In the absence of a bankruptcy law, private debt collection remedies generally result in an ad hoc disposal of the debtor's assets, which reduces the aggregate value of creditors' claims. We show that creditors will often choose not to write private contracts that would prevent this inefficient behavior, even though these contracts would be to the mutual benefit of all creditors. Our analysis therefore provides an economic rationale for the existence of a bankruptcy law that makes a collective resolution compulsory for all creditors. We argue that such a mandate is a requisite part of any effective bankruptcy system, including proposals for market-based resolutions of insolvency.
This article uses state-level data on cirrhosis death rates to examine the impact of state prohibitions, pre-1920 federal antialcohol policies, and constitutional prohibition on cirrhosis. State prohibitions had a minimal impact on cirrhosis, especially during the pre-1920 period. Pre-1920 federal antialcohol policies may have contributed to the decline in cirrhosis that occurred before 1920, although other factors were likely substantial influences as well. Constitutional Prohibition reduced cirrhosis by about 10–20%.
Corporate actors can choose their corporate domicile and have considerable freedom to choose terms in corporate charters. Although contractarian corporate law literature almost always analyzes the private choice of corporate law through the lens of agency costs, this article considers the choice for its informational content. A particular law may be chosen by an entrepreneur not because it reduces agency costs, but because it signals quality to outside investors. The article considers the choice of a Delaware domicile. Higher expected litigation costs for relatively low quality firms that accompany a Delaware domicile could imply that choosing Delaware signals a relatively high quality firm. Alternatively, the size and structure of the franchise tax in Delaware could give rise to a signal of quality from locating there. The article considers the ambiguous welfare implications of the signaling analysis and the debate over mandatory versus enabling rules in corporate law. It also suggests how the signaling analysis might apply to the debate over the private choice of a securities regulation domicile.
This article examines the criterion of comparative causation according to which an accident loss is apportioned between a faultless tortfeasor and an innocent victim on the basis of their relative causal contributions to the loss. To explain the rule's structural features, we consider a scenario where liability is allocated on the basis of causation, regardless of fault. While this model brings to light several interesting features, it also unveils the limits of such a criterion with respect to induced activity and care levels. Next we extend the model to consider the comparative causation rule in conjunction with negligence rules. Applying the comparative causation rule under a negligence regime induces a combination of incentives that is not provided by any known liability rule.
Various issues in the common law arise when agents make contracts on behalf of principals. Should a principal be bound when his agent makes a contract on his behalf that he would immediately wish to disavow? The tradeoffs resemble those in tort, so the least-cost avoider principle is useful for deciding which agreements are binding and can unify a number of different doctrines in agency law. In particular, an efficiency explanation can be found for the undisclosed-principal rule, under which the agent's agreement binds the principal even when the third party with whom the contract is made is unaware that the agent is acting as an agent.
Though clearly distinct in nature and procedure, both regulatory agencies and courts frequently rely on similar instruments to sanction the same or very similar kinds of illegal behavior. In this article, we develop a theory of the use of criminal sanctions in addition to regulatory penalties. We show that, even though it is generally more effective to have a penalty imposed by a regulatory agency rather than by the courts, under some conditions it is optimal to have both. The article provides three arguments: agency costs when delegating law enforcement, legal error, and collusion between a regulatory agency and an offender. The objective of the article, though, is not limited to the determination of the theoretical conditions that can make the use of both sanctioning schemes optimal. Our analysis is also relevant to the application of a specific legal doctrine, the Double Jeopardy Clause.
Polinsky and Rubinfeld (2003) propose a novel system for eliminating the conflict of interest between lawyers and clients over how hard the lawyer should work on a given case. In their analysis of the system, however, Polinsky and Rubinfeld implicitly assume that the lawyer's marginal cost of effort is common knowledge. This comment shows that, when this assumption is relaxed, though their scheme does reduce the agency problem relative to the standard contingency fee arrangement, it no longer eliminates it.
In this article it is argued that, if two products or geographic areas belong in the same market, their relative price must be stationary. Hence stationarity tests like the Augmented Dickey-Fuller and the KPSS can be helpful in delineating the relevant market for antitrust purposes, particularly for abuses of dominant positions and agreements between competitors. The proposed procedure is strictly related to cointegration analysis but is simpler and has more general validity. An application to the Italian milk market illustrates the technique.