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Abstract:
Prediction markets are markets for contracts that yield payments based on the outcome of an uncertain future event, such as a presidential election. Using these markets as forecasting tools could substantially improve decision making in the private and public sectors.

We argue that U.S. regulators should lower barriers to the creation and design of prediction markets by creating a safe harbor for certain types of small stakes markets. We believe our proposed change has the potential to stimulate innovation in the design and use of prediction markets throughout the economy, and in the process to provide information that will benefit the private sector and government alike.

prediction markets, public policy, forecasting, regulation

Abstract:
Why do so many executives and other employees receive fixed stock options as part of their compensation packages? There is an impressive literature on compensatory options, and yet it raises more puzzles than it solves. Tax law, option theory, and agency theory all suggest that we might have expected to find quite different practices than we do observe. In particular, there is a puzzle in the popularity of conventional fixed options when indexed options would seem to be relatively attractive. The solution or story offered here develops arguments about signaling, in the form of employees' disinclination to be seen as preferring cash over options in their own employer's future. It relies on the idea that indexed options encourage more risk alteration, or inefficient differentiation, than other forms of compensation. And it introduces the notion that there is something of a norm in favor of nonconflicting fortunes within a community. The norm part of the argument says something about the more general norm of privacy with respect to money matters and it illuminates the occasional practice of confidentiality regarding one's own compensation. This practice might be stable because of the negative signals emitted by defectors. The same analysis might help explain why stock option practices are somewhat sticky.

Abstract:
The attacks of September 11th produced staggering losses of life and property. They also brought forth substantial private insurance payouts, as well as federal relief for the City of New York and for the families of individuals who perished on that day. The losses suffered in and after the attacks, and the structure of the relief effort, have raised questions about the availability of insurance against terrorism, the role of government in providing for, subsidizing, or ensuring the presence of such insurance, and the interaction between relief and the incentives for future precaution taking. In response to such losses, and in anticipation of others, one might imagine a range of government responses from nonintervention, to subsidized private insurance, to after-the-fact government payments of a fixed or uncertain kind, and so forth.

This Article argues that the particular mix responses the government has chosen with respect to 9/11, including the September 11th Victims' Compensation Fund and the Terrorism Risk Insurance Act of 2002, will significantly affect private expectations about the government's response to future terrorist attacks. One aim of this Article is to explore the relationships between promised or expected government actions (or inactions) and private decisions regarding terrorism risk. These issues lead to some novel ideas about the role of government in insuring against terrorism - and then against crime more generally. Part II provides some background on the response of the private insurance market and the federal government to the losses resulting from September 11th. Part III looks at the positive question of how government and private actors should be expected to respond to the losses of 9/11 and to the prospect of future such losses. It explores the interactions among government relief and charitable responses to 9/11 as well as the existence or absence of private insurance, and draws contrasts between terrorism disasters and natural disasters, as well as between 9/11 and prior terror attacks. Part III also analyzes the circumstances in which episodic relief of the 9/11 variety will lead to (or be replaced by) more permanent, routinized relief, as is available in some other countries.

Part IV takes up the normative question of the optimal mix of government and private relief (including insurance) for terrorism-related losses. It provides a skeptical view of government intervention in property insurance markets, quite generally, and of the particular federal terrorism reinsurance regime that Congress recently adopted. Part V then broadens the inquiry by asking whether the case for government-sponsored insurance against crime, which is to say a much broader set of crimes than terrorism alone, is at least as sound as that for terrorism-related risks. Part VI concludes.

Abstract:
This Article begins with the puzzle of why law does not embrace the "product rule"; a mathematically-inclined judge or jury that thought a defendant .6 likely to have been negligent and .7 likely to have caused plaintiff's harm might conclude that plaintiff had failed to satisfy the preponderance of the evidence standard. Following some discussion of a number of reactions to this puzzle, the Article advances the idea that the process of aggregating multiple jurors' assessments overlooks valuable information. First, following the Condorcet Jury Theorem, agreement among jurors might raise our level of confidence beyond what the jurors themselves report. Second, a supermajority's mean or median voter is likely to have a different assessment from that gained from the marginal juror. As such, a supermajority (or unanimity) rule may take the place of the product rule where there are multiple requirements for liability or guilt. An attempt to extract this inframarginal information more directly would likely generate strategic behavior problems. The analysis is extended to panels of judges, for whom outcome voting may (somewhat similarly) substitute for the product rule.

Abstract:
Conventional views of legal change emphasize the values of certainty and reliance, and are therefore hostile to explicitly retroactive laws. Contemporary scholarship, however, allows that a policy of aggressive legal change, with no compensation for "new losers," can encourage socially useful steps in anticipation of change. Professor Levmore argues that the anticipation-oriented approach logically extends to embrace anticipation by "new winners" and governments as well as new losers. If all parties' anticipatory incentives are considered, familiar rules, ranging from statutes of limitations to retroactivity and to compensatory payments for government takings, seem quite sensible. And if these rules are drawn correctly, few parties should find it worthwhile to stand against progress. Professor Levmore then considers reparations. He argues that these payments by governments are made when the potential anticipation effects normally associated with retroactive compensation are absent. The transfers are then redistributive and best understood through interest group analysis.

Abstract:
When do competitors share assets and other opportunities for mutual gain? Conversely, when do they seem to prefer to distinguish themselves by establishing firm boundaries such that there is a minimum of sharing or cooperation despite potential gains from trade? Why, for example, are two competing auto makers unlikely to sell one another components or to use the same expert advertising agency or law firm but then more likely to equip their cars with identical tires or perhaps to consider the same architect when planning new office buildings? Why do competing law schools in a single city cooperate so little in offering joint programs and economizing on certain costs even as they use the same casebooks in their courses and borrow from one another libraries? This paper suggests circumstances in which competitors exploit economies of scale and the like by trading directly with one another and settings in which third parties, or markets more generally, facilitate cooperation among competitors.

As to why and when implicit cooperation through markets is found attractive, the paper suggests that a critical variable may be the ability of markets to ensure that gains from trade are equally divided. Risk averse firms, for instance, may be more inclined to share sources of supply if there is reduced likelihood that cooperation will give competitors relative cost advantages. The paper considers and mildly rejects other explanations for the sometimes inclination to cooperate through markets, including conceptions of firm "pride" and the possibility that cooperation with a competitor will be deemed a negative signal by investors or consumers. It also dwells on the use of noncooperation as a competitive strategy. The discussion ranges across a large variety of examples including (but hardly limited to) nonoverlapping offerings by mail-order retailers, the substantial overlap of stock among competing retailers with fixed locations, the use of common creditors by competitors, the disinclination of competitors to use the same law firms or advertising agencies, cooperation among neighboring municipalities, and the lack of cooperation between competing law schools.