs) and limited liability companies (LLCs) in examining the effect of various factors on firms' cho ice of business form. Our data provides important evidence against the network externalities hypothesis. Because the LLP and LLC forms are similar except for the LLP's link to the existing "network" of partnership law, firms would prefer the LLP to the LLC form if network externalities mattered. In fact, we find that firms prefer the LLC form. Moreover, the reduced relative popularity of LLCs in states that impose entity taxes on LLCs but not LLPs, and the increased relative popularity of LLCs in states and years in which LLCs have particular inherent advantages, provide further evidence that the inherent characteristics of the two business forms, rather than network externalities, are driving choice of form.

Abstract:
States and the federal government have enacted laws intended to police franchisors' use of termination provisions in franchise contracts to opportunistically take over profitable establishments. This regulation may, however, reduce the total number of chain outlets because franchising is a valuable form of contracting and termination rights allow franchisors to police franchisee free-riding on the franchised trademark. On the other hand, no such effect is implied if the regulation reduces franchisors' extra gains from skimming profitable franchises. We exploit two new sources of data to provide new empirical evidence on the effects of franchise regulation. Panel data on fast food establishments extracted from uniform franchise offering circulars show that laws restricting franchisor termination rights lead to a reduction in franchising, and this reduction is not offset by the concomitant increase in franchisor-operated establishments. This article also examines how Coasian bargaining between the franchisor and franchisee can mitigate the effect of regulation. In particular, regulation may be apparently important but actually inconsequential because affected parties can easily waive the regulation or avoid it through contractual choice-of-law and choice-of-forum clauses. To examine this, we use state employment data to more broadly examine the effects of franchise regulation. We find that employment in franchise industries is significantly reduced when states enact restrictions on franchisor termination rights and the effect is larger when states limit the ability to contract around these restrictions.

Franchise, Termination, Labor, Opportunistic Behavior, Corporate Law

Abstract:
There is a widespread belief that regulation of electronic commerce by individual states is unworkable because firms doing global business on the Internet easily can evade state regulation or, conversely, because firms are subject to excessive regulation due to states' overlapping jurisdiction. Instead, it is believed that electronic commerce is best regulated at the federal or even global level, and that any state regulation should be pursuant to uniform laws. This article challenges this conventional wisdom. It shows that regulation of electronic commerce by individual states has several advantages over federal or uniform state laws and that the problems of state regulation have been exaggerated. First, state regulation provides variety, evolution and competition that is especially well suited to the dynamic nature of electronic commerce. Second, courts can minimize jurisdictional overlaps by enforcing choice-of-law and choice-of-forum contracts. Third, markets alleviate concerns that enforcing contractual choice would lead to a "race-to-the-bottom" in state Internet regulation. Any remaining problems with state regulation should be analyzed in comparison with those that would result under federal or uniform state law.

Abstract:
In December, 2006, the National Conference of Commissioners on Uniform State Laws promulgated a Revised Uniform Limited Liability Company Act (RULLCA). This article analyzes RULLCA's most important changes from the prior (1994) version of the Uniform Limited Liability Company Act. In general, these provisions raise significant questions and threaten to impose substantial risks and costs on limited liability companies. The article concludes that there is little reason for states to adopt the Act, and that practitioners should be wary about advising clients to form under it.

Abstract:
Behavioral finance raises questions about market efficiency, suggesting that noise, and not just information, moves securities prices. This creates a conundrum for the fraud on the market theory. While some fraud remedy is arguably necessary to ensure adequate disclosure, behavioral finance raises doubt about the efficiency of fraud remedies in noisy markets. These issues are particularly important in the wake of the Supreme Court's opinion in Dura v. Broudo Pharmaceuticals, Inc., which tightens proof of loss causation in fraud on the market cases and creates uncertainty about the future of the fraud on the market theory. This paper argues for interpreting Dura to sharply constrain the fraud on the market theory. It also proposes dealing with the need to deter fraud by allowing state courts and legislatures to supplement federal liability. More broadly, this paper suggests that, contrary to the assertions of many of its proponents, the indeterminacy of behavioral economics generally, and behavioral finance in particular, may support reducing rather than increasing legal paternalism.

Abstract:
Many types of economic relationships, including joint ventures, franchises and joint operating agreements, resemble economic firms but differ from them in critical respects. Because of these non-firm attributes, the parties to these relationships may not want the owner vicarious liability that comes by default with the legal characterization of a relationship as a partnership or agency. In order to clarify that the relationship does not trigger vicarious liability, the parties can form a corporation or other limited liability business association. However, the statutory default rules of these business associations do not fit many borderline firms. This Article proposes a way out of this dilemma -- statutes authorizing "Contractual Entities" whose owner liability and other terms would be governed solely by their filed operating agreements. The Article analyzes potential arguments against the proposal, including those relating to the appropriate scope of limited liability and the functions of statutory forms. It also discusses the political aspects of adopting Contractual Entity statutes and some implications of the proposal for the future of limited liability and of contractual choice of law.

Abstract:
The special concept of trust does not provide a distinct
justification for mandatory legal rules. Although regulation
might lead parties to decide to rely on others, it does not produce the sort of transaction-cost-reducing "trust" that should matter for public policy - that is, trust based on altruism, norms, personal relationships, and social capital. Moreover, using mandatory rules to increase trust may have precisely the opposite effect of increasing distrust and undermining trust-creation devices. Thus, trust provides an additional argument in favor of enforcing contracts.

Trust, social capital, norms, fiduciary duties, internet, self-regulation

Abstract:
The special concept of trust does not provide a distinct justification for mandatory legal rules. Although regulation might lead parties to decide to rely on others, it does not produce the sort of transaction-cost-reducing trust that should matter for public policy - that is, trust based on altruism, norms, personal relationships, and social capital. Moreover, using mandatory rules to increase trust may have precisely the opposite effect of increasing distrust and undermining trust-creation devices. Thus, trust provides an additional argument in favor of enforcing contracts.

Abstract:
Some commentators suggest that mandatory personal liability of professionals for liabilities of their firms is appropriate in light of professionals' role in Enron and other recent frauds. This liability can, indeed, help ensure that professional firms deliver on their obligations to monitor their members and clients. However, such liability is ineffective and costly. Holding professionals vicariously liable for their colleagues' defaults is unlikely significantly to increase firm monitoring. At the same time, imposing this risk on professional firm members is likely perversely to affect both professionals' incentives and the structure of their firms. Professional firms accordingly are better constrained by the market for professional services, which demands that professional firms develop significant reputations to, in effect, bond their promises to monitor. Moreover, professional services firms someday may be able to rely more on conventional financial capital to bond its monitoring promises. These alternatives to vicarious liability are constrained by legal restrictions on the size and shape of professional firms, particularly including restrictions on non-competition agreements and on ownership by non-professionals. Although these restrictions strengthen the case for vicarious liability of professional firm owners, the better approach is to deregulate professional firm structure.

professional regulation, limited liability, Enron, law firms, accounting firms

Abstract:
The proliferation of partnership-type entities raises questions about how these entities relate to corporations and one another. It has also created strains as the use and scope of the statutes has expanded. This article discusses a particular problem that has arisen in the development of partnership-type business forms, "reverse limited liability." Reverse limited liability refers to the use of partnership-type entities as, effectively, asset-protection trusts. This has occurred because of the combination of limitations on creditors' access to debtors' interests in partnership-type firms and provisions permitting use of such firms by non-profit, one-owner entities. The courts have attempted to curtail this unexpected development with fraudulent conveyance, veil-piercing, and bankruptcy rules that do not reach the basic problem. The article suggests a statutory fix. More broadly, the advocates for a greater level of respect for the core functions of business entities and coherence of business association statutory provisions.

Abstract:
The state competition for corporate law has long been studied as a distinct phenomenon. Under the traditional view, corporations are subject to a unique choice-of-law rule, the internal affairs doctrine (IAD). This rule is explained as a historical accident, or by the special logistics of the corporate contract. The resulting market for corporate law appears to have special characteristics, particularly including the dominance by the single state of Delaware. This paper challenges the traditional view. It shows that the corporate law market is best understood as a special application of the general market for law. Any differences are matters of degree rather than kind, and are explained by considerations underlying enforcement of all choice-of-law contracts rather than by factors unique to corporations. It follows that theories of corporate competition that ignore the broader law market context are incomplete, and that the competition for corporate law carries lessons for the law market generally. Moreover, the connection between the corporate and other law markets has implications for the nature of corporate law, the constitutional status of the IAD, the scope of the IAD, and for the relationship between state and federal law.

Abstract:
This article proposes a comprehensive system for choice of law that is designed to enhance social wealth by focusing on individual rather than governmental interests. To the extent practicable, parties should be able to choose their governing law. In the absence of an explicit agreement, courts should apply rules that facilitate party choice or that select the law the parties likely would have contracted for - that is, the law of the state with the comparative regulatory advantage. The system relies on clear rules that enable the parties to determine, at low cost and ex ante, what law applies to given conduct, and therefore to choose the applicable law by altering their conduct. State regulatory concerns are accounted for through explicit state legislation on choice of law rather than ad hoc judicial determination of the states' interests. The article shows how this system might be implemented through jurisdictional competition.

conflict of laws, public choice, procedure, law and economics, civil procedure, contracts, commercial law, product liability, jurisdictional competition, torts

Abstract:
This article proposes a comprehensive system for choice of law that is designed to enhance social wealth by focusing on individual rather than governmental interests. To the extent practicable, parties should be able to choose their governing law. In the absence of an explicit agreement, courts should apply rules that facilitate party choice or that select the law the parties likely would have contracted for -- that is, the law of the state with the comparative regulatory advantage. The system relies on clear rules that enable the parties to determine, at low cost and ex ante, what law applies to given conduct, and therefore to choose the applicable law by altering their conduct. State regulatory concerns are accounted for through explicit state legislation on choice of law rather than ad hoc judicial determination of the states' interests. The article shows how this system might be implemented through jurisdictional competition.

Abstract:
Enforcement of contractual choice of law can promote the application and development of efficient legal rules. However, state lawmakers can be expected to resist such enforcement because it erodes their lawmaking power. Efficiency and politics can, however, be reconciled by recognizing that parties' ability to move around within a federal system gives lawmakers incentives to enforce the clauses except where there is strong local support for regulation overriding enforcement of contractual choice. These countervailing forces help ensure that choice-of-law clauses will be enforced where enforcement is most likely to be efficient. They also suggest that party residence in designated and regulating jurisdictions should determine enforceability of contractual choice. These conclusions are supported by an analysis of nearly 700 cases involving enforcement of choice-of-law clauses. This Article also proposes a specific model statute on contractual choice of law that is generally consistent with case law but provides additional clarity and predictability.

Abstract:
The debate over the regulation of consumer marketing information so far has focused on what form any such regulation should take. Despite the lack of consensus on the basic framework for allocating rights to use consumer marketing information, there seems to be broad consensus that any regulation should be promulgated at the federal level. Privacy advocates have stressed uniform federal law as a solution to the potential for under-regulation by the states. Firms have advocated uniform federal law as a solution to the problems of over-regulation by some states and having to comply with multiple and inconsistent state laws.

This paper argues that the focus on a uniform federal solution is misguided. Given the lack of consensus on a basic framework for allocating rights in this area, it would be counterproductive to straightjacket emerging technologies and business practices with a federal law. Rather, consumer marketing information is best regulated at the state rather than the federal level. A process of state experimentation, competition and evolution would allow discovery of appropriate and comprehensive responses to problems concerning consumer marketing information, in contrast to the growing patchwork of federal laws that inhibit the development of such responses.

A state law approach will not lead to over-or under-regulation as some have predicted as long as merchants and consumers can contract for the applicable law and forum. Contractual choice of a jurisdiction that under-regulates privacy is constrained by market forces and by the political forces within that state. Enforcement of contractual choice of law and forum would allow firms and consumers to agree to the application of a particular state's law, thereby eliminating the costs of having to comply with inconsistent or excessively burdensome state laws.

Abstract:
This article examines the ongoing controversy over the Uniform Computer Information Transactions Act (UCITA) which has been adopted by the National Conference of Commissioners on Uniform State Laws (NCCUSL). The Act emerged after opposition to a new Article 2B of the Uniform Commercial Code (UCC 2B) led to the withdrawal of the American Law Institute from its joint project with NCCUSL. This article argues that the debate over particular terms focuses on the wrong issues and may ultimately be of little consequence. The important issues concern the forces of jurisdictional competition and the role of choice of law. We argue that the law should facilitate the parties' ability to choose the governing law rather than being forced to accept a single uniform law that emerges from an imperfect political process. Moreover, whatever NCCUSL or the ALI decide to do, jurisdictional competition is likely to play an important role in shaping the law. States interested in attracting and retaining information technology companies can pass statutes that favor freedom of contract and enforcement of computer software licenses. If adoption of a single standard proves to be desirable, firms will tend to move toward this standard even if state laws differ and the "uniform" law is adopted in only a few states.

Abstract:
This article examines the ongoing controversy over the Uniform Computer Information Transactions Act (UCITA) which has been adopted by the National Conference of Commissioners on Uniform State Laws (NCCUSL). The Act emerged after opposition to a new Article 2B of the Uniform Commercial Code (UCC 2B) led to the withdrawal of the American Law Institute from its joint project with NCCUSL. This article argues that the debate over particular terms focuses on the wrong issues and may ultimately be of little consequence. The important issues concern the forces of jurisdictional competition and the role of choice of law. We argue that the law should facilitate the parties' ability to choose the governing law rather than being forced to accept a single uniform law that emerges from an imperfect political process. Moreover, whatever NCCUSL or the ALI decide to do, jurisdictional competition is likely to play an important role in shaping the law. States interested in attracting and retaining information technology companies can pass statutes that favor freedom of contract and enforcement of computer software licenses. If adoption of a single standard proves to be desirable, firms will tend to move toward this standard even if state laws differ and the "uniform" law is adopted in only a few states.

Abstract:
The proliferation of partnership-type entities raises many questions about how the traditional rules of business entities will be tailored for these new contexts. This includes questions concerning default fiduciary duties in partnership-type firms. In particular, should fiduciary duties apply to manager-owners as well as to managers in firms with passive owners? In contrast to Justice Cardozo's famous dictum in Meinhard v. Salmon, Professor Ribstein concludes that partners, as such, are not fiduciaries because they do not delegate open-ended control to their co-partners. Extending fiduciary relationships beyond this specific situation would increase litigation and contracting costs, decrease the effectiveness of owners' governance rights, and dilute true fiduciaries' legal and extralegal incentives.

Abstract:
Outsiders often have and seek to trade on a firm's material, nonpublic information. For example, lawyers have traded on advance information about the filing of a lawsuit, a social activist has announced a plan to trade on advance information of a boycott, and a hedge fund operator has engaged in a controversial trading maneuver in a control contest. Trading on nonpublic information is generally permitted if the information was not misappropriated or accompanied by fraud, manipulation, or other misconduct. However, recent public focus on the above transactions signals possible regulation in certain outsider trading situations. More generally, Professors Ian Ayres and Stephen Choi propose giving firms broad rights to decide whether outsider trading in their stocks will be regulated. We argue against broad regulation on the basis that outsider trading can provide incentives for socially beneficial conduct. In particular, outsider trading provides an important way to capitalize on investments in information that are not otherwise protected by the intellectual property laws. Understanding these benefits is a crucial element in determining appropriate regulation limits.

Abstract:
William Carney and George Shepherd argue that Delaware's success in corporate law is a "mystery" when one considers the high transaction costs engendered by the indeterminacy and instability of Delaware law. This paper shows that the mystery is clarified by analyzing Delaware law on "uncorporate" cases - that is, limited partnerships and limited liability companies. In this setting, parties can rely on specific contractual incentive and disciplinary devices rather than on open-ended fiduciary duties. Delaware lawmakers provide substantial coherence by focusing on the parties' contracts. It follows that the problems of Delaware law seem to be mainly a function of the corporation rather than of Delaware lawmakers.

Abstract:
Private lawyers are significant participants in legislative and judicial lawmaking. However, since law is a public good, lawyers face a significant free-rider problem in investing time and other resources in law-creation other than to the extent necessary to win the case for their client. This Article focuses on the lawmaking incentive problem inherent in class actions, and specifically on class action complaints. Because a class action lawyer prepares a complaint without knowing whether a court ultimately will select her as counsel for the class, the lawyer may have less incentive to put effort into the complaint than if she had been hired prior to drafting the complaint. This Article discusses ways such lawyers can be given adequate incentives to maximize the law-creation value of their complaints. It shows that direct protection, as through intellectual property rights, is not legally available, primarily because of due process concerns for public access to the law. We suggest that protection is best provided by the institutions for choosing the lead plaintiffs and lead counsel in class actions.

Abstract:
State regulation of lawyers has failed to keep pace with the increased complexity and geographic scope of law practice. A particular problem is that lawyers in the branch office of a multi-jurisdictional firm are subject to the ethical rules of the state in which the branch office is located. The firm therefore potentially is subject to differing regulations in each state where it has branches. This is particularly a problem concerning rules that apply to the firm as such, including rules regarding the firm's name and capital structure. As a result, firms must either accept uniform rules or the rules of the most restrictive state. This means that structural rules do not accommodate the many differences among firms as to size, structure, market, and other factors. It also produces a single rule from a flawed political process rather than allowing for competition or evolution of rules. If left free of constraints, law firms would seek to maximize the market value of their assets, particularly including reputational assets, including by finding ways to motivate the firm's members to devote efforts to serving its clients. Thus, forcing firms to comply with uniform or restrictive state ethical rules relating to such matters as capital structure and non-competition agreements may perversely hurt the very clients such rules are supposed to protect. This article proposes solving this problem by permitting law firms to agree to application of a single state's ethical rules that relate to law firm structure. This would offer the advantages of an "internal affairs" choice-of-law rule for non-professional firms.

Abstract:
This Article provides empirical and theoretical support for the proposition that permitting actors to contract for the law that applies to their transaction would improve state rules and regulations by reducing interest group incentives to promote inefficient laws. In general, competition between lawmaking bodies limits the extent to which they can impose costs on those who have little influence on the lawmaking process because they reside outside of the jurisdiction. Enforcing bargains over applicable law is particularly effective in promoting jurisdictional competition because it significantly lowers exit costs and thereby increases jurisdictional competition as compared with a rule that forces individuals and firms physically to relocate to a particular jurisdiction in order to be subject to its laws. Although jurisdictions seek to block easy exit from their laws by imposing legal constraints on the enforceability of choice-of-law contracts, we show that a multi-stage process of jurisdictional competition tends to erode these constraints. Given our analysis, theory and data indicating that law is inefficient may be incomplete because they examine only jurisdictions' initial attempts to externalize costs rather than the ultimate outcome of jurisdictional competition. We support our conclusion by analyzing the competition effects on contractual choice of law in three areas -- corporate law, unincorporated firms, and franchise regulation. In addition to its general implications for jurisdictional competition, our analysis has specific implications for the appropriate mode of analyzing the efficiency of state law and of a federal system.

Abstract:
This paper is an exchange among Bruce Macewen, Milton Regan and Larry Ribstein on the potential implications of pending legislation in the United Kingdom that would permit outside non-lawyer investment in law firms. Such ownership is forbidden by ethics rules in the United States, but the participants discuss whether the rules would permit a law firm to sell derivative securities reflecting the value of the firm. The discussion quickly expands into an analysis of the possible impact of publicly-traded law firms on the global market in legal services, the obligations of lawyers to their clients, the role of lawyers in sustaining a well-functioning legal system, and the self-understanding of lawyers as professionals. With significant change in law firm financing just over the horizon, the aim of the paper is to prompt a wide-ranging discussion about the future of the legal profession in a global economy.

non-lawyer, law firms

Abstract:
Privacy raises particularly difficult and important questions in the employment context. Employees and employers have competing interests in disclosing and preventing disclosure of information. Maximizing the value of a firm often requires that confidential business information be widely disseminated within the firm, but not disclosed outside the firm. At the same time, excessive protection of the employers' information could reduce employees' mobility and the flow of valuable information in society. Employers, in turn, need information about employees in order to evaluate them for hiring and to monitor them while they are employed. But employees also may have an interest in keeping some information private to protect their personal space or to hide shirking or other bad acts that are detrimental to the firm. Appropriately balancing employers', employees' and society's interests in workplace privacy contributes to social wealth by encouraging efficient employment relationships. This requires sensitivity to the unique characteristics of the economic activity that gives rise to the specific organizational form chosen by a given firm.

In some cases, the optimal solution to this problem can involve employment contracts that allow intrusions into an employee's privacy, and restrictions on an employee's freedom, including restrictions that extend beyond the employees tenure at the firm. To be sure, employees may prefer ex post not to be bound by restrictions on employment or disclosure and not to be monitored by the employer. But employees are better off ex ante to the extent that they share in the value of efficient arrangements through higher compensation. On the other hand, contractual restrictions on the dissemination of employer information or on employee mobility may benefit both employees and employers but reduce social wealth because of their negative effects on development of intellectual property and competition. However, regulation of these contracts may impose more costs than benefits. For example, restricting protection of employer information can inhibit firms from disseminating confidential business information to employees and, in turn, force revision of relationships with employees. Protecting the privacy of employees' information can inhibit monitoring of employees and force employers to resort to non-agency-type relationships.

This paper is both normative and positive. It shows why contracts regarding these issues should be enforced. It also shows that the contracts are enforced despite seemingly mandatory state rules preventing enforcement. The key to understanding the positive analysis is to see the enforcement issue in the interstate context, where both employers and employees are free to choose the states in which they live, contract, and sue.

Abstract:
The web enables scholars to engage in several types of what I have called amateur journalism. Of particular interest is scholars' ability to effectively leverage their expertise in commenting on matters of public interest. This form of expert engagement has the potential to reshape the relationship between academic experts and professional journalists and change the tone and content of public discussion.

Abstract:
The corporation does not allow owners, at least by default, to cash out their interests. This feature of capital lock-in facilitates durable and centralized management of corporate assets. It has been argued that capital lock-in is what has made the corporation the dominant business form and has enabled the modern firm. This argument for the historical significance of capital lock-in is intended to provide a rationale for rejecting reforms that would compromise lock-in. However, lock-in has costs including inhibiting effective monitoring of managers. Moreover, the historical argument is inaccurate because lock-in has always been available in the partnership form. Lock-in should be viewed as just one of many features of firms that evolve to meet business needs - not frozen in place by a dubious account of the past.

Abstract:
The corporation does not allow owners, at least by default, to cash out their interests. This feature of "capital lock-in" facilitates durable and centralized management of corporate assets. It has been argued that capital lock-in is what has made the corporation the dominant business form and has enabled the modern firm. This argument for the historical significance of capital lock-in is intended to provide a rationale for rejecting reforms that would compromise lock-in. However, lock-in has costs, including inhibiting effective monitoring of managers. Moreover, the historical argument is inaccurate, since lock-in has always been available in the partnership form. Lock-in should be viewed as just one of many features of firms that evolve to meet business needs, not frozen in place by a dubious account of the past.

Abstract:
The indictment of the Milberg, Weiss firm and two of its named partners for allegedly illegal payments to lead plaintiffs stands at the intersection of important recent developments in both the expanding criminalization of corporate conduct and the federalization of corporate law. Many have noted the irony and hypocrisy of the Milberg firm's alleged use of illegal tactics to prosecute corporate illegality. However, the more important hypocrisy is that Milberg's prosecutors are essentially paying the same witness - Vogel - that Milberg is being prosecuted for paying. This case illustrates the need to need to develop coherent standards regarding payments to litigants and witnesses. These standards should take account of the incentive effects of the payments, rather than being based on a desire to discourage or encourage particular types of actions.

Milberg Weiss, federalism, class actions, agency costs, lead plaintiffs, witness payments

Abstract:
This Chapter in the book Pioneers of Law and Economics discusses the remarkable career of Henry Manne. Writing when there was a theory vacuum in legal academia, Manne breathed life into corporate law by using economic principles to formulate a sweeping new theory of the corporation. Then he took his show on the road with seminars, programs and ultimately a law school to create a market for his ideas. The Chapter shows that Manne was an entrepreneur not only in bringing people and ideas together, but also in the Schumpeterian sense Manne discussed in his work on insider trading - an active participant in the creative destruction of the existing paradigm rather than merely a manager of existing ideas. Manne's career demonstrates that, under the right conditions, a single scholar can leave noticeable ripples in the stream of intellectual history. By demonstrating that corporations, and by inference other important institutions, are best analyzed in market terms, and by creating an intellectual market for these and other economic ideas, Manne changed the way scholars, judges, regulators and others think about the role of law in society.

Abstract:
This is a brief and informal discussion of some issues related to corporate criminal liability arising in recent cases. It expands on my remarks in connection with the University of Maryland School of Law's Roundtable on the Criminalization of Corporate Law, drawing on my recent commentary on this subject, primarily on my weblog.

Abstract:
One of the most important issues involving limited liability companies is the appropriate way to characterize and handle disputes among members. Courts and legislatures borrowed the derivative suit remedy from corporations and limited partnerships and applied it to LLCs without adequately considering whether this application was appropriate. In fact, this remedy is not suited to the typical business associations for which LLC statutes are designed — that is, closely held fi rms in which members generally participate directly in management. In this setting, the derivative remedy creates costs and complications that are unnecessary because more appropriate remedies are available, including member- authorized suits on behalf of the entity, direct suits by the injured parties, and contractual arbitration. Accordingly, the derivative suit should not be a default remedy for LLCs. More generally, this analysis provides an example of the potential risks of borrowing LLC rules from other types of business associations.

Abstract:
The debate over the changing institution of marriage is marked by the clash of ideas about social institutions. Recent marriage reform proposals highlight these differences. Covenant marriages, in which spouses waive the right to a no-fault divorce, appeal to social conservatives but are regarded with suspicion by social liberals. Authorization of same sex marriages appeals to social liberals but is strongly opposed by social conservatives. Previous articles have focused on same sex marriage and have proclaimed a total victory to one side or the other in the debate. We offer a compromise based on jurisdictional choice and enforcement of contracts. Objections to recognizing covenant or same sex marriages in one's own state are stronger than those to enforcing at least the contractual elements of marriages solemnized elsewhere. At the same time, a state need not give a non-standard foreign marriage the same effect internally as to government-conferred subsidies and benefits as it has in the state of celebration. In other words, we would reject the all-or-nothing principle by which a marriage is either wholly valid or wholly invalid in other states for all purposes. This compromise approach is preferable to absolutist, top-down solutions because it offers a chance of building a consensus between the two sides in the debate.

Abstract:
We present theory and evidence evaluating the work of the National Conference of Commissioners on Uniform State Laws (NCCUSL). Based on an analysis of Uniform Limited Liability Company Acts (ULLCA) promulgated in 1994 and 2006, we show that NCCUSL not only failed to move state laws toward uniformity, but reduced state uniformity that can arise in the absence of NCCUSL. We also present an institutional explanation of NCCUSL's strategy based on the provisions and history of the 2006 ULLCA. We show that the very NCCUSL institutions that are designed to produce uniformity actually may tend to undermine it.

LLC, Uniform Laws, Private Legislatures, NCCUSL

Abstract:
This article reflects the thinking of business and tax lawyers at the dawn of the development of limited liability companies. It provides a thorough discussion of the few things known and many questions that existed in 1992 when only a handful of states had LLC legislation. Many of the questions have now been resolved, some by the "check-the-box" regulations and some by the more recent limited liability company legislation, but the article provides useful background in the development of what was to become a predominating business organization.

Abstract:
The proliferation of partnership-based business organizations raises questions concerning the law's role in shaping firms. Although many scholars have focused on business organization statutes, at least in the U.S. this law may be trivial in the sense that it simply reflects underlying business concerns. That is because firms easily can choose the applicable governance law, and therefore can avoid bad or unsuitable laws. I show that non-organization law may have a greater effect than organization law on the structure of firms because firms cannot easily avoid this law. Federal and state non-organization laws might significantly reduce the usefulness of business organization standard forms where transaction cost and legal considerations conflict. The efficiency of non-organization laws therefore depends on whether their interference with organization law can be reduced without unduly compromising their policy goals.

Abstract:
This paper attempts to find a path through the recent constitutional thicket regarding same-sex marriage by analogizing marriage to a business association. This analogy provides a way to evaluate the justifications for traditional rules banning same-sex marriage - specifically, by emphasizing the advantages of providing distinct standard forms for different types of relationships. Under this approach, the same-sex marriage prohibition might be justified by the need to preserve the precise boundaries of the marriage standard form. The business association analogy also highlights what is at stake in state laws prohibiting same-sex marriage, and therefore helps determine the appropriate burden to impose on defenders of the prohibition. Like business associations, the validity of a marriage generally is governed by the law of the state in which the marriage is celebrated. This offers the potential of allowing couples, including same-sex couples, to select not only from among the standard forms in a particular state, but also from the menus of standard forms offered by various states. This analysis helps assess the infringement on liberty involved in a state's prohibition of same-sex marriage. Moreover, as with business associations, permitting the interstate market for standard forms to operate would provide an evolutionary approach to marriage laws that is preferable to the Court's prematurely taking sides in the marriage debate.

Marriage, family law, jurisdictional competition

Abstract:
In their book, The Law Market, Erin O'Hara and Larry Ribstein show that states increasingly act as hawkers of legal rules in a market for law where people and firms often can shop for those regimes that they find most desirable. This market helps deal with a world in which increasing mobility strains traditional notions that laws operate within geographic borders. The law market also helps to discipline interest group attempts to pass laws that impose costs on society. Moreover, lawmakers have powerful incentives to enforce parties' bargains regarding the applicable law in order to attract or retain mobile firms and residents. On the other hand, the law market threatens governments' ability to protect its citizens from harmful private conduct.

The authors argue for an approach to enforcing choice-of-law contracts that can help maximize the beneficial effects of the law market while tempering its costs. Competition among lawmakers can be superior to sweeping federalization or harmonization of laws across states or nations. At the same time, this approach avoids the costs of subjecting firms and people to different laws in all of the places they travel and do business. The authors show how their insights and recommendations apply across a wide variety of legal problems, including corporate governance, securities, franchise, trust, property, marriage, living will, surrogacy, and general contract regulations. This book therefore provides a useful template for analyzing the role of law in an increasingly mobile world. It also points the way to preserving a role for states and other smaller jurisdictions against the onslaught of federal or global legislation.

Choice of law; conflict of laws; federalism; jurisdictional competition

Abstract:
The Supreme Court's decision in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, involves the reconciliation of three significant policy goals - controlling abusive litigation, deterring securities fraud, and preserving our federal system by limiting the federal government's power. These goals seem to conflict in that controlling litigation involves expanding federal power, thereby foreclosing potential state approaches to controlling fraud. In Dabit, the Court opted to broadly interpret the federal government's preemption of state securities remedies, thereby giving momentum to the federalization of corporate law. This article shows that forcing Congress to attend more closely to the role of state law might have encouraged a better reconciliation of the three policy goals. Specifically, Congress can control abusive litigation without sacrificing the states' role in remedying fraud by preserving fraud remedies imposed under state corporation laws. Letting firms choose the applicable state law would motivate states to develop reasonable remedies rather than to invite abusive litigation. A viable state fraud remedy would, in turn, free Congress and the courts to examine the appropriate extent of federal fraud remedies.

Abstract:
The analysis of business associations largely has been limited to corporations. Yet unincorporated firms, including general and limited partnerships and limited liability companies, comprise about a third of the firms in the US, and even larger percentages elsewhere in the world. The Rise of the Uncorporation covers the history, law, and finance of unincorporated firms. These “uncorporations” are now the dominant business form for non-publicly-traded firms. Moreover, through private equity, hedge funds, and publicly traded partnerships, uncorporations have emerged as a significant force in the governance of a wide range of large firms. The Rise of the Uncorporation is the first general theoretical and practical overview of the alternatives to incorporation. The book seeks to bring uncorporations into popular and academic debates that have previously focused only on corporations. This book also covers the ancillary concepts connected with the evolution of these uncorporations, and analyzes likely future trends in business organization.

Abstract:
Versions of this article were prepared for conferences in 2001 and 2006 in Europe dealing with the reform of private company law. The basic point is that recent U.S. law holds important lessons for Europe as it embarks on private company reform and confronts the jurisdictional competition regime enabled by Centros and other cases. The article shows that this competition is preferable to a single set of business association rules issued by a central planner. U.S. law has evolved through a bottom-up process of experimentation, in which firms can pick suitable rules by making both "horizontal" choices among the various jurisdictions and "vertical" choices among business forms available within jurisdictions. New and more efficient legal structures have evolved that regulators could not have envisioned only a few years ago. The article describes partnership type firms, contrasting both the traditional and new varieties and the partnership form with the corporate form. It then discusses the forces that have shaped partnership in the United States, the evolution in partnership terms wrought by these competitive forces, and implications of this process for European law.

Abstract:
The partnership form has undergone rapid evolution in the U.S., particularly in recent years, as a result of competition between jurisdictions and among business forms. This provides an important lesson for Europe in the wake of Centros. This article shows that competition creates a dynamic law that is responsive to the varied needs of modern firms. This is preferable to uniform lawmaking that erroneously assumes that lawmakers can anticipate what optimal rules should be over time and across different firms.

Abstract:
The current system of state licensing of lawyers is being challenged by significant changes in the legal profession, including multi-state and multi-disciplinary law firms and the rise of Internet law practice. Conventional client-protection explanations of lawyer licensing are inadequate to meet this challenge. However, lawyer licensing can be best understood in the context of the state competition debate. State licensing has an important overlooked benefit in terms of enabling lawyers' role in the state lawmaking process. Efficient laws make the state an attractive forum for potential litigants to choose at the time of their contract. Lawyer licensing encourages lawyers' involvement in lawmaking by capitalizing the benefits of their law-improvement efforts in the value of their law licenses. In other words, state licensing gives lawyers a kind of property right in law. This article shows how lawyers' influence over state law may be consistent with social welfare and how giving lawyers property rights in law through state licensing helps produce these effects.

Abstract:
Developments in European choice of law seem to offer the US a tantalizing opportunity for escape from the chaos of state-by-state choice-of-law rules. Specifically, the Rome Regulations provide the sort of uniform choice-of-law rules that have eluded the US. Also, decisions of the European Court of Justice that permit firms to adopt home-country rules in some situations seem to facilitate jurisdictional choice by private parties. This top-down ordering of choice-of-law rules contrasts with the seemingly chaotic and decentralized system that prevails in the US. However, decentralized US-style federalism might have something to offer Europe because choice of law in the U.S. has sparked a type of law market that helps constrain inefficient State regulatory efforts. Viewed from the perspective of which system best fosters a market for law, both the US and Europe have advantages that each could learn from the other.

Abstract:
Most of the work on jurisdictional competition for business associations has focused on publicly held corporations and the factors that have led to Delaware’s dominant position in attracting out of state firms. Is there an analogous jurisdictional competition to attract formations by closely held firms? Limited liability companies (LLCs) offer a good opportunity to examine this question. Most LLC statutes have been adopted and changed rapidly during the past 20 years. Unlike general and limited partnerships, which have been shaped by uniform laws, LLC statutes vary significantly, and states have devoted a lot of effort to drafting their individual statues. This variation provides an opportunity to test the statutory provisions and other factors that influence LLC’s choice of where to organize. We find little evidence that firms choose to form outside their home state in order to take advantage of variations in statutory provisions. Instead, we find evidence that large LLCs, like large corporations, tend to form in Delaware, and that they do so for the many of the same reasons – that is, for the quality of Delaware’s legal system.

Abstract:
This Article examines private-equity firms as an example of “uncorporate” structures in the governance of large firms. Other examples include master limited partnerships, real estate investment trusts, hedge funds, and venture capital funds. These firms can be seen as an alternative to the corporate form in dealing with the central problem of aligning managers’ and owners’ interests. In the standard corporate form, shareholders monitor powerful managers by voting on directors and corporate transactions, suing for breach of fiduciary duty, and selling control. These mechanisms deal with managerial agency costs by relying on other agents, including auditors, class action lawyers, judges, independent directors, and shareholder intermediaries such as mutual and pension funds. Uncorporations substitute other devices for corporate-type monitoring, including more closely tying managers’ economic wellbeing to the firm’s fortunes and greater assurance of distributions to owners. This Article also explores the implications of this analysis for the corporate tax, the enforcement of firms’ contractual arrangements, and the future of publicly held firms.

Abstract:
Partners have been characterized as agents of the partnership. But this is wrong to the extent that it implies that the law of agency should be applied to partnership. In fact, agency is a distinct set of default rules that apply to a particular type of relationship. Each business association has its own set of default rules that apply to a specific type of relationship. It follows that the commentary of the Restatement (Third) of Agency may be misleading to the extent that it implies otherwise by purporting to deal with partnership-type firms. Moreover, the Revised Uniform Limited Liability Company Act is particularly misguided in dispensing with agency rules and implicitly importing the law of agency into the law of limited liability companies. Similar principles apply to corporate law and the relationship among the shareholders, the corporation and the board of directors.

Abstract:
The debate over the changing institution of marriage is marked by the clash of ideas about social institutions. Recent marriage reform proposals highlight these differences. Covenant marriages, in which spouses waive the right to a no-fault divorce, appeal to social conservatives but are regarded with suspicion by social liberals. Authorization of same sex marriages appeals to social liberals but is strongly opposed by social conservatives. Previous articles have focused on same sex marriage and have proclaimed a total victory to one side or the other in the debate. We offer a compromise based on jurisdictional choice and enforcement of contracts. Objections to recognizing covenant or same sex marriages in one's own state are stronger than those to enforcing at least the contractual elements of marriages solemnized elsewhere. At the same time, a state need not give a non-standard foreign marriage the same effect internally as to government-conferred subsidies and benefits as it has in the state of celebration. In other words, we would reject the all-or-nothing principle by which a marriage is either wholly valid or wholly invalid in other states for all purposes. This compromise approach is preferable to absolutist, top-down solutions because it offers a chance of building a consensus between the two sides in the debate.

Abstract:
The debate over the changing institution of marriage is marked by the clash of ideas about social institutions. Recent marriage reform proposals highlight these differences. Covenant marriages, in which spouses waive the right to a no-fault divorce, appeal to social conservatives but are regarded with suspicion by social liberals. Authorization of same sex marriages appeals to social liberals but is strongly opposed by social conservatives. Previous articles have focused on same sex marriage and have proclaimed a total victory to one side or the other in the debate. We offer a compromise based on jurisdictional choice and enforcement of contracts. Objections to recognizing covenant or same sex marriages in one's own state are stronger than those to enforcing at least the contractual elements of marriages solemnized elsewhere. At the same time, a state need not give a non-standard foreign marriage the same effect internally as to government-conferred subsidies and benefits as it has in the state of celebration. In other words, we would reject the all-or-nothing principle by which a marriage is either wholly valid or wholly invalid in other states for all purposes. This compromise approach is preferable to absolutist, top-down solutions because it offers a chance of building a consensus between the two sides in the debate.

Abstract:
In this revised entry for a new edition of Elgar’s Encyclopedia of Law and Economics we discuss the law and economics of conflict of laws and choice of law, focusing on the law in the US. We first consider choice of law when the parties have not effectively chosen their governing law by contract. We address four questions: (1) Why do courts ever apply anything other than the law of the forum? (2) If a court sometimes applies foreign law, is a rule-based or more modern standard-based approach to its choice preferable? (3) Why have so many states abandoned rule-based approaches in favor of standard-based ones? and (4) Is there any real practical difference between the First Restatement and modern approaches? We then discuss costs and benefits of enforcing parties’ contractual choice of law provisions. We conclude that permitting parties to choose the governing law that best fits their transactions and future private disputes can enhance jurisdictional competition and help restore predictability to the conflict of laws problem. When states nevertheless wish to insist on the application of their own governing law, they should state that explicitly in statutes.

Conflict of Laws, Choice of Law, Private International Law

Abstract:
State regulation of insurance companies has been criticized for many years because of the burden imposed on insurers by having to comply with the laws of many jurisdictions. These higher costs are passed on to consumers. The problems with the current regulatory structure are prompting calls for increased federal regulation of insurance. However, all proposals to federalize insurance regulation create opportunities for abuse at the hands of the federal government and fail to utilize the benefits of a federal system. This article shows how many of the problems of the current system can be addressed without resorting to a large scale intrusion of federal regulators into insurance markets. The proposed solution calls for minimal federal intervention to provide for jurisdictional competition between states that would be allowed to charter insurers that could operate nationally with only the single license granted by the charter. This single-license approach addresses the most salient concerns of proponents of federal optional chartering. It also has the potential for triggering competition and innovation in insurance products and rates while preserving a meaningful role for state regulation.

insurance, financial services, optional federal charter, federalism, regulation

Abstract:
Narrative makes sense out of reality and can forcefully persuade listeners to a particular point of view. Artists in general have a narrative of business which springs from their belief that at least some aspects of business are antithetical to art. Filmmakers add to this a resentment of the constraints capital places on their art. Film is particularly persuasive because of its vivid images and because of the consistency of filmmakers’ anti-capitalist perspective on business. Filmmakers’ negative portrayal of capitalists has helped to prepare the public to believe that capitalists - and not government, economic cycles, greedy people or business generally - caused the financial crisis. This will help the public accept a regulatory agenda built on this premise, specifically including the regulation of hedge funds.

Film, business regulation

Abstract:
State regulation of insurance companies has long been criticized for increasing costs and limiting product innovation and rate competition as insurers attempt to conform to different states' codes. In response, it has been suggested that insurance regulation be federalized. This article proposes, instead, that insurers be allowed to operate nationally so long as they are licensed in one state. Doing this would provide 50 new licensing options for multi-state insurers. The single-license solution has the potential for triggering competition and innovation on insurance products and rates while preserving a role for meaningful state regulation.

single-license solution, regulation, insurance, state-based regulation, jurisdictional competition, optional federal chartering, guaranty funds, consumer protection, insurance regulation, interstate commerce, antitrust, NAIC, exit, National Insurance Act, race-to-the-bottom

Abstract:
Firms can rent the securities laws in other countries by listing or selling securities there while remaining subject to local law. Firms thereby can reduce their cost of capital despite political and other impediments to strong securities laws in their home countries. The cross-listing market has implications for both cross-listing jurisdictions and the home jurisdictions of cross-listing firms. From the standpoint of home countries, firms' flight to other markets may result in political pressure to adopt laws similar to those in the cross-listing countries. However, this pressure is unlikely to cause convergence of international corporate laws. To the extent divergence persists, cross-listing firms' costs of complying with the internal governance law of cross-listing jurisdictions may exceed the benefits of cross-listing. In order to avoid reducing cross-listings, cross-listing jurisdictions have an incentive to exempt foreign firms from their internal governance law or to avoid regulating internal governance. This has important implications for expanding US federal regulation of internal governance: Just as the federal government is Delaware's competition, so the international market for cross-listings is Washington's competition.

Cross-listing, securities regulation, jurisdictional competition, corporate governance, regulatory competition, law and finance, Sarbanes-Oxley

Abstract:
Expulsion is an important way for law firms to maintain their reputations, which in turn benefits their clients. Courts face difficulties in second-guessing expulsions and law firms have extra-legal incentives to act fairly and prudently in expelling partners. Consistent with these policy considerations, both the partnership statutes and the case law support a strong expulsion right. The statutory default rules permit expulsion without cause even without an expulsion provision in the agreement. Courts commonly enforce express contractual provisions on expulsion with or without cause. Finally, the policy considerations discussed in this article counsel caution in restricting expulsion under ethical rules and employment discrimination laws.

Abstract:
This Article provides empirical and theoretical support for the proposition that permitting actors to contract for the law that applies to their transaction would improve state rules and regulations by reducing interest group incentives to promote inefficient laws. In general, competition between lawmaking bodies limits the extent to which they can impose costs on those who have little influence on the lawmaking process because they reside outside of the jurisdiction. Enforcing bargains over applicable law is particularly effective in promoting jurisdictional competition because it significantly lowers exit costs and thereby increases jurisdictional competition as compared with a rule that forces individuals and firms physically to relocate to a particular jurisdiction in order to be subject to its laws. Although jurisdictions seek to block easy exit from their laws by imposing legal constraints on the enforceability of choice-of-law contracts, we show that a multi-stage process of jurisdictional competition tends to erode these constraints. Given our analysis, theory and data indicating that law is inefficient may be incomplete because they examine only jurisdictions' initial attempts to externalize costs rather than the ultimate outcome of jurisdictional competition. We support our conclusion by analyzing the competition effects on contractual choice of law in three areas -- corporate law, unincorporated firms, and franchise regulation. In addition to its general implications for jurisdictional competition, our analysis has specific implications for the appropriate mode of analyzing the efficiency of state law and of a federal system.

Abstract:
This article surveys changes in limited partnerships and limited partnership law and analyzes the current effort by the National Conference of Commissioners on Uniform State Laws (NCCUSL) to revise the Uniform Limited Partnership Act. The article criticizes the project in light of theories and evidence on uniform laws and statutory standard forms and NCCUSL's institutional shortcomings as a promoter of uniformity.

Abstract:
In United States v. O'Hagan, the Supreme Court held that a lawyer's misappropriation of client information was fraud connected with his subsequent securities transactions and therefore actionable under section 10(b) of the Securities Exchange Act of 1934. This article argues that the decision makes sense only if federal law should protect property rights in information. State law, however, offers better-developed legal rules regarding property rights. Because of state law's greater potential to benefit from jurisdictional competition and legal evolution, state courts and legislators are more likely than federal lawmakers to devise efficient legal rules for protecting private information.

Abstract:
Berle & Means observed that US corporate structure was inefficient because shareholders owned too little of their firms to monitor effectively. This leaves ultimate control with non-owner managers. But many have argued that firm structure adapts efficiently to transaction cost problems. A necessary corollary of this view is that corporate law is efficient. Mark Roe has forcefully challenged this view. He suggests that US laws created corporations with weak, dispersed owners and strong managers. But I argue that, even if US corporate structure has been shaped by history and politics, the survival of this structure may be some evidence of efficiency if both laws and firms were under significant competitive pressure to change over time. This theory provides a basis for comparing the efficiency of the corporate law and structure of different countries. The more a country's corporate law and structure is subject to competitive forces, and thereby "market tested," the closer it will come to a first-best adjustment to inherent transaction costs. The US is a dynamic system that facilitates challenges to attempted political wealth transfers. There is less such testing in other countries, including Japan, Germany and New Zealand. Under this theory, the US weak-owner model looks better than under Roe's analysis.

Abstract:
This Article discusses the costs and benefits of the many changes in the law of unincorporated firms during the last few years. Business associations statutes are standard form contracts that reduce transactions costs by giving parties rules they would contract for in a frictionless world. Changing these statutes may save parties the costs of changing their agreements to respond to new circumstances, but it also may upset existing contracts. This Article proposes making statutory changes with due attention to possible transitions effects. It also proposes minimizing disruptive change by, among other things, reducing the role of uniform laws.

Abstract:
This paper examines whether the process of unguided state by state evolution of Limited Liability Company (LLC) Statutes has lead to efficient interstate uniformity. Our evidence suggests significant uniformity has been produced in cases where the net benefits of uniformity are positive, and that such uniformity has not been produced by herd behavior. Our results are consistent with Alchian's intuition about the role of market processes, and suggests that the survival of efficient rules, fostered by the rational behavior of decentralized economic actors, are produced by forces beyond the control or foresight of individual lawmakers or legislatures.

Abstract:
New partnership law, the development of new partnership-type business entities, the complex bankruptcies of large law and accounting partnership and proposals to substantially amend federal bankruptcy law dealing with partnerships have brought the formerly neglected area of partnership bankruptcy to center stage. This article is the first economic analysis of the application of federal bankruptcy law to partnerships. The article accepts the standard economic explanation for bankruptcy as a way to preserve asset values from dissipation through creditor grab races under state law. However, it shows that even if this rationale works in other debt collection contexts, it does not justify the substantial costs of federalizing partnership bankruptcy law. Because the partnership's assets are enlarged by the assets of the individual partners, there may be little need to hold creditors at bay in order to accomplish a reorganization or orderly liquidation. Accordingly, this article suggests limiting the extent to which federal bankruptcy law trumps state partnership law on such matters as creditor actions against solvent partners and the dissociation of insolvent partners. It also considers the extent to which bankruptcy law should be applied to partnership-type firms whose members have limited liability.

Abstract:
This paper, prepared for The New Palgrave Dictionary of Economics and the Law, discusses the partnership form of business association as a type of standard form contract. It analyzes the role of partnership statutory provisions in supplying default contract terms, the economic rationales for specific default rules on management, fiduciary duties, exit and other matters, and the relationship between partnerships and other types of business associations.

Abstract:
The ethical rules of the legal profession, while ostensibly designed to reduce agency costs that arise between lawyers and clients, may actually exacerbate these costs by frustrating the operation of structural devices within law firms that would constrain lawyer-client agency costs in the absence of regulation. This article traces these effects of ethical rules on non-lawyer ownership of law firms, vicarious liability, noncompetition agreements and conflicts of interest. It also analyzes possible causes of perverse effects of ethical rules in the motivations of lawyers, judges and law professors, and considers possible cures, including enforcing lawyers' contractual selection of the applicable state ethical code.

Abstract:
This Article discusses an important aspect of the collision of state partnership law with federal bankruptcy law as both apply to bankrupt partners. Partnership rules deal with agency costs among partners that result from the bankruptcy by providing for the dissociation of the bankrupt partner. However, the Bankruptcy Code's general non-enforcement of "ipso facto" clauses mandates continuation of the debtor as a partner and invalidates sub-market-value buyouts of the debtor's interest. This Article argues that state partnership law should control. Even if the Bankruptcy Code properly refuses to enforce ipso facto clauses generally, the rationale for non-enforcement does not apply to dissociation of bankrupt partners. Moreover, application of federal bankruptcy law has other costs, including creating perverse incentives to resort to bankruptcy, frustrating the agency- cost-reducing objectives of partnership law and, more generally, blocking potential benefits from customized contracts and state law evolution and variation.