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Abstract:
The WTO ministerial meeting in Doha produced a declaration that will encourage developing nations to use compulsory licensing and parallel importation to reduce the prices of patented pharmaceuticals in their markets. This paper questions the soundness of such policies. Developing nations have long had little intellectual property protection for pharmaceuticals, which may have resulted at least in part from an acute collective action problem -- developing nations reap the full benefits from lower prices when they do not create pharmaceutical patents, yet the costs in terms of diminished research incentives are largely externalized to the rest of the developing world. The magnitude of the effect may be modest for many lines of drug research, but acute for diseases of particular importance to developing nations such as malaria and drug-resistant tuberculosis. The WTO TRIPs agreement held out some promise of overcoming part of this problem, but just as the obligations of developing nations under TRIPs were beginning to take hold, the Doha ministerial declaration casts great doubt on the future credibility of patent rights for pharmaceuticals in the developing nations.

WTO, licensing, patent, intellectural property, developing nations

Abstract:
The laws of war forbid states to use force against each other except in self-defense or with the authorization of the United Nations Security Council. Self-defense is usually understood to mean self-defense against an imminent threat. We model the decision of states to use force against "rogue" states, and argue that under certain conditions it may be proper to expand the self-defense exception to preemptive self-defense. We also consider related issues such as humanitarian intervention, collective security, and the role of the Security Council.

laws of war, United Nations

Abstract:
This paper evaluates the WTO rules relating to subsidies and countervailing measures from a welfare economics perspective. It concludes that the rules relating to "nonviolation" subsidies, export subsidies and certain agricultural subsidies have sound economic justification. The rules governing domestic subsidies generally, by contrast, do little to identify or police undesirable subsidies. Further, as has been argued elsewhere, countervailing measures are economically undesirable.

international trade, GATT, SCM, GATS, world trade organization

Abstract:
This paper is a preliminary draft for eventual inclusion in the Handbook of Law and Economics, A. Mitchell Polinsky & Steven Shavell editors. It reviews and synthesizes the work of economists and law and economics scholars in the field of public international law. The bulk of that work has been in the area of international trade, but many of the ideas in the trade literature have implications for other subfields. Recent years have seen a significant increase in research on other topics as well. The paper begins with a general framework for thinking about the positive and normative economics of public international law, and then proceeds to a treatment of specific topics including customary law, strategic alliances and the laws of war, international trade, international investment, international antitrust, human rights law, conflicts of law, and the international commons (fisheries).

customary law, strategic alliances, laws of war, international trade, international investment, international antitrust, human rights law, conflicts of law, international commons

Abstract:
Opponents of globalization in general and of the World Trade Organization in particular often contend that a tension exists between the growth of open markets and various conceptions of "human rights." This paper takes issue with such claims. Both theory and the available empirical evidence suggest that the growth of the trading system generally tends to promote rather than to undermine human rights. Any tensions are best resolved through tailored interventions that directly address the human rights impairment without sacrificing the wider benefits of freer trade.

economic development

Abstract:
The creation of the WTO revived the use of "safeguard" measures to protect troubled industries against surges in import competition. Many of these measures have now been challenged in the WTO dispute resolution process, and in each case the process has found the challenged measure to be a violation of WTO law. This paper examines the WTO rules on safeguards from an economic perspective, and offers a critique of the Appellate Body decisions to date. Among other things, it argues that the textual preconditions for the use of safeguards in the treaty text are incoherent, and that the Appellate Body has compounded the problem through a series of unsound rulings. The result is a situation in which nations cannot use safeguards without facing a near certainty that they will be found invalid. Those who believe that safeguard measures are wasteful protectionism may welcome these developments, but it is not obvious that the trading system will benefit in the long run.

tariffs, steel industry, GATT

Abstract:
This paper challenges the conventional wisdom that the dormant commerce clause requires invalidation of most state regulation of the Internet. The paper argues that conventional wisdom is flawed in three respects: it rests on an impoverished understanding of the architecture of the Internet; it misreads dormant commerce clause jurisprudence; and it misunderstands the economics of state regulation of transborder transactions. The paper does not argue that all state regulation of Internet communications should be immune from dormant commerce clause scrutiny. Such a general conclusion would be inappropriate because different state regulations raise different empirical and technical issues that remain unresolved. The paper aims, more modestly, to deflate the emerging conventional wisdom and to show that the dormant commerce clause, properly understood, leaves states with much more flexibility to regulate Internet transactions than is commonly thought. Along the way, the paper contributes to dormant commerce clause theory generally by bringing theoretical clarity to the "extraterritoriality" and "inconsistent regulations" prongs of dormant commerce clause jurisprudence.

Abstract:
The international law of state responsibility determines when states are liable for international law violations. States are generally liable when they have control over the actions of wrongdoers; thus, the actions of state officials can implicate state responsibility whereas the acts of private citizens usually do not. We argue that the rules of state responsibility have an economic logic similar to that of vicarious liability in domestic law: the law in both cases provides third parties with incentives to control the behavior of wrongdoers whom they can monitor and influence. We also discuss international legal remedies and individual liability under international criminal law.

Abstract:
Government contracts are subject to a number of legal rules that have no private sector analogues and that have received virtually no attention from law and economics scholar. This article explores these rules from an economic perspective, with special attention to the leading modern case on the subject, United States v. Winstar. The analysis emphasizes a number of differences between governmental and private actors that have important implications for the wisdom of applying conventional breach of contract remedies to the government. These differences afford plausible efficiency justifications, in our view, for many of the most important doctrines governing government contracts. Some of these doctrines help to impede the use of long-term contracts to insulate inefficient rent-seeking arrangements against subsequent attack, some seem to prevent the government from inefficiently contracting away its ability to respond to new information, and others seem to work a sensible allocation between the government and private contractors of the risk that government may change its policies. Not all doctrines and decisions can be justified in this fashion, however, and we do not mean to claim that the existing body of law is in any sense optimal. Indeed, the Winstar decision itself seems quite mistaken from an economic standpoint. The considerations that we develop have implications for a number of related legal issues. Not all of these implications are developed here, but we do consider modern litigation under the Contract Clause of the U.S. Constitution as well as the recent academic debate about the wisdom of retroactive taxation.

Abstract:
Government contracts are subject to a number of legal rules that have no private sector analogs, and that have received virtually no attention from law and economics scholars. This paper explores these rules from an economic perspective, with special attention to the leading modern case on the subject, United States v. Winstar.

The analysis emphasizes a number of differences between governmental and private actors that have important implications for the wisdom of applying conventional breach of contract remedies to the government. These differences afford plausible efficiency justifications, in our view, for many of the most important doctrines governing government contracts. Some of these doctrines help to impede the use of long term contracts to insulate inefficient rent seeking arrangements against subsequent attack, some seem to prevent the government from inefficiently contracting away its ability to respond to new information, and others seem to work a sensible allocation between the government and private contractors of the risk that government may change its policies. Not all doctrines and decisions can be justified in this fashion, however, and we do not mean to claim that the existing body of law is in any sense optimal. Indeed, the Winstar decision itself seems quite mistaken from an economic standpoint.

The considerations that we develop have implications for a number of related legal issues. Not all of these implications are developed here, but we do consider modern litigation under the Contract Clause of the United States Constitution, as well as the recent academic debate about the wisdom of retroactive taxation.

Abstract:
Government contracts are subject to a number of legal rules that have no private sector analogs, and that have received virtually no attention from law and economics scholars. This paper explores these rules from an economic perspective, with special attention to the leading modern case on the subject, United States v. Winstar.

The analysis emphasizes a number of differences between governmental and private actors that have important implications for the wisdom of applying conventional breach of contract remedies to the government. These differences afford plausible efficiency justifications, in our view, for many of the most important doctrines governing government contracts. Some of these doctrines help to impede the use of long term contracts to insulate inefficient rent seeking arrangements against subsequent attack, some seem to prevent the government from inefficiently contracting away its ability to respond to new information, and others seem to work a sensible allocation between the government and private contractors of the risk that government may change its policies. Not all doctrines and decisions can be justified in this fashion, however, and we do not mean to claim that the existing body of law is in any sense optimal. Indeed, the Winstar decision itself seems quite mistaken from an economic standpoint.

The considerations that we develop have implications for a number of related legal issues. Not all of these implications are developed here, but we do consider modern litigation under the Contract Clause of the United States Constitution, as well as the recent academic debate about the wisdom of retroactive taxation.

Abstract:
This paper develops a positive theory of the rules regarding standing and remedy in international trade and investment agreements. In the investment setting, the paper argues that a central objective of investment treaties is to reduce the risks confronting private investors and thereby to lower the cost of capital for capital importing nations. This objective requires a credible government-to-firm commitment (or signal) that the capital importer will not engage in expropriation or related practices. A private right of action for money damages is the best way to make such a commitment. In the trade setting, by contrast, importing nations have no direct interest in reducing the risks confronting exporters of goods and services, and will desire to make market access promises more secure only if such behavior secures reciprocal benefits for their own exporters. Consequently, commitments in trade agreements are best viewed as government-to-government rather than government-to-firm. The parties to trade agreements can enhance their mutual political welfare by declining to enforce commitments that benefit politically inefficacious exporters, and can most cheaply do so by reserving to themselves the standing to initiate dispute proceedings - a right to act as a "political filter." The paper also suggests why governments may prefer to utilize trade sanctions rather than money damages as the penalty for breach of a trade agreement.

international trade, international investment, international law of trade and investment

Abstract:
Since September 11, 2001, insurance markets have been struggling to adjust to new information about the magnitude of risks posed by terrorism, and to the loss of tens of billions of dollars in reserves because of claims relating to the September 11 attacks. Insurance coverage for terror-related losses has become more expensive and for some risks difficult or impossible to obtain. As a result, various interest groups have called for the Federal government to provide coverage for terrorism losses, and proposals for increased government involvement are moving forward in Washington. We question the wisdom of any further measures of this sort. They are likely to come too late to address short-term market disruption, and in the long run may well supplant or distort desirable market responses to the new information about terrorism risk.

9/11, risks, insurance

Abstract:
Central bank intervention in foreign exchange markets may, under some conditions, stimulate exports and retard imports. In the past few years, this issue has moved to center stage because of the foreign exchange policies of China. China has regularly intervened to prevent the RMB from appreciating relative to other currencies, and over the same period has developed large global and bilateral trade surpluses. Numerous public officials and commentators argue that China has engaged in impermissible "currency manipulation," and various proposals for stiff action against China are now pending on Capitol Hill. This paper clarifies the theoretical relationship between exchange rate policy and international trade, and addresses the question of what content can be given to the concept of "currency manipulation" as a measure that may impair the commitments made in trade agreements. The analysis goes to the proper relationship between IMF obligations and WTO obligations and to the question whether trade measures can be an appropriate response to exchange rate policies. Our conclusions are at odds with much of what is currently being said in Washington. For example, it is often asserted that China's currency policies have real effects that are equivalent to an export subsidy. In fact, however, if prices are flexible the effect of exchange rate intervention parallels that of a uniform import tariff and export subsidy, which will have no real effect on trade, an implication of Lerner's symmetry theorem. With sticky prices, the real effects of exchange rate intervention and the translation of that intervention into trade-policy equivalents depend critically on how traded goods and services are priced. We show how the effects differ, according to whether exporters invoice in the local currency of the producer, in the currency of the buyer, or in a "vehicle" currency such as dollars. The real effects of China's policies are thus potentially quite complex, are not readily translated into trade-policy equivalents, and are dependent on the time frame over which they are evaluated (because prices are less "sticky" over a longer time frame). Accordingly, we are skeptical about many of the policy responses now under consideration in Washington both on economic and legal grounds.

International Trade, WTO, China, currency manipulation, subsidies

Abstract:
Public dissatisfaction with managed care has produced a number of legal initiatives that would increase the overall level of public regulation of managed care organizations. Among other things, these initiatives would limit the scope of remedial preemption under ERISA, expand the doctrines of vicarious liability and implied agency, adopt a general "patient's bill of rights," and subject managed care organizations to a mix of class actions by disappointed plan participants. This paper argues that most of these initiatives are ill-conceived, in the sense that they do not hold any realistic possibility of improving the performance of the health care system relative to the current set of tort and contract doctrines that are now in place.

Abstract:
The current level of public dissatisfaction has engendered a long list of proposed reforms that seek to increase the overall level of public regulation of Managed Care Organizations (MCOs), by limiting the scope of preemption under ERISA, by expanding doctrines of vicarious liability and implied agency, by adopting a patient's bill of rights, and by exposing them to class actions by disappointed plan participants. In response, this paper argues that most of these reforms are ill-conceived, in the sense that they do not hold any realistic possibility of improving the performance of the health care system relative to the current set of tort and contract doctrines that are now in place. Direct actions against MCOs for example are likely to hamper their mission to contain costs. The usual conditions that make vicarious liability sensible, for example, are not likely to pertain here when physician groups have assets to meet anticipated claims against them. And the use of class actions runs the serious risk of introducing dubious claims for liability based on some broadside allegations of fraud when their proper function is restricted to allowing the amalgamation of individual claims that would otherwise be too costly to pursue on an individual basis. The real problem with MCOs is that in conditions of scarcity, the public is unable to reconcile its inconsistent demands for low premiums ex ante with comprehensive and deep coverage ex post.

Abstract:
This paper is a preliminary draft of a chapter for eventual inclusion in the Handbook of International Economic Law, edited by Andrew T. Guzman and Alan O. Sykes, forthcoming from Edward Elgar Publishing. The chapter is a survey of the law and economics of trade remedy laws, including safeguard actions, antidumping law, and countervailing duty law. It lays out the central legal obligations of the WTO in each subject area, and carefully reviews the pertinent economic commentary, both positive and normative.

WTO, international trade, GATT, ADA, SCMA

Abstract:
The recent WTO dispute between the United States and eight complainant nations over protective measures for the steel industry brought widespread attention to a little known area of WTO law - the rules governing "safeguard measures," the temporary protection of troubled industries against import surges. The use of safeguard measures is normatively controversial, although their welfare implications are much less clear than their critics sometimes suggest. This paper makes the point that WTO rules, as interpreted by recent Appellate Body decisions and applied by the dispute panel in the steel case, pose nearly insurmountable hurdles to the legal use of safeguard measures by WTO members. Among other things, the current interpretation of the "nonattribution" requirement for the use of safeguard measures in the WTO Safeguards Agreement obliges members to make a demonstration that is logically impossible as an economic matter. Those who believe that safeguard measures are merely wasteful protectionism may welcome such impediments to their use, but it is not obvious that the trading system will benefit in the long run, and there can be little doubt that one key objective of the Uruguay Round negotiators - to revive the use of disciplined, temporary safeguard actions - is being frustrated.

WTO, steel industry, safeguard measures

Abstract:
E. Hoffmann-La Roche Ltd. v. Empagran S.A. concerned a private antitrust suit for damages against a global vitamins cartel. The central issue in the litigation was whether foreign plaintiffs injured by the cartel's conduct abroad could bring suit in U.S. court, an issue that was ultimately resolved in the negative. We take a welfarist perspective on this issue and inquire whether optimal deterrence requires U.S. courts to take subject matter jurisdiction under U.S. law for claims such as those in Empagran. Our analysis considers, in particular, the arguments of various economist amici in favor of jurisdiction and arguments of the U.S. and foreign government amici against jurisdiction. We explain why the issue is difficult to resolve, and identify several economic concerns, which the amici did not address, that may counsel against jurisdiction. We also analyze the legal standard enunciated by the Supreme Court and applied on remand by the DC Circuit, and we argue that its focus on independent harms and proximate causation is problematic and does not provide an adequate economic foundation for resolving the underlying legal issues. A revised version of this paper is in ANTITRUST STORIES from Foundation Press, edited by Daniel Crane and Eleanor Fox and in Competition Law & Economics 309 (2007).

Abstract:
Tort plaintiffs regularly bring cases in U.S. courts seeking damages for harms that have occurred abroad, attracted by higher expected returns than are available in the jurisdiction where the harm arose. Such claims are especially likely to be filed by plaintiffs from developing countries, who commonly argue that the remedies available to them in their home jurisdictions are deficient or non-existent. This paper focuses on a potential inefficiency of forum shopping that is of special importance in transnational tort litigation against business defendants ¿ the potential distortion of trade and investment patterns that can result from implicit discrimination in the applicability of legal rules to producers or investors of different nationalities. These distortions are akin to those associated with discriminatory tariff or tax policies. They can reduce global economic welfare, and afford a potentially important argument for limiting foreign tort plaintiffs to the law and forum of the jurisdiction in which their harm arose. The problem arises even if the substantive or procedural law of the foreign jurisdiction in question is demonstrably inferior to U.S. law from an economic standpoint. The analysis has implications for a number of areas of legal doctrine, including the construction of the Alien Tort Statute, the rules governing choice of law in transnational tort cases, and the doctrine of forum non conveniens.

Abstract:
Judge Richard Posner's opinion in Indiana Harbor Belt Railroad Co. v. American Cyanamid Co. offers an economic interpretation of Restatement (Second) of Torts Section 520, which imposes strict liability on actors who conduct abnormally dangerous activities. This paper, which was prepared for a University of Chicago Law Review Symposium in honor of Judge Posner, provides a critique of the opinion and argues that Judge Posner's analysis is at many points unpersuasive. The problem lies in substantial part with the questionable logic of the Restatement criteria for the assignment of strict liability.

Abstract:
“Subsidization” by member governments occurs in the U.S. Federal system, the WTO, and the European Union. These three legal systems have responded very differently to the issues raised by subsidies, from the largely laissez-faire approach of the United States to the elaborate “state aid” rules of the EU to the intricate but weakly enforced rules of the WTO. This paper examines the three approaches asking which, if any, makes the most sense. It argues that the detailed rules of the WTO and EU are largely indefensible from an economic perspective. They fail to identify subsidization in any meaningful sense, and lack the capacity to distinguish socially constructive subsidies from those that are “protectionist” or are otherwise objectionable. The problems are likely irremediable, hinting that a laissez-faire attitude toward subsidies may be the best option.

Abstract:
Various commentators have suggested that the current system of trade sanctions for violation of WTO obligations be replaced with financial compensation. The details of these proposals vary, but one option is to allow firms injured by violations to recover damages. This paper questions the wisdom of such proposals, and argues that the current system in which those injured by violations do not reap the benefit of sanctions – a “decoupled” sanctions regime in economic parlance – may well be superior for a number of reasons. The paper also reviews and refines the view of current WTO practice as an analogue to expectation damages in private contracts. The original version of this paper was prepared for the interdisciplinary workshop on The Calculation and Design of Trade Sanctions in WTO Dispute Resolution, at the Graduate Institute in Geneva, 2008. The revised version will appear in The Law, Economics and Politics of Retaliation in WTO Dispute Settlement, forthcoming from Cambridge University Press.

Abstract:
Existing formal models of the relationship between trade policy and regulatory policy suggest the potential for a regulatory race to the bottom. WTO rules and disputes, however, center on complaints about excessively stringent regulations. This paper bridges the gap between the existing formal literature and the actual pattern of rules and disputes. Employing the terms-of-trade framework for the modeling of trade agreements, we show how large "nations" may have an incentive to impose discriminatory product standards against imported goods once border instruments are constrained, and how inefficiently stringent standards may emerge under certain circumstances even if regulatory discrimination is prohibited. We then assess the WTO legal framework in light of our results, arguing that it does a reasonably thorough job of policing regulatory discrimination, but that it does relatively little to address excessive nondiscriminatory regulations.

international trade, regulation, national treatment, technical barriers to trade

Abstract:
The "parallel behavior is enough" standard cannot assist the courts in distinguishing horizontal agreements to restrain trade from normal competition. It would very likely impose significant costs on the economy by distorting competitive incentives and encouraging meritless litigation designed mainly to induce financial settlements.

Twombly, Bell Atlantic, Bell Atlantic v Twombly, Amici Curiae, Sherman Section 1

Abstract:

Abstract:
Central bank intervention in foreign exchange markets may, under some conditions, stimulate exports and retard imports. In the past few years, this issue has moved to center stage because of the foreign exchange policies of China. China has regularly intervened to prevent the RMB from appreciating relative to other currencies, and over the same period has developed large global and bilateral trade surpluses. Numerous public officials and commentators argue that China has engaged in impermissible currency manipulation, and various proposals for stiff action against China have been advanced. This paper clarifies the theoretical relationship between exchange rate policy and international trade, and addresses the question of what content can be given to the concept of currency manipulation as a measure that may impair the commitments made in trade agreements. Our conclusions are at odds with much of what is currently being said by proponents of counter-measures against China. For example, it is often asserted that China's currency policies have real effects that are equivalent to an export subsidy. In fact, however, if prices are flexible the effect of exchange rate intervention parallels that of a uniform import tariff and export subsidy, which will have no real effect on trade, an implication of Lerner's symmetry theorem. With sticky prices, the real effects of exchange rate intervention and the translation of that intervention into trade-policy equivalents depend critically on how traded goods and services are priced. The real effects of China's policies are potentially quite complex, are not readily translated into trade-policy equivalents, and are dependent on the time frame over which they are evaluated (because prices are less sticky over a longer time frame).

Abstract:
The treaty creating the WTO replaced the GATT dispute resolution system, which contained no formal sanctions for breach of agreement as a practical matter, with a system that results in centrally authorized sanctions against recalcitrant violators of WTO trade agreements. We examine the important features of the new system, and argue that the institutionalization of a sanctioning mechanism was not motivated by a perceived need to increase the penalty. In particular, the GATT system relied on unilateral retaliation and reputation to police the bargain, and toward its end unilateral retaliation became excessive, interfering with opportunities for efficient breach. The WTO mechanism for arbitrating the magnitude of proposed sanctions is the major innovation under WTO law, and ensures that sanctions are not set too high.

Abstract:
When tort judgments exceed the assets of tortfeasors and the tort victim has first party insurance for a portion of the loss suffered, the question arises as to how the recovery from the tortfeasor should be divided between the tort victim on the one hand and the insurer via its rights of subrogation on the other. A common view among the courts and legal commentators is that the insured should be made whole before the insurer recovers any amounts through subrogation. This article employs simple models of optimal insurance contracts to challenge this view, and concludes that the opposite rule will often be optimal. Accordingly, there is little basis for judicial interference with freedom of contract when the insurance agreement provides that the insurer must be made whole before the insured receives any portion of the recovery. The analysis also provides some support for allowing the insurer to take first in subrogation as a default rule at common law.

Abstract:
The debate over 'competition versus harmonization' in regulatory policy often confuses the pertinent alternatives. This comment argues that neither pure regulatory competition nor complete regulatory harmonization is desirable or feasible where important international cross-border effects of regulation arise. Instead, a considerable degree of cooperation is almost always needed, yet non-homogeneity of regulatory policies is almost always desirable as well. This proposition holds virtually regardless of the subject matter of regulation.

Abstract:
A wide array of policy instruments can protect domestic firms against foreign competition. Regulatory measures that raise the costs of foreign firms relative to domestic firms are exceptionally wasteful protectionist devices, however, with deadweight costs that can greatly exceed those of traditional protectionist instruments such as tariffs and quotas. This article develops the welfare economics of regulatory protectionism and a related political economy analysis of the national and international legal systems that must confront it, including the WTO, the NAFTA, the European Union, and the United States federal system. It explains why regulatory measures that serve no purpose other than to protect domestic firms against foreign competition will generally be prohibited in politically sophisticated trade agreements, even when other instruments of protection are to a degree permissible. It further suggests why regulatory measures that serve honest, non protectionist objectives will be permissible in sophisticated trade agreements even though their regulatory benefits may be small and their adverse effect on trade may be great -- that is, it explains why trade agreements generally do not authorize "balancing analysis" akin to that undertaken in certain dormant commerce clause cases under U.S. law.

Abstract:
With the conclusion of the Uruguay Round and its agreements relating to technical barriers, much attention has been devoted to the possibility of harmonizing international regulatory policies to reduce the impediments to commerce that result from regulatory heterogeneity. This paper argues that, as a normative matter, harmonization is inferior to a legal system that tolerates regulatory differences subject to legal constraints, and that relies on mutual recognition where appropriate (the exception to this claim being matters of technical compatibility between products). Related, as a positive manner, harmonization will often lack any political constituency and thus instances of true harmonization will be rare. To develop these claims, the paper carefully elucidates the unnecessary trade impediments that may result from regulatory heterogeneity, and shows how measures short of harmonization can usually address them adequately.