Fall 2015 Workshops
September 28, 2015
Michael Simkovic, Associate Professor, Seton Hall University School of Law
"Timing Law School"
Abstract: We investigate whether economic conditions at labor market entry have persistent effects on law graduate earnings. We find that unemployment levels at graduation continue to affect law earnings premiums within 4 years after graduation for earners at the high end and middle of the distribution. However, the effect fades as law graduates gain experience and the impact on lifetime earnings is moderate. Outcomes data available prior to matriculation do not predict unemployment or starting salaries at graduation. Earnings premiums are not predicted by BLS projected job openings. We find little evidence for the predictive power of cohort size. An inverted yield curve does not predict future law earnings premiums. For medium to high earning graduates, successfully timing law school could increase the value of a law degree ex-post, but simulations show that no strategy for ex-ante timing is readily available.
October 12, 2015
Jorge Contreras, Associate Professor, S.J. Quinney College of Law, University of Utah
Abstract: This case study pertains to Intellectual Property Exchange International, Inc. (IPXI), which was formed in 2008 to create a market-based trading exchange for aggregated patent license rights, particularly standards-essential patents (SEPs). IPXI based its model on existing commodities exchanges, proposing that non-exclusive patent licenses could be standardized, commoditized, and traded on an open market, thus eliminating costly and inefficient bilateral negotiations and providing a royalty rate likely to be viewed as “reasonable”. IPXI’s most ambitious offering involved a portfolio of 194 U.S., European and other patents deemed essential to IEEE’s 802.11n “Wi-Fi” standard. IPXI offered up to 50,000 tradable Unit License Right contracts (ULRs), each granting the holder a worldwide right to manufacture and sell 1,000 compliant devices. Despite the backing of several significant patent holders, IPXI’s offering failed to attract sufficient interest, and IPXI ceased operations in March 2015. This paper analyzes the failure of IPXI based on the documentary record, public statements by IPXI executives and interviews with industry experts. It concludes that, despite its potential to improve the efficiency of the SEP licensing market, factors including a lack of participation by key patent holders, an untested record of enforcing patents against infringers, and constraints imposed by the standardized ULR, led to IPXI’s demise.
October 19, 2015
Veronica Santarosa, Assistant Professor of Law, University of Michigan Law School
"Financing Long Distance Trade without Banks: Law, Brokers, and the Bill Exchange in 18th century France”
Abstract: The literature on financial brokers in the early modern age portrays them as inextricably connected to securities exchanges, quoting and transacting public debt and the shares of the few existing joint stock companies. However, what did brokers do outside of stock markets, and how was trade finance obtained by ordinary merchant houses located beyond the reach of sophisticated credit and money markets of the great hubs of Northern Europe? In documenting the evolution of brokers into nearly full financial intermediaries in Marseille I investigate a series of French regulatory reforms, culminating with the transformational, and controversial, Edict of 1709. Under the Ordonnance du Commerce of 1673, brokers were restricted to putting buyers and sellers in contact in exchange for a fee. Brokerage fees were strictly regulated and municipalities controlled market entry by issuing commissions whose quantity was dictated by the government’s revenue raising needs rather than by local market conditions. As a result of these restrictions, the common view in the literature is that brokers struggled financially, surviving at the outskirts of the social and financial systems and in competition with petty moneylenders and merchant houses. At odds with this view, the evidence shown in this paper describes a very different reality for brokers in Marseille over the eighteenth century, during which time brokers rose rapidly to occupy a prominent economic and social position. I look at how the path breaking Edict of 1709, which allowed brokers to perform both matching and proprietary trading, prompted the ascent of brokers in Marseille. I provide preliminary evidence on which financial functions brokers performed and how close they were to banks by drawing on the surviving records of these brokers and on archival sources depicting the relationship of a major merchant house with all its brokers in Marseille. I identify regional differences in enforcement of the critical brokerage rule -the Edict of 1709- and on that basis elaborate on the consequences of allowing intermediaries to endogenously determine the extent of their activities. I investigate whether consolidation of financial services led to an increase in brokers’ business volume, profitability, and political clout. I study how these legal provisions encouraged the democratization of credit in a region without banks, and how they determined the structure of financial intermediation.
October 26, 2015
Jonah Gelbach, Associate Professor of Law, University of Pennsylvania Law School
"The Reduced Form of Litigation Selection Models and the Plaintiff's Win Rate”
Background Note for Law & Economic Workshop Students (and other participants) concerning "The Reduced Form of Litigation Selection Models and the Plaintiff's Win Rate"
Abstract: In this paper I develop a new approach--the reduced form approach--to studying the plaintiff 's win rate in one-shot litigation selection models. A reduced form requires three basic elements. First, a joint distribution of plaintiff’s and defendant's beliefs concerning the probability that the plaintiff would win in the event a dispute were litigated. Second, a conditional win rate function that returns the actual probability the plaintiff would win if the case were litigated, given the parties' subjective beliefs. Third, a reduced form requires a specification of a litigation rule, which tells us the probability that a case will be litigated given the two parties' subjective probabilities.
I use the reduced form to prove several general results. First, I show that the plaintiff’s win rate will always equal one-half when certain balance conditions on the conditional win rate function, joint density, and litigation rule all hold. Second, I show that when these balance conditions are systematically violated in the same direction, the plaintiff’s win rate will deviate from one-half in a predictable direction. Third, I prove that any plaintiff’s win rate between 0 and 1 is possible, even in the limit as party information becomes very good, and even without the kind of asymmetric information that Shavell (1996) has suggested is the key to generating this result. Fourth, I show via a simple constructive example that there is no reason to expect the plaintiff’s win rate to move in a predictable direction when legal rules change, contra the optimistic conclusions in Klerman & Lee (2014) concerning the empirical usefulness of plaintiff’s win rate data.
November 9, 2015
Gary Libecap, Professor, Bran School of Environmental Science and Management and Professor of Economics, University of California, Santa Barbara
"Economic Analysis of Property Rights: First Possession of Water in the American West"
Abstract: We analyze the economic determinants of prior appropriation surface water rights and their long-term economic effects from 1852 to 2013. We show how formal property rights developed to generate the discovery of new information and serve as a coordinating institution for investment under uncertainty. The prior appropriation doctrine (first in time, first in right) replaced the existing, share-based riparian water rights doctrine over an area of 1,197,000 square miles on the Western Frontier in less than 20 years—a rare and dramatic shift that suggests large economic benefits. We develop a model to demonstrate the conditions under which the economic benefits of prior appropriation exceed those of riparian or other share-based property rights. When information about the resource is costly and there are returns to scale in infrastructure investment, prior appropriation facilitates socially valuable search, coordination, and investment by reducing uncertainty about future claims. We derive testable hypotheses about the behavior of individual claimants under these conditions and test our hypotheses using a novel dataset that combines information on the location, date, and size of water claims with measures of infrastructure investment, irrigated acreage, crop prices and yields, topography, stream flow, annual stream flow variation, soil quality, precipitation, and drought in eastern Colorado. We examine the historical evolution of water claims using a dynamic Poisson estimator that controls for unobserved heterogeneity in potential claim sites. We find that i) search effort and infrastructure investment generated positive externalities for subsequent claimants, ii) secure property rights facilitate coordination by reducing uncertainty, iii) coordination led to substantially higher levels of infrastructure investment, which led to iv) long run differences in income-per-acre, and v) property rights generated lasting economic returns in areas that adhered to the strict legal doctrine of prior appropriation but not in those where pre-existing communal norms dominated. Our analysis extends the literatures on institutional change, property rights, and first possession and informs the debate over the efficiency of prior appropriation and the costs of proposed water rights reforms.
November 23, 2015
Anup Malani, Lee and Brena Freeman Professor of Law, University of Chicago Law School
"How do judges learn from precedent?"
Abstract: How do judges learn? In one view, appellate judges hear the case, talk to fellow panel members, reach a tentative resolution and retire to their chambers to draft an opinion. At that point, they find persuasive precedent, if any, that supports the resolution. In a second view, judges first closely consider what other judges have said about the issue. They delve into the merits of the arguments contained in the persuasive precedent. They learn from judges on sister circuits, not just from the litigants in the case at hand. To explore these conflicting views, we deploy data on roughly 1000 so-called circuit splits. Circuit splits are sequences of conflicting decisions by different appellate courts on the same legal question. We find evidence that the decisions are not independent: Each decision influences the ones that follow. We see runs. We also find evidence that decisions vary in quality. Specifically, an appellate court is more likely to follow the decision of his immediate predecessor if equal numbers of prior circuits sit on opposing sides of the issue. Finally, we test whether opinions convey most, if not all, of the relevant information leading to that decision. If not - if they only convey a fraction of the informational basis – judges might herd, falling into an information cascade. We find some evidence consistent with the idea that opinions contain most, if not all, the relevant information underscoring judicial decisions.
December 7, 2015
Abraham L. Wickelgren, Bernard J. Ward Professor in Law, The University of Texas at Austin Law School
"An Economic Analysis of Internet Privacy Regulation"
Abstract: This paper analyzes the rationale for regulation of privacy in two new models of why firms collect consumer information. Prior work has focused on the use of consumer information for price discrimination. In this paper, I consider two different rationales. In the product improvement model, I assume that collecting consumer information allows firms to improve their product. In the supplemental good model, I assume that collecting consumer information allows firms to know which of two additional goods a consumer values. I show that in both models firms tend to offer too much, rather than too little, privacy protection from the point of view of maximizing consumer welfare. In both models, privacy protections soften the competition between firms and lead to higher prices.