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Abstract:
In September 1998, the Judicial Conference of the United States abandoned its latest attempt to regulate the timing of interviews and offers in the law clerk selection process. This paper surveys the further unraveling of the market since then, makes comparisons with other entry level professional labor markets, and evaluates some possibilities for reform.

Abstract:
Behavioral economics has been a growing force in many fields of applied economics, including public economics, labor economics, health economics, and law and economics. This paper describes and assesses the current state of behavioral law and economics. Law and economics had a critical (though underrecognized) early point of contact with behavioral economics through the foundational debate in both fields over the Coase theorem and the endowment effect. In law and economics today, both the endowment effect and other features of behavioral economics feature prominently and have been applied in many important legal domains. The paper concludes with reference to a new emphasis in behavioral law and economics on debiasing through law - using existing or proposed legal structures in an attempt to reduce people's departures from the traditional economic assumption of unbounded rationality.

Abstract:
Behavioral economics has been a growing force in many fields of applied economics, including public economics, labor economics, health economics, and law and economics. This paper describes and assesses the current state of behavioral law and economics. Law and economics had a critical (though under-recognized) early point of contact with behavioral economics through the foundational debate in both fields over the Coase theorem and the endowment effect. In law and economics today, both the endowment effect and other features of behavioral economics feature prominently and have been applied in many important legal domains. The paper concludes with reference to a new emphasis in behavioral law and economics on "debiasing through law" - using existing or proposed legal structures in an attempt to reduce people's departures from the traditional economic assumption of unbounded rationality.

Law and economics, behavioral economics

Abstract:
In many settings, human beings are boundedly rational. A distinctive and insufficiently explored legal response to bounded rationality is to attempt to "debias through law," by steering people in more rational directions. In many important domains, existing legal analyses emphasize the alternative approach of insulating outcomes from the effects of boundedly rational behavior, often through blocking private choices. In fact, however, a large number of actual and imaginable legal strategies are efforts to engage in the very different approach of debiasing through law by reducing or even eliminating people's boundedly rational behavior. In important contexts, these efforts to debias through law can avoid the costs and inefficiencies associated with regulatory approaches that take bounded rationality as a given and respond by attempting to insulate outcomes from its effects. This paper offers a general account of how debiasing through law does or could work to address legal questions across a range of areas, from consumer safety law to corporate law to property law. Discussion is also devoted to the risks of government manipulation and overshooting that are sometimes raised when debiasing through law is employed.

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

Abstract:
Human beings are often boundedly rational. In the face of bounded rationality, the legal system might attempt either to debias law, by insulating legal outcomes from the effects of boundedly rational behavior, or instead to debias through law, by steering legal actors in more rational directions. Legal analysts have focused most heavily on insulating outcomes from the effects of bounded rationality. In fact, however, a large number of actual and imaginable legal strategies are efforts to engage in debiasing through law - to help people reduce or even eliminate boundedly rational behavior. In important contexts, these efforts promise to avoid the costs and inefficiencies associated with regulatory approaches that take bounded rationality as a given and respond by attempting to insulate outcomes from its effects. This Article offers both a general theory of debiasing through law and a description of how such debiasing does or could work to address central legal questions in a large number of domains, from employment law to consumer safety law to corporate law to property law. Discussion is devoted to the risks of overshooting and manipulation that are sometimes raised when government engages in debiasing through law.

labor, employment

Abstract:
The agents to whom shareholders delegate the management of corporate affairs may transfer value from shareholders to themselves through a variety of mechanisms, such as self-dealing, insider trading, and taking of corporate opportunities. A common view in the law and economics literature is that such value diversion does not ultimately produce a reduction in shareholder wealth, since value diversion simply substitutes for alternative forms of compensation that would otherwise be paid to managers. We question this view within its own analytical framework by studying, in a principal-agent model, the effects of allowing value diversion on managerial compensation and effort. We suggest that the standard law and economics view of value diversion overlooks a significant cost of such behavior. Many common modes of compensation can provide managers with incentives to enhance shareholder value; replacing such compensation would reduce these incentives. As a result, even if the consequences of a rule permitting value diversion can be fully taken into account in settling managerial compensation, such a rule might still produce a reduction in shareholder wealth -- and would not do so only if value diversion would have some countervailing positive effects (a possibility which our model considers) that are sufficiently significant in size.

Abstract:
The agents to whom shareholders delegate the management of corporate affairs may transfer value from shareholders to themselves through a variety of mechanisms, such as self-dealing, insider trading, and taking of corporate opportunities. A common view in the law and economics literature is that such value diversion does not ultimately produce a reduction in shareholder wealth, since value diversion simply substitutes for alternative forms of compensation that would otherwise be paid to managers. We question this view within its own analytical framework by studying, in a principal-agent model, the effects of allowing value diversion on managerial compensation and effort. We suggest that the standard law and economics view of value diversion overlooks a significant cost of such behavior. Many common modes of compensation can provide managers with incentives to enhance shareholder value; replacing such compensation would reduce these incentives. As a result, even if the consequences of a rule permitting value diversion can be fully taken into account in setting managerial compensation, such a rule might still produce a reduction in shareholder wealth--and would not do so only if value diversion would have some countervailing positive effects (a possibility which our model considers) that are sufficiently significant in size.

Abstract:
Considerable attention has been given to the Implicit Association Test (IAT), which finds that most people have an implicit and unconscious bias against members of traditionally disadvantaged groups. Implicit bias poses a special challenge for antidiscrimination law because it suggests the possibility that people are treating others differently even when they are unaware that they are doing so. Some aspects of current law operate, whether intentionally or not, as controls on implicit bias; it is possible to imagine other efforts in that vein. An underlying suggestion is that implicit bias might be controlled through a general strategy of debiasing through law.

Abstract:
Legal rules governing the employer-employee relationship are many and varied. Economic analysis has illuminated both the efficiency and the effects on employee welfare of such rules, as described in this chapter, to appear in the Law and Economics volume of the Handbooks of Economics series. Topics addressed in the chapter include workplace safety mandates, compensation systems for workplace injuries, privacy protection in the workplace, employee fringe benefits mandates, targeted mandates such as medical and family leave, wrongful discharge laws, unemployment insurance systems, minimum wage rules, and rules requiring that employees receive overtime pay. Both economic theory and empirical evidence are considered.

employment law, workplace safety, workplace privacy, benefits mandates, wrongful discharge law, overtime pay rules

Abstract:
Studies of the effects of employment protection law frequently examine protective legislation as a whole. From a policy reform perspective, however, it is often critical to know which particular aspect of the legislation is responsible for its observed effects. The American with Disabilities Act (ADA), a 1990 federal law covering over 40 million Americans, is a clear case in point. Several empirical studies have suggested that the passage of the ADA reduced rather than increased employment opportunities for individuals with disabilities. To the extent this is true, it is crucial to credibly disentangle the different features of this complex and multi-faceted law. Separately evaluating the distinct aspects of the ADA is important not only for determining how the law might best be reformed if some aspects of it produce negative employment effects, but also for improving our understanding of the potential consequences of ADA-like provisions in race and other civil rights laws. This paper exploits state-level variation in pre-ADA legal regimes governing disability discrimination to separately estimate the employment effects of each of the ADA's two primary substantive provisions. We find strong evidence that the immediate post-enactment employment effects of the ADA are attributable to its requirement of "reasonable accommodations" for disabled employees rather than to its potential imposition of firing costs for such employees. Moreover, the pattern of the ADA's effects across states suggests that declining disabled employment after the immediate post-ADA period may reflect other factors rather than the ADA itself.

Abstract:
In the past, judges have often hired applicants for judicial clerkships as early as the beginning of the second year of law school for positions commencing approximately two years down the road. In the new hiring regime for federal judicial law clerks, by contrast, judges are exhorted to follow a set of start dates for considering and hiring applicants during the fall of the third year of law school. Using the same general methodology as we employed in a study of the market for federal judicial law clerks conducted in 1998-2000, we have broadly surveyed both federal appellate judges and law students about their experiences of the new market for law clerks. This paper analyzes our findings within the prevailing economic framework for studying markets with tendencies toward early hiring. Our data make clear that the movement of the clerkship market back to the third year of law school is highly valued by judges, but we also find that a strong majority of the judges responding to our surveys has concluded that nonadherence to the specified start dates is very substantial -- a conclusion we are able to corroborate with specific quantitative data from both judge and student surveys. The consistent experience of a wide range of other markets suggests that such nonadherence in the law clerk market will lead to either a reversion to very early hiring or the use of a centralized matching system such as that used for medical residencies. We suggest, however, potential avenues by which the clerkship market could stabilize at something like its present pattern of mixed adherence and nonadherence, thereby avoiding the complete abandonment of the current system.

Abstract:
In the past, judges have often hired applicants for judicial clerkships as early as the beginning of the second year of law school, for positions commencing approximately two years down the road. In the new hiring regime for federal judicial law clerks, by contrast, judges are exhorted to follow a set of start dates for considering and hiring applicants during the fall of the third year of law school. Using the same general methodology as we employed in a study of the market for federal judicial law clerks conducted in 1998-2000, we have broadly surveyed both federal appellate judges and law students about their experiences of the new market for law clerks. This Article analyzes our findings within the prevailing economic framework for studying markets with tendencies toward early hiring - a framework we both draw upon and modify in the course of our analysis. Our data make clear that the movement of the clerkship market back to the third year of law school is highly valued by judges, but we also find that a strong majority of the judges responding to our surveys has concluded that non-adherence to the specified start dates is very substantial - a conclusion we are able to corroborate with specific quantitative data from both judge and student surveys. The consistent experience of a wide range of other markets suggests that such non-adherence in the law clerk market will lead to either a reversion to very early hiring or the use of a centralized matching system such as that used for medical residencies. We suggest, however, potential avenues by which the clerkship market could stabilize at something like its present pattern of mixed adherence and non-adherence, thereby avoiding the complete abandonment of the current system.

Judicial clerkships, judges

Abstract:
This essay, prepared for The Law and Economics of Irrational Behavior (Francesco Parisi and Vernon Smith, eds., 2004), examines implications of bounded rationality for traditional economic analysis of public law enforcement. A brief application to the enforcement of employment discrimination laws by public agents is offered.

Abstract:
The canonical idea of "antidiscrimination" in the United States condemns the differential treatment of otherwise similarly situated individuals on the basis of race, sex, national origin, or other protected characteristics. Starting from this perspective, legal requirements that actors take affirmative steps to "accommodate" the special, distinctive needs of particular groups, such as individuals with disabilities, by providing additional benefits or allowances to them strike many observers as fundamentally distinct from, broader than, and often less legitimate than legal requirements within the canonical "antidiscrimination" category. On this ground, observers sharply contrast Title VII of the Civil Rights Act of 1964 and other older civil rights enactments, said to be "antidiscrimination" laws, with the Americans with Disabilities Act of 1990 (ADA) and the Family and Medical Leave Act of 1993 (FMLA), said to be "accommodation" laws. On these observers' view, "antidiscrimination" focuses on "equal" treatment, while "accommodation" focuses on "special" treatment.

The goal of this paper is to intervene in two respects in this longstanding discussion over the relation-ship between antidiscrimination and accommodation. The first point it makes is that, in a broader respect than has generally bee appreciated, some aspects of antidiscrimination law--in particular of its disparate impact branch--are in fact requirements of accommodation. In such instances it is hard to resist the conclusion that antidiscrimination and accommodation are overlapping rather than fundamentally distinct notions, despite the frequent claims of commentators to the contrary. The overlap between the two concepts, I suggest, also sheds light on the question of Congress's power under Section 5 of the Fourteenth Amendment to enact laws (such as the FMLA) that expressly mandate the provision of particular employment benefits directed toward specific groups of employees.

The second point the paper makes is that even those aspects of antidiscrimination law that are not in fact accommodation requirements in the sense just described are similar to accommodation requirements in respects that have not previously been understood. The point is clearest--and has been recognized previously--in situations in which antidiscrimination law prohibits employer behavior based on customer or coworker dislike of a particular group; here antidiscrimination law fairly obviously operates to require employers to ignore undeniable financial costs associated with the disfavored group of employees, and thus in a real sense to "accommodate" these employees. But, as I describe, the parallel between antidiscrimination and accommodation is broader and embraces additional aspects of antidiscrimination law as well.

This second point, in addition to suggesting that antidiscrimination shares such previously unrecognized parallels with accommodation, is of independent interest in showing how antidiscrimination law may be analyzed using a supply and demand framework drawn from economics. The analysis I offer here builds upon and extends John Donohue's well-known work in this area.

Abstract:
It is by now commonplace to observe that bias on the basis of race and other traits in American society today is primarily unconscious, or implicit, rather than conscious in nature. It is equally commonplace to critique existing antidiscrimination law for its failure to create significant liability for behavior stemming from such implicit bias. Despite this broad condemnation of existing antidiscrimination law, essentially no progress has been made on efforts to reform the law in response to the problem of implicit bias. The present paper suggests, however, that an important piece of the relationship between antidiscrimination law and implicit bias has been overlooked in the existing debate. The missing piece is the way in which current antidiscrimination law - although it concededly does not aim at implicitly biased behavior in a significant way - nonetheless tends to have the effect, in a wide range of respects, of reducing implicit bias. In this account of antidiscrimination law, the existing legal regime occupies a far more positive, although admittedly still imperfect, relationship with implicit bias. As explored in the paper, in diverse areas ranging from employment law to education law to the law governing various types of voluntary organizations, current antidiscrimination doctrines are likely to shape and affect the level of people's implicit bias in important ways. Understanding these previously ignored effects of current antidiscrimination law allows us to appreciate what is valuable, good, and worth celebrating about this law, notwithstanding its undeniable shortcomings.

implicit bias, antidiscrimination law

Abstract:
Many laws create important rights for today's employees, but the availability of legal representation for employees seeking to enforce those rights is uncertain. The goal of the present paper, part of the Emerging Labor Market Institutions for the 21st Century Project at the National Bureau of Economic Research, is to examine some of the distinctive public-interest legal organizations that exist to help to enforce the employment laws. The chapter focuses on two broad categories of such organizations: 'national issue organizations,' which are organizations that focus on one or more broad-based issues and are funded predominantly by private donations; and legal services organizations, which serve exclusively low-income individuals and are funded primarily by the government.

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

Abstract:
Many laws create important rights for today's employees, but the availability of legal representation for employees seeking to enforce those rights is uncertain. The goal of the present paper, part of the Emerging Labor Market Institutions for the 21st Century Project at the National Bureau of Economic Research, is to examine some of the distinctive public-interest legal organizations that exist to help to enforce the employment laws. The chapter focuses on two broad categories of such organizations: national issue organizations, which are organizations that focus on one or more broad-based issues and are funded predominantly by private donations; and legal services organizations, which serve exclusively low-income individuals and are funded primarily by the government.

Abstract:
The Americans with Disabilities Act of 1990 (ADA) broadly prohibits discrimination on the basis of disability in employment and other settings. Several empirical studies have suggested that employment levels of individuals with disabilities declined rather than increased after the ADA's passage. This paper provides a first look at whether lower disabled employment levels after the ADA might have resulted from increased participation in educational opportunities by individuals with disabilities as a rational response to the ADA's employment protections. The main empirical finding is that individuals with disabilities who were not employed in the years following legal innovation in the form of the ADA were more likely than their pre-ADA counterparts to give educational participation as their reason for not being employed. This preliminary evidence suggests the value of further study, with better education data, of the relationship between the ADA's enactment and disabled participation in educational opportunities.

Abstract:
A longstanding puzzle in corporate finance is the rise of stock repurchases as a means of distributing earnings to shareholders. While most attempts to explain repurchase behavior focus on the incentives of firms, this paper focuses on the incentives of the agents who run firms, as determined by those agents' compensation packages. The increased use of repurchases coincided with an increasing reliance on stock options to compensate top managers, and stock options encourage managers to choose repurchases over conventional dividend payments because repurchases, unlike dividends, do not dilute the per-share value of the stock. Consistent with the stock option hypothesis, I find that firms which rely heavily on stock-option-based compensation are significantly more likely to repurchase their stock than firms which rely less heavily on stock options to compensate their top executives. I find no such relationship between repurchases and restricted stock, an alternative form of stock-based compensation that, unlike stock options, is not diluted by dividend payments. These findings have implications for the study of other puzzles concerning firms' payout behavior, and for the study of the effects of executive compensation packages on managerial incentives.

Abstract:
Legal rules governing the employer-employee relationship are many and varied. Economic analysis has illuminated both the efficiency and the effects on employee welfare of such rules, as described in this paper. Topics addressed include workplace safety mandates, compensation systems for workplace injuries, privacy protection in the workplace, employee fringe benefits mandates, targeted mandates such as medical and family leave, wrongful discharge laws, unemployment insurance systems, minimum wage rules, and rules requiring that employees receive overtime pay. Both economic theory and empirical evidence are considered.

Abstract:
Legal rules governing the employer-employee relationship are many and varied. This review is concerned with the economic analysis of such rules. The review focuses on areas of employment regulation that have not been reviewed elsewhere from an economic perspective. Topics considered in the review include workplace safety regulation, privacy protection in the workplace, fringe benefits mandates, targeted mandates such as medical and family leave, and rules requiring that employees receive overtime pay. Both economic theory and empirical evidence are considered.

employer-employee relationship, benefits mandates, workplace privacy, workplace safety, employment law

Abstract:
Economic analysis of law usually proceeds with the behavioral assumptions of neoclassical economics. But empirical evidence gives us much reason to doubt these assumptions; people are boundedly rational and boundedly self-interested, and they have bounded willpower. The result is to call into question many of the predictions and prescriptions offered by traditional law and economics .In this paper we offer a broad vision of how law and economics analysis may be improved by increased attention to insights about actual human behavior. Our analysis divides into three categories: positive, prescriptive, and normative. Positive analysis of law concerns how agents behave in response to legal rules and how legal rules are produced; here we suggest that in many areas, a behavioral approach improves predictions about both the effects and content of law. Prescriptive analysis concerns what rules should be adopted to advance specified ends; here we offer alternatives (in areas including informational disclosure and criminal law) to standard law and economics prescriptions based on behavioral insights. Finally, normative analysis attempts to assess more broadly the ends of the legal system: Should the system always respect people's choices? What is the appropriate domain of paternalism? By drawing attention to cognitive and motivational problems, behavioral law and economics offers answers distinct from those offered by the standard analysis. In addressing many specific topics in law, we attempt to provide some answers, and also to outline an extended research agenda for future work in behavioral law and economics.

Abstract:
Economic analysis of law usually proceeds with the behavioral assumptions of neoclassical economics. But empirical evidence gives us much reason to doubt these assumptions; people are boundedly rational and boundedly self-interested, and they have bounded willpower. The result is to call into question many of the predictions and prescriptions offered by traditional law and economics .In this paper we offer a broad vision of how law and economics analysis may be improved by increased attention to insights about actual human behavior. Our analysis divides into three categories: positive, prescriptive, and normative. Positive analysis of law concerns how agents behave in response to legal rules and how legal rules are produced; here we suggest that in many areas, a behavioral approach improves predictions about both the effects and content of law. Prescriptive analysis concerns what rules should be adopted to advance specified ends; here we offer alternatives (in areas including informational disclosure and criminal law) to standard law and economics prescriptions based on behavioral insights. Finally, normative analysis attempts to assess more broadly the ends of the legal system: Should the system always respect people's choices? What is the appropriate domain of paternalism? By drawing attention to cognitive and motivational problems, behavioral law and economics offers answers distinct from those offered by the standard analysis. In addressing many specific topics in law, we attempt to provide some answers, and also to outline an extended research agenda for future work in behavioral law and economics.