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  Constrained Optimization: Corporate Law and the Maximization of Social Welfare

  Lewis A. Kornhauser

  How ought judges to decide cases? One answer, often associated with the economic analysis of law, asserts that judges ought to choose legal rules that are efficient or that maximize “wealth.” This claim, which stirred great controversy in the late 1970s and early 1980s, has largely subsided into the background in areas outside of corporate and commercial law. Within corporate and commercial law, however, academic legal discussion has increasingly adopted an economic perspective. The academic debate in the area of corporate and commercial law has thus largely focused not on whether the courts should pursue efficiency but on how the courts should promote this aim. Should any legal rules impose mandatory obligations on parties? What default rules are best? What is the optimal structure of priority rules in bankruptcy? The discrepancy in the intellectual histories of efficiency as a judicial goal in corporate and commercial law and in the law more generally has some justification. The arguments against the general claim have less force against the claim restricted to corporate and commercial law. The argument for instance that law ought to pursue various conceptions of fairness has less force in the realm of corporate and commercial law, where transactions are at arm's lengths between well-informed parties, each of whom seeks to maximize its profit. More importantly, a reasonably straightforward institutional defense of the efficiency claim in corporate and commercial law can be mounted. Briefly, it has the following elements. Law serves many objectives, but the promotion of the well-being of citizens is a central concern of law and legal institutions. This social concern has at least two aspects. First, society cares about the distribution of well-being among its citizens. Second, it cares about the general level of well-being. An institutional justification of wealth maximization (or efficiency) as a goal of corporate and commercial law then must establish that the pursuit of distributional (and other) goals ought to be institutionally divorced from the pursuit of increasing the general level of well-being. Kaplow and Shavell have argued that the distributional goals of society are better (i.e., more efficiently) advanced through redistributive taxation and social welfare programs than through corporate and commercial law. Basically, they show that any redistribution achieved through an inefficient rule of tort law (or, by implication, an inefficient contract or property rule) can be accomplished with less distortion through a redistributive tax scheme coupled with an efficient rule of tort law. The decrease in distortion implies that everyone could be made better off under the redistributive tax (and efficient tort rule) than under the redistributive (but inefficient) rule of torts. This argument thus supports a claim that the redistributive aims of law ought to be accomplished through legal institutions that are distinct from the institutions that maximize the general level of well-being. To increase the level of well-being of citizens society must structure incentives for individual actors appropriately. It has two tools available: the imposition of primary obligations and the structuring of enabling regimes such as corporate and commercial law that harness the initiative and information of individuals. Certain obstacles to the enhancement of well-being, such as the costs of environmental degradation, are best handled through the imposition of primary obligations, i.e., by setting “prices” to economic actors appropriately. Put differently, the rules governing corporate governance, contract, and bankruptcy can be formulated without attention to externalities; these problems are adequately dealt with in separate bodies of law. Finally, the self-interest of individuals pursuing their own aims within well-functioning markets will ensure that welfare is maximized. Corporate and commercial law, then, should simply provide a structure in which markets will function smoothly. This argument seems both unproblematic and compelling. A conception of corporate and commercial law unconnected to increasing the general level of well-being is completely implausible. A conception that required legislatures and courts to balance every social value when society formulates or applies rules governing corporate and commercial conduct seems equally implausible. Furthermore, the division of labor among bodies of law that this argument assumes has strong intuitive appeal; it conforms to the interpretive inclinations of most lawyers. The intuitive appeal of the argument, however, does not substitute for secure analytic foundations. This chapter reconsiders the normative foundations of corporate and commercial law. It raises three problems with the pursuit of efficiency or wealth maximization through corporate and commercial law. First, the chapter observes that the most efficient rule, or the wealth-maximizing rule, is always relative to some decision and to specified constraints. The best rule in a world of complete information, for example, may not be best in worlds with asymmetric information. Second, wealth maximization only provides an appropriate proxy for well-being under special conditions; these conditions need not always hold even in the context of corporate and commercial law. Third, the logic of maximization of well-being under uncertainty conceals as yet unsolved difficulties. The discussion proceeds as follows. Part II investigates the concept of efficiency relative to a decision and to constraints. In particular, it emphasizes complexities introduced by various information structures. Part III turns to wealth maximization. It first connects this concept to the underlying goal of promoting well-being. It then investigates the extent to which wealth maximization implements the concept of maximization of well-being. Part III closes by linking the more specific aims of corporate and commercial law to wealth maximization. Part IV offers some concluding speculations on how these foundational problems alter the conception of corporate and commercial law.

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  Judicial Organization and Administration

  Lewis A. Kornhauser

  This chapter surveys the economic literature on the functions and structure of courts. Issues concerning appellate courts and collegiality are addressed in a companion chapter. Economic analyses of substantive legal rules generally suppress the adjudication of factual and legal disputes that a legal rule might engender. The nature of adjudication, however, will influence greatly both the content of the substantive law and the costs of dispute resolution. An understanding of the structure of adjudication is thus central to an understanding of the effects of legal rules on behavior and on the identification of socially desirable legal rules. In addition, adjudication is a complex task implemented through institutions that vary across time and jurisdiction. The structure of adjudication and questions of judicial organization and administration thus present a rich field of study in their own right. These two approaches to the study of judicial organization raise different, though equally interesting, questions. As yet, no unitary theory has developed to explain the structure of adjudication. The initial economic analyses of these institutions have raised several important questions: (1) What are the functions of adjudication? (2) Why is adjudication public rather than private? (3) Should there be only one system of courts or should there be many? (4) What is the relation among courts, legislature and executive? (5) How do we explain the organizational features of courts such as their jurisdiction and their hierarchical relation? The questions presented by judicial organization and administration are contiguous with those presented by appeal and supreme courts. I adopt a somewhat arbitrary division of topics and relegate discussions of the reasons for appeal, explanations of hierarchy and collegiality to Chapter 7200 Appeal and Supreme Courts.

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  Joint Tortfeasors

  Lewis A. Kornhauser and Richard L. Revesz

  This chapter compares the properties of joint and several liability with those of non-joint liability. It considers three criteria: deterrence, settlement inducing properties and fairness. The analysis is performed for both full and limited solvency. The central conclusion is that neither rule dominates the other. With respect to deterrence, the relative desirability of the two rules depends on the levels of solvency of the defendants. In contrast, with respect to settlements and fairness, the comparison turns on the correlation of the plaintiff’s probabilities of success against the defendants. JEL classification: K1, K2, K4 Keywords: Joint and Several Liability, Settlement, Joint Tortfeasors, Hazardous Waste Regulation

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  Conditional Spending

  Thomas R. McCoy and Barry Friedman

  The United States Constitution allocates legislative authority between a federal Congress and state governments. Congress may legislate or regulate only pursuant to specific powers expressly delegated in the Constitution; excepting IMPLIED POWERS, all powers not delegated to the national government are retained by the state governments. The power to spend money for the common defense or the GENERAL WELFARE, however, is a power separate from, and in addition to, all of Congress's other ENUMERATED POWERS. Thus, Congress may spend federal funds for any purpose that can be thought to contribute to the general welfare, even though none of Congress's enumerated powers encompasses the subject of the expenditure. Congress may not impose regulatory requirements, however, even though admittedly in the interest of the common defense and general welfare, unless the area regulated is one over which regulatory control is delegated to Congress. The power to spend carries with it the power to attach certain conditions to the expenditure. Those conditions in effect specify how federal grants will be used. For example, if Congress grants the states funds to build highways, Congress has the concomitant power to specify where the highways should run or how they should be built. This power to impose conditions permits Congress to ensure that its money is actually spent as Congress intends. The conditional spending problem is presented when Congress seeks to purchase, not the usual goods and services, but compliance with a legislative objective that normally would be pursued by a simple regulation backed by a regulatory penalty such as a fine. When Congress uses its spending power to offer a financial inducement—a reward—for conduct that it could not directly require or regulate under any of its other enumerated powers, the core constitutional conception of specifically delegated powers is threatened. The problem posed by conditional spending is the extent to which federally induced state reliance on federal moneys gives Congress effective regulatory authority over the states beyond the powers delegated to Congress in the Constitution. The question is of central importance to the basic constitutional scheme of FEDERALISM. Over the course of the last several decades, the federal tax burden on individuals has increased substantially, making it increasingly difficult as a political matter for state legislatures to raise state taxes. At the same time that the federal tax burden has deterred states from raising their own revenue, national grant programs for general welfare purposes, such as highways, education, and health, have induced states to rely increasingly on national funds to finance state services. Substantial state reliance on the distribution of money raised by national taxation is now a fact of political life in the federal system. This financial dependence of the states on Congress's beneficence invites Congress to extract concessions from the states, to require the states to accept "conditions" in return for the revenues now under Congress's control. If there are no constitutional limitations on the conditions Congress can attach to federal grants, Congress may extract tax revenue from the citizens of the several states, pursuant to the taxing power, and then return that revenue to the states, under the spending power, on the condition that the states impose on themselves or their citizens some regulation that Congress constitutionally could not have imposed under its other enumerated powers. There are two competing views on the constitutionality of conditions attached by Congress to federal grants. The first view holds that offering a government benefit as a reward for compliance with some congressional objective is in effect identical to regulatory coercion by imposition of a fine to obtain the same end. Under this view, if achievement of an end is beyond Congress's delegated regulatory powers, it also should be constitutionally invalid when pursued through a conditional spending scheme. The second view is that the use of the spending power to offer a reward for compliance with some congressional objective is distinguishable from regulatory coercion in the form of a fine for noncompliance because the latter removes the freedom of choice while the former does not. According to this view, a state or individual confronted with the offer of a conditional grant may refuse the reward and persist in noncompliance, while one confronting a regulatory fine has no freedom of choice. Moreover, a fine takes money but a spending scheme awards it; refusing takes no money. Under this view, then, direct congressional regulation is confined to the enumerated powers, but Congress's purchase of compliance through a scheme of conditional spending is not similarly restrained.

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  Das Kapital: Solvency Regulation of the American Business Enterprise

  Geoffrey P. Miller

  In this paper, I address the question of the legal regulation of corporate capital. This is a topic that cuts across a number of distinct areas of law, and that displays significant differences between the civil law used in Europe and elsewhere and the U.S. common law system. It is fundamental to the regulation of important economic institutions, notably banks, securities firms, and insurance companies. It is a question as well that lies at the core of the discipline of corporate finance. Surprisingly, however, scholars have not attempted to unify these disparate strands of theory and of legal regulation in a single analytical structure. In this paper I offer a preliminary attempt at such a unification.

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  The Psychophysical Nexus

  Thomas Nagel

  Thomas Nagel investigates the status of a priori knowledge in the context of the mind‐body problem. A priori reflection on the concepts of mental and physical properties seems to show that mental state and event types could not be identical with physical state event types. Nagel wishes to block the conclusion that it really does show this because he finds the resultant property dualism profoundly unsatisfactory.

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  Government Power as a Tool for Redistributing Wealth in Twentieth-Century New York

  William E. Nelson

  In the 1843 case of Taylor v. Porter, a New York judge quoted language that would be reiterated interminably in nineteenth-century American case law. He knew, he declared, “‘of no case in which a legislative act to transfer the property of A. to B. without his consent, ha[d] ever been held a constitutional exercise of power in any state in the union.’” On the contrary, the use of legislative power to redistribute wealth from one individual or group of individuals in the community to another had “’been constantly resisted as inconsistent with just principles.’” Much of this judicial hostility to redistributive legislation continued to affect decisionmaking by the New York Court of Appeals and the lower New York courts as late as the decade of the 1920s. As early as 1920, however, New York judges were whittling away at the anti-redistribution principle by sustaining the constitutionality of broad exercises of legislative power. In a pattern sharply different from that in the Supreme Court of the United States, which routinely struck down redistributive legislation prior to 1937 and almost invariably approved it thereafter, the New York Court of Appeals slowly but inexorably gave its approval to the broadening of legislative power. It decided cases upholding an enhanced power of redistribution in every decade under analysis in this essay, from the 1920s through the 1970s, with no one year or decade marking a decisive turning point. The result was that state and municipal legislatures through most of the century possessed immense power to redistribute wealth. But the power was not untrammeled. Unlike the federal Supreme Court, New York courts throughout the decades under study in this essay occasionally invalidated regulatory legislation. New York judges never displayed the extreme pattern of deference to state and local legislative bodies that federal judges gave to Congress after 1937. Nonetheless, change did occur in patterns of judicial response to regulatory legislation in New York. This essay will analyze the change. Section I begins by focusing on areas of New York law which, during the 1920s and into the 1930s, continued to pay heed to the anti-redistributional values of the nineteenth century. Section II then traces the pattern of liberalization that began to emerge in the 1920s and 1930s, as the legislature during the administrations of Alfred E. Smith, Franklin D. Roosevelt, and Herbert H. Lehman from 1923 to 1942 expanded the scope of regulation, and the judiciary sustained the expansion. Finally, the essay turns in Section III to the impact of federal developments during the New Deal and World War II on state-court attitudes toward regulation. In conclusion, the essay comments on the fulsomeness of government regulatory powers in New York as early as the 1930s. In tracing the expansion of government power to redistribute wealth, it is necessary to examine three different areas of legal doctrine—the law of taxation, of eminent domain, and of regulation. Tax law has an obvious potential for redistribution, in that citizens who receive special tax exemptions or monetary handouts from government will gain wealth at the expense of those who pay their full tax share and receive no fiscal benefits. The power of eminent domain can also become a mechanism of redistribution if government can use it to obtain property at less than the price a purchaser would have to pay on the open market and especially if government can resell the property to a private citizen at less than the price that citizen would have paid on the market. Finally, regulatory schemes can prove redistributive when they impose added costs on regulated enterprises and then confer benefits on either the customers or the competitors of those enterprises. New York is an appropriate state for which to study twentieth-century developments in the law of taxation, eminent domain, and regulation since so many of the leading cases on all three subjects arose there. By focusing on this one state, which through most of the period under study was the most populous state and the economic and cultural pacesetter for the nation, it becomes possible, in addition, to analyze not only these leading cases but also the thousands of mundane cases that applied their holdings on a day-to-day basis. Most importantly, New York, especially during the 1920s and 1930s, was a trend-setter: it was the state where the ideas that later came to fruition nationally during the New Deal originated.

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  Federalism and Environmental Regulation: An Overview

  Richard L. Revesz

  In the United States, vesting control over environmental regulation at the federal level is most commonly justified both in the legal academic literature and the legislative arena by reference to three distinct arguments. First, advocates of federal control argue that in its absence interstate competition would result in a “race to the bottom.” Second, they maintain that federal regulation is necessary to prevent interstate externalities. Third, proponents of centralization raise the public choice claim that environmental interests will be systematically underrepresented at the state level relative to business interests. This essay, which builds upon my prior works in the area, has three major purposes. First, it casts serious doubt on the validity of some of the arguments made in favor of centralizing environmental regulation. Second, it shows that, to a large extent, there has been a misallocation of responsibility over environmental regulation: the federal government has taken too aggressive a role with respect to matters best handled at the state level, but has been too constrained in its exercise of authority with respect to issues over which it enjoys a distinct comparative advantage. Third, it attempts to extract from the experience in the United States, lessons that might be of interest to the European Union and to the international trading regime. The first section develops the arguments for a presumption for decentralization, which calls for vesting responsibility over environmental protection at the state rather than federal level, as a result of differences in preferences over environmental protection, as well as differences in the benefits and costs of such protection. This presumption can be rebutted if decentralization gives rise to some pathology that could be cured through federal regulation. Subsequent sections examine the three most prominent justifications offered in the academic literature and in the legislative histories of the US environmental statutes for vesting responsibility over environmental regulation at the federal level. First, the "race to the bottom" rationale posits that states, in an effort to induce geographically mobile firms to locate within their jurisdictions, will offer them suboptimally lax environmental standards, so as to benefit from additional jobs and tax revenues. Second, the problem of interstate externalities arises because a state that sends pollution to another state obtains the labor and fiscal benefits of the economic activity that generates the pollution, but does not surfer the full costs of the activity. Thus, a suboptimally large amount of pollution will cross state lines. Third, a public choice claim posits that state political processes will systematically undervalue the benefits of environmental protection or overvalue its costs. I show that these three arguments do not justify the broad role over environmental regulation accorded to the federal government in the United States. The next section attempts to define an appropriate federal role. It focuses on the types of federal regulation that may be desirable in light of (1) different types of interstate externalities (pollution externalities, benefits that accrue outside the jurisdiction in which the need for environmental protection arises, and existence or non-use values placed by out-of-state citizens on certain natural resources), (2) economies of scale, (3) benefits that might flow from uniformity in regulation, and (4) rights-based views concerning the protection of minimum levels of public health. It shows that these arguments justify a far narrower federal role than that embodied in the current environmental statutes. The following section shows that much of the criticism to centralized regulation that flows from the preceding analysis of the institutional framework in the United States applies with equal force to the European Union. It also underscores the importance for the European Union of debates concerning the proper allocation of authority currently waged primarily on this side of the Atlantic. The final section explains why the assessment of centralized intervention is different in the international community than in federal systems. It also provides a framework for analyzing the desirability of environmentally based trade restrictions in the international community.

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  Waiting for the Omelet to Set: Match-Specific Assets and Minority Oppression

  Edward B. Rock and Michael L. Wachter

  Closely held corporations (or “close corporations”) form an important subset of corporations with concentrated ownership.’ The category includes an interesting variety of enterprises, including the traditional “mom- and-pop’’ businesses, high-tech start-ups, and mature publicly held corporations post-leveraged buyout. More generally, close corporations are important because of their number and because even the largest publicly held corporations often started out as closely held corporations. As such, close corporations are incubators for tomorrow’s publicly held corporations. Two sets of problems have arisen repeatedly in closely held corporations but only rarely in publicly held firms. The first, now resolved, revolved around the enforceability of attempts by participants to tailor the terms set by the general corporation law. Because states historically have provided one corporation law for all corporations, participants in closely held corporations have often tried to modify the statutory structure by contract to serve their needs. These variations raised the question of the extent to which parties can contract out of the rules provided by the statute. The evolution toward greater flexibility was long and, at times, difficult, but flexibility is no longer a central issue. Today, participants in the close corporation can largely tailor its terms to their purposes. The second set of problems, and the focus of this paper, goes under the caption protection of minority shareholders. To what extent should the law protect minority shareholders from “oppression” by majority shareholders, beyond what the parties have contracted for? This set of questions, unlike the first set, remains alive and controversial. It has been the subject of an enormous amount of judicial and legislative effort, much of which has been devoted to expanding the rights of minority shareholders. The questions raised, however, go to the very core of what corporations are about. There are several repeated scenarios that raise the issue of minority oppression. Consider the following: Case A . There is a falling out between the majority shareholder, Major, and the minority shareholder, Minor, both of whom work in the business. Major fires Minor, who then can either hold on to his shares, which pay no dividends (all distributions are through excessive salaries), or sell them back to the firm for whatever the majority shareholder is willing to offer. A variant arises when there are three equal shareholders, A, B, and C . After a falling out, A and B gang up on C and fire him, at which point he is left with shares that pay no dividends and that only the firm is willing to buy. Case B. The majority shareholder or a group of shareholders enters into a transaction with the firm in which, for example, the firm buys back a portion of the majority shareholders’ shares, without making the opportunity available to the minority shareholders. Easier variants of this scenario include the full range of transactions between controlling shareholders and the firm, including compensation, selling/buying property, and diversion of corporate opportunities. More difficult variants include the situation in which the majority shareholder takes advantage of opportunities that are not clearly corporate opportunities, such as developing a more liquid market for shares, in which the minority shareholders would like to participate but are not offered the opportunity. Case C. The majority shareholder sells its majority (controlling) stake to a third party without giving the minority shareholder an opportunity to participate. This paper addresses the question of what, if anything, the courts should do for the minority shareholders in such cases when the parties have not provided for the problem by contract. Our basic answer is that the courts should not do anything except enforce the participants’ con- tracts and vigorously prevent non pro rata distributions to shareholders. This second principle provides a guide to the expansion of minority-shareholder protection against oppression. We proceed as follows. First, we make a fundamental break with the traditional legal treatment of the problem of minority oppression by rejecting the analogy between close corporations and partnerships and the intuitions and implications that flow from it. We also show that the alternative argument that emphasizes the low agency costs of close corporations needs to be expanded to explain the Silicon Valley start-up-type close corporation. Second, we show that the close corporation form is best suited to companies that require extensive investments in match assets. In such cases, the close corporation acts as an incubator, and the lock-in is a benefit, not a cost. Low agency costs are more likely a result of the choice of form, not the reason that the form is adopted in the first instance. Third, we argue that the problem of minority oppression combines two fundamentally separate problems: the issue that, in the employment context, is raised by the doctrine of “employment at will” and the quite separate problem of controlling shareholder attempts to make non pro rata distributions of firm assets. Building on an earlier analysis of employment at will, we then show that the same norm of judicial nonintervention that governs the employment relationship solves closely similar problems in the close corporation context. This norm, combined with vigorous judicial enforcement of the rule of no non pro rata distributions, including ancillary enforcement of minority-shareholder information rights, and limitations on the ability of control shareholders to sell shares to the firm, allows the close corporation to maximize the value of its match assets. We close by drawing the implications of the analysis for a larger theory of close corporations.

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  Reference Guide on Multiple Regression

  Daniel L. Rubinfeld

  Multiple regression analysis is a statistical tool for understanding the relationship between two or more variables. Multiple regression involves a variable to be explained—called the dependent variable—and additional explanatory variables that are thought to produce or be associated with changes in the dependent variable. For example, a multiple regression analysis might estimate the effect of the number of years of work on salary. Salary would be the dependent variable to be explained; years of experience would be the explanatory variable. Multiple regression analysis is sometimes well suited to the analysis of data about competing theories in which there are several possible explanations for the relationship among a number of explanatory variables. Multiple regression typically uses a single dependent variable and several explanatory variables to assess the statistical data pertinent to these theories. In a case alleging sex discrimination in salaries, for example, a multiple regression analysis would examine not only sex, but also other explanatory variables of interest, such as education and experience. The employer-defendant might use multiple regression to argue that salary is a function of the employee's education and experience, and the employee-plaintiff might argue that salary is also a function of the individual's sex. Multiple regression also may be useful (1) in determining whether a particular effect is present; (2) in measuring the magnitude of a particular effect; and (3) in forecasting what a particular effect would be, but for an intervening event. In a patent infringement case, for example, a multiple regression analysis could be used to determine (1) whether the behavior of the alleged infringer affected the price of the patented product; (2) the size of the effect; and (3) what the price of the product would have been had the alleged infringement not occurred. Over the past several decades the use of multiple regression analysis in court has grown widely. Although regression analysis has been used most frequently in cases of sex and race discrimination and antitrust violation, other applications include census undercounts, voting rights, the study of the deterrent effect of the death penalty, rate regulation, and intellectual property. Multiple regression analysis can be a source of valuable scientific testimony in litigation. However, when inappropriately used, regression analysis can confuse important issues while having little, if any, probative value. In EEOC v. Sears, Roebuck & Co., in which Sears was charged with discrimination against women in hiring practices, the Seventh Circuit acknowledged that “[m]ultiple regression analyses, designed to determine the effect of several independent variables on a dependent variable, which in this case is hiring, are an accepted and common method of proving disparate treatment claims.” However, the court affirmed the district court's findings that the “E.E.O.C's regression analyses did not ‘accurately reflect Sears' complex, nondiscriminatory decision-making processes’” and that the “’E.E.O.C.'s statistical analyses [were] so flawed that they lack[ed] any persuasive value.’” Serious questions also have been raised about the use of multiple regression analysis in census undercount cases and in death penalty cases. Moreover, in interpreting the results of a multiple regression analysis, it is important to distinguish between correlation and causality. Two variables are correlated when the events associated with the variables occur more frequently together than one would expect by chance. For example, if higher salaries are associated with a greater number of years of work experience, and lower salaries are associated with fewer years of experience, there is a positive correlation between salary and number of years of work experience. However, if higher salaries are associated with less experience, and lower salaries are associated with more experience, there is a negative correlation between the two variables. A correlation between two variables does not imply that one event causes the second. Therefore, in making causal inferences, it is important to avoid spurious correlation. Spurious correlation arises when two variables are closely related but bear no causal relationship because they are both caused by a third, unexamined variable. For example, there might be a negative correlation between the age of certain skilled employees of a computer company and their salaries. One should not conclude from this correlation that the employer has necessarily discriminated against the employees on the basis of their age. A third, unexamined variable, such as the level of the employees' technological skills, could explain differences in productivity and, consequently, differences in salary. Or, consider a patent infringement case in which increased sales of an allegedly infringing product are associated with a lower price of the patented product. This correlation would be spurious if the two products have their own noncompetitive market niches and the lower price is due to a decline in the production costs of the patented product. Pointing to the possibility of a spurious correlation should not be enough to dispose of a statistical argument, however. It may be appropriate to give little weight to such an argument absent a showing that the alleged spurious correlation is either qualitatively or quantitatively substantial. For example, a statistical showing of a relationship between technological skills and worker productivity might be required in the age discrimination example above. Causality cannot be inferred by data analysis alone; rather, one must infer that a causal relationship exists on the basis of an underlying causal theory that explains the relationship between the two variables. Even when an appropriate theory has been identified, causality can never be inferred directly. One must also look for empirical evidence that there is a causal relationship. Conversely, the fact that two variables are correlated does not guarantee the existence of a relationship; it could be that the model-a characterization of the underlying causal theory-does not reflect the correct interplay among the explanatory variables. In fact, the absence of correlation does not guarantee that a causal relationship does not exist. Lack of correlation could occur if (1) there are insufficient data; (2) the data are measured inaccurately; (3) the data do not allow multiple causal relationships to be sorted out; or (4) the model is specified wrongly because of the omission of a variable or variables that are related to the variable of interest. There is a tension between any attempt to reach conclusions with near certainty and the inherently probabilistic nature of multiple regression analysis. In general, statistical analysis involves the formal expression of uncertainty in terms of probabilities. The reality that statistical analysis generates probabilities that there are relationships should not be seen in itself as an argument against the use of statistical evidence. The only alternative might be to use less reliable anecdotal evidence. This reference guide addresses a number of procedural and methodological issues that are relevant in considering the admissibility of, and weight to be accorded to, the findings of multiple regression analyses. It also suggests some standards of reporting and analysis that an expert presenting multiple regression analyses might be expected to meet. Section II discusses research design-how the multiple regression framework can be used to sort out alternative theories about a case. Section III concentrates on the interpretation of the multiple regression results, from both a statistical and practical point of view. Section IV briefly discusses the qualifications of experts. Section V emphasizes procedural aspects associated with use of the data underlying regression analyses. Finally, the Appendix delves into the multiple regression framework in further detail; it also contains a number of specific examples that illustrate the application of the technique.

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  A Road Map for the Consummate Traveller: The American Law of Sentencing

  Stephen J. Schulhofer

  In the study of comparative penal law, voyages are less often physical than mental and emotional. To be sure, we make time for the mundane; just as we look to the Far East for rubber or spices, we in law look to other jurisdictions for new techniques that may help solve difficult doctrinal problems. But the lure of other legal systems, the fascination, lies elsewhere. It is the radical differentiation in points of view, the divergent assumptions about government, society and human behaviour, in short the novelty of the culture that draws and seduces us. Pity the poor traveler who returns from the Spice Islands with a chest full of leaves and stems, but no memory of unfamiliar peoples and behaviors, new and confounding rituals, or the dense, exotic feel of a different world. So too, the comparative lawyer, returned from a physical or mental investigation, will, if he is lucky, bring back not just useful implements but unsettling images of the alluring, the unfamiliar, the odd, and the incomprehensible.

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  The 1996 Convention on Jurisdiction, Applicable Law, Recognition, Enforcement and Co-operation in Respect of Parental Responsibility and Measures for the Protection of Children: A Pespective from the United States

  Linda J. Silberman

  Private Law in the International Arena contains fifty-seven original contributions authored by renowned lawyers from all over the world. It analyses a wide variety of effects that cross-border activities have on the operation of private law, ranging from corporate and insolvency law to labour law, property law, the law of obligations, family law, European law and lex mercatoria. Civil procedure aspects, in national courts and arbitration proceedings, are also explored. This book provides a unique source of insights into the problems encountered and their possible solutions. It will be of interest to scholars and practitioners alike. All contributions have been written in honour of an eminent Private International Law scholar, Prof. Dr. Kurt Siehr of the University of Zurich. An important book for both scholars and practitioners that deals with the impact of private law across national boundaries—the problems encountered and their possible solutions. Included in this collection are contributions written in English, French and German.

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  The Hague Children's Conventions: The Internationalization of Child Law

  Linda J. Silberman

  The theme of this chapter is the internationalization of ‘child law,’ a trend which can be expected to continue into the twenty-first century. Family-law matters more generally have been the subject of a number of international conventions throughout the last century, but the emphasis on children has been a late twentieth-century development. During the course of the last century, the Hague Conference on Private International Law, which concentrates largely on issues of choice of law and jurisdiction rather than substantive provisions, developed conventions on marriage, divorce, support, adoption, protection of children, and matrimonial property. However, with the exception of the Conventions on support, these Conventions did not have widespread adoptions and as a result were not particularly successful. The jurisdiction and choice of law model used for other Hague Conference Conventions seemed too theoretical and abstract to address successfully important issues of family law; at the same time, obtaining agreement on ‘substantive’ provisions among countries with very different cultural and legal traditions seemed even less likely to achieve success. Despite these odds, the three recent ‘Children’s Conventions’, concluded by the Hague Conference on Private International Law in the last two decades, managed to find significant areas of commonality and to create a framework for establishing international standards on issues relating to children. In addition to the jurisdictional and procedural provisions usually found in Hague Conventions, the Conventions introduced various structures for intercountry administrative and judicial co-operation on matters involving children. The three Conventions are: (1) the 1980 Convention on the Civil Aspects of International Child Abduction, (2) the 1996 Convention on Jurisdiction, Applicable Law, Recognition, Enforcement, and Co-operation in Respect of Parental Responsibility and Measures for the Protection of Children, and (3) the 1993 Convention on Protection of Children and Co-operation in Respect of Intercountry Adoption. The three Conventions have an ‘operational’ focus, ie they provide specific rules and institute particular mechanisms for achieving their objectives. In contrast, the United Nations Convention on the Rights of the Child is aspirational in character. Like the Hague Conventions, it signifies the globalization of child law, but the general and open-ended nature of its provisions are less likely to have a direct impact on day-to-day cross-border issues relating to children. This essay offers an overview of the three Hague Conventions; it describes each Convention’s solution for achieving its objective: deterring international child abductions (the Abduction Convention), recognizing measures and enforcing international custody decrees across transnational borders (the Protection Convention), and facilitating intercountry adoptions (the Adoption Convention). The essay concludes with observations about the internationalization of children’s issues as the new millennium begins.

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  Capital Punishment in the United States of America

  Bryan A. Stevenson

  In Christian theology, there is a biblical injunction which dictates that “to whom much is given, much is required; to whom much more is given, much more will be required.” This moral construct comes to mind when one examines violations of human rights in a nation as wealthy and influential as the United States. Despite the fact that the U.S. frequently pursues vigorous and aggressive policies relating to human rights violations in other countries, it remains one of the world’s biggest human rights offenders in relation to capital punishment. There are few places in the world where the enthusiasm for executions is more pronounced, where questions of unfairness, race and economic discrimination in capital sentencing are more persistent, and where the lack of compliance with international law and standards is more vexing. Since the death penalty was resurrected in 1976, there have been over 550 executions in the United States. Most of these executions have taken place in the last ten years when support for capital punishment has generated greater political resonance and federal courts have retreated from the kind of oversight and review of death cases that existed in the early 1980s. In the last year of the 20th century, the world’s “leading democracy” will probably execute close to 100 of its residents. Almost all of them will be poor, a disproportionately high number will belong to racial minorities with crime victims who are white, many of the executed will be mentally ill, some will have been juveniles at the time their crimes occurred, and there is not meaningful assurance that all of the executed will be guilty of the crimes for which they have been convicted.

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  Higher Ground

  Bryan A. Stevenson

  With a worldwide evangelistic ministry, Tony Campolo has achieved far-reaching, inspirational, controversial, and visionary impact on the lives of today's Christians. Nine people whose lives and ministries were influenced by Campolo write about the very issues that he holds dear.

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  Economic Incentives for Environmental Protection: Opportunities and Obstacles

  Richard B. Stewart

  The failings of state socialism in the former Soviet Union, Eastern Europe, and many developing countries have stimulated renewed appreciation of the economic and political virtues of competitive markets in harnessing the efforts of managers to the demands of consumers, promoting efficiency in resource allocation, stimulating innovation, and avoiding undue concentration of political economic power. Many nations have taken steps during the past twenty years to dismantle central planning, privatize state-owned enterprises, and reduce or transform government control of economic activity. Yet, during the same two decades governments have adopted and continually expanded far-reaching centrally planned command-and-control regulatory programs in order to limit air and water pollution, deal with toxic wastes, and solve other environmental problems. Seemingly oblivious to the inherent and well-documented failures of central planning, these programs aim to produce environmental quality by issuing detailed orders to thousands of individual facilities, prescribing their conduct in labyrinthine detail. This chapter seeks to help resolve this paradox by analyzing the advantages of economic incentive systems (EIS) for environmental protection including environmental taxes and tradable pollution quotas, identifying the types of environmental problems for which they are best suited, diagnosing structural factors that impede wider use of such instruments, and proposing regulatory reform strategies to promote such use. The traditional instrument of choice for all types of economic and social regulation has been command and control. During the past twenty years, however, governments have, in the context of economic regulatory programs, increasingly come to the conclusion that the failings of command and control are often more serious than the market failures that those programs were supposed to correct. Accordingly, governments have either substantially deregulated or shifted to more flexible structural strategies, such as reliance on competition policy rather than price and entry controls. Environmental and other forms of social regulation, however, have been viewed quite differently. Unregulated competitive markets can generate seriously excessive amounts of residuals, including pollution, hazardous waste, and other forms of environmental degradation. Such market failures are often much more serious than those addressed by economic regulation, justifying strong regulatory measures. This circumstance, however, cannot explain why governments have relied almost exclusively on command-and-control instruments to address environmental degradation, to the virtual exclusion of economic incentives systems (EIS) such as fees on pollution and tradable pollution quotas.

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  Institutional and Legal Issues of Emissions Trading

  Richard B. Stewart and Philippe Sands

  Emissions trading systems as a means of air pollution control have been developed in recent years to address some important limitations of traditional command and control environmental regulation. Trading systems address many of the inefficiencies of command systems and may promote cost-effectiveness by introducing flexibility and providing incentives for sources with lower control costs to undertake more of the control burden. In the United States, for example, experience demonstrates that emissions trading systems for diffuse air pollutants can work effectively to protect the environment, provide desirable flexibility in the means of control, stimulate environment-friendly innovation and achieve very significant cost savings if such systems are properly designed and enforced. Successful U.S. programs have included trading systems to eliminate lead in gasoline, reduce sulfur dioxide emissions by 50%, reduce smog in Los Angeles, phase out chemicals that deplete stratospheric ozone, and provide flexibility in air pollution regulation generally. Emissions trading systems are especially well suited to addressing climate change because they achieve limitations of net greenhouse gas emissions at far less cost and stimulate innovation along environmentally friendly paths to sustainable development. Because greenhouse gas emissions mix globally, net reductions of greenhouse gas emissions provide the same environmental benefit regardless of where on the globe they occur. The flexibility afforded by trading systems thus allows emissions reduction and sequestration activities to occur wherever greenhouse gas limitations can be accomplished at least cost. In recognition of these advantages, the Kyoto Protocol authorizes emissions trading among Annex I countries, as well as between Annex I countries and developing countries through the Clean Development Mechanism (CDM). Reducing the costs of achieving limitations may promote the likelihood of successful international agreement on and implementation of more ambitious limitations measures. Equally important, the com can provide important economic and environmental benefits for developing countries by channeling additional public and private sector investment capital from the developed countries into sustainable development in developing countries. This paper starts with an explanation of the basic features of emissions trading systems. It then reviews the successful domestic use of trading systems in the United States. Finally, it discusses the international use of emissions trading to mitigate climate change, including Annex I trading and trading under the CDM.

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  Arendt's Constitutional Politics

  Jeremy Waldron

  In what sense (if any) is man a political animal? Hannah Arendt is commonly thought to have made more of the Aristotelian characterization than anyone else in twentieth-century philosophy. I do not mean that she is a good expositor of Aristotle: in fact she is often criticized on that front. I mean that she took the content of Aristotle's claim very seriously, particularly the question of what exactly in man's nature is political and what is not. Historically, Arendt argued, humans have found their greatest fulfillment in politics. For people like Thomas Jefferson and John Adams, “life in Congress, the joys of discourse, of legislation, of transacting business, of persuading and being persuaded, were . . . no less conclusively a foretaste of eternal bliss than the delights of contemplation had been for medieval piety.” In politics, such men found something which managed to redeem human life from the cyclical futility of birth, reproduction, and death. Without that something, their existence would be as uniform and pointless as the life of any animal; or its point would be the biological process itself, the endless repetition of generation after generation. In politics, by contrast, our humanity gives us the chance to transcend the merely natural and to undertake unique initiatives that flare up in the public realm and linger indefinitely in memory and history.

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  Cultural Identity and Civic Responsibility

  Jeremy Waldron

  Two formulations of civic responsibility are advanced: participating in a way that does not improperly diminish the prospects for peace or the prospect that the inhabitants will come to terms and set up the necessary framework; and participating in a way that pays proper attention to the interests, wishes and opinions of all inhabitants in the country. This chapter addresses the questions that arise when these formulations are filled out in the context of cultural identity in a multicultural society. Aspects covered include compossibility, compleasance (that people strive to accommodate themselves to others), and cultural engagement.

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  "Despotism in Some Form": Marbury v. Madison

  Jeremy Waldron

  Slavery, segregation, abortion, workers' rights, the power of the courts. These issues have been at the heart of the greatest constitutional controversies in American history. And in this concise and thought-provoking volume, some of today's most distinguished legal scholars and commentators explain for a general audience how five landmark Supreme Court cases centered on those controversies shaped the country's destiny and continue to affect us even now. The book is a profound exploration of the Supreme Court's importance to America's social and political life. It is also, as many of the contributors show, an intriguing reflection of what some have seen as an important trend in legal scholarship away from an uncritical belief in the essentially benign nature of judicial power. Robert George opens with an illuminating survey of the themes that unite and divide the five cases. Other contributors then examine each case in detail through a lively commentary-and-response format. Mark Tushnet and Jeremy Waldron exchange views on Marbury v. Madison, the pivotal 1803 case that established the power of the courts to invalidate legislation. Cass Sunstein and James McPherson discuss Dred Scott v. Sandford (1857), the notorious case that confirmed the rights of slaveowners, declared that black people could not be American citizens, and is often seen as a cause of the Civil War. Hadley Arkes and Donald Drakeman explore the legacy of Lochner v. New York (1905), a case that ushered in decades of judicial hostility to social welfare laws. Earl Maltz and Walter Murphy assess Brown v. Topeka Board of Education (1954), the famous case that ended racial segregation in public schools. Finally, Jean Bethke Elshtain and George Will tackle Roe v. Wade (1973), still a flashpoint a quarter of a century later in the debate over abortion. While some of the contributors show sympathy for strong judicial interventions on social issues, many across the ideological spectrum are sharply critical of judicial activism. A compelling introduction to the greatest cases in U.S. constitutional law, this is also an enlightening glimpse of the state of the art in American legal scholarship.

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  Legislation by Assembly

  Jeremy Waldron

  In discussions of judicial activism it is as important to understand the institutions that surround our courts as it is to understand the courts themselves and the nature of judicial reasoning. This is because accusations of activism often presuppose that a judge is doing something in law or politics that ought to be done by some other agency of government and, in many cases, the institutional differences between the two are supposed to explain why. When we are discussing judicial activism in modern constitutional law it is particularly important to understand legislatures—what they are, how they work, and what is the basis of their legitimacy—because the issue raised is often that something has been decided by the courts in a way that involves an inappropriate encroachment on the tasks of congress or parliament. For this reason, we need theories about legislatures and theories about courts. Fortunately, there is no shortage so far as theories about courts are concerned. But there is very little available to us in the way of a philosophically adequate theory of legislatures. In this chapter, then, I will not say very much on the topic of adjudication (except for a few remarks about statutory interpretation at the very end). I am eager, instead, to take up the task of enhancing our theoretical understanding of legislation by large representative assemblies.

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  Votes as Powers

  Jeremy Waldron

  Carl Wellman's contribution to our understanding of rights is four-fold. First, he insisted on the analytic importance of Wesley N. Hohfeld's taxonomy of legal advantages. Second, he showed how there could be moral equivalents of Hohfeld's legal positions, thus opening the way to a detailed philosophical analysis of moral as weIl as legal rights. Third, he developed a useful 'atomic' model in which each right was conceived to consist of a core Hohfeldian position associated with other Hohfeldian elements in a way that secured the right-bearer's dominion over the core. And fourth, he argued that although there are important connections between rights and dominion and between rights, choice, and agency, it does not follow that the Hohfeldian element at the core of every right is a liberty or privilege. The core position may be a power, a claim, even a liability, and the core's full significance for liberty may not reveal itself until one considers how all the complex elements of the right operate together. WeIlman has used this apparatus to cast helpful light on a number of rights, including free speech, abortion rights, economic rights, and the right to refuse medical treatment. One category about which he has said relatively little is the category of political rights, particularly the right to vote. There are various remarks on this topic scattered throughout Wellman's writings; but there is nothing in the way of a systematic account. I am going to take this opportunity to develop an analysis of voting rights along the general analytic lines that Wellman suggests, because I firmly believe that this is an area where his Hohfeldian approach can yield considerable insight.

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  Why Indigence Is Not a Justification

  Jeremy Waldron

  In this essay, I attempt to explain why arguments in favor of accepting indigence as a defense in criminal matters are unlikely to be successful. Although there is an apparent symmetry between exculpation based on indigence and exculpation based on self-defense, there are in fact important differences between the two modes of exculpation. The differences have to do with the moral light that the respective defenses cast (or—in the case of indigence—the moral light that they would cast, if accepted) on the rule the defense calls into question. I argue that in the case of traditional self-defense, exculpation calls in question nothing more than the application of the rule against homicide in a particular instance: a (justificatory) appeal to self-defense is a way of showing that that prohibition is overly inclusive, so far as the particular case is concerned. By contrast, if indigence were accepted as a justification, it would tend to call into question not just the application but the general legitimacy of the rule that was broken (usually a rule of property). One cannot say simply: "This is a fine system of property, but it is overly inclusive so far as this person's indigence is concerned." Overinclusiveness goes to the heart of the justification of property rights (in a way that it does not go to the heart of the justification of the rule against homicide). By that I mean the following: in the case of property, Overinclusiveness goes directly to the issue of social or distributive justice. To say that a particular taking of property (something which would otherwise be a theft, conversion, or trespass) is justified by the taker's indigence is to call into question the justice of the property scheme in general. For this reason, legislators are understandably reluctant to posit this explicitly, and courts are loath to recognize it, as a defense to violations of rules about property to which they are in all other regards committed. Now this may not be true of all indigence-based arguments. In particular, it is unlikely to be true of indigence as an excuse; and it may not be true of incidents of occasional or accidental deprivation—the otherwise prosperous hiker suddenly stranded without food, and so forth. But it does tend to be true of many instances in which a defense of (more or less permanent) indigence would be most directly compelling. I am not making a hard-and-fast argument against recognizing indigence as a defense. Nor am I suggesting that this difference morally justifies the asymmetry between indigence and self-defense. I do believe, however, that it offers a good explanation—in terms of the logic of the law—of the tendency to diminish the importance of indigence as a defense (often to a vanishing point). The law—I argue—is not about to recognize a class of defense whose general tendency, in the cases in which it would be most directly applicable, would be to call into question the legitimacy of the general legal rules of property in a society.

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  Cain and Abel—Convergence and Divergence

  Joseph H. H. Weiler

  Though created roughly in the same period, committed to similar beliefs in the virtues of liberalised trade and open markets, sharing in many instances a common legal vocabulary, the General Agreement on Tariffs and Trade (GATT) and the European Union (EU) developed over the years as the Cain and Abel of international economic law. Together with the World Trade Organisation (WTO) and the North American Free Trade Agreement (NAFTA), the overlapping regimes of the EU and GATT illustrate the emergence of a nascent Common Law of International Trade rooted in three phenomena. First is the fact that the very same regulatory measure may come simultaneously within the jurisdictional reach of more than one trade regime and may even be adjudicated simultaneously. Second is the fact that in the material law of disparate international trade regimes we can see considerable convergence. Third is the strengthening of private parties in all regimes—once a preserve of the EU.

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  Foreword: Eric Stein’s Bridge - A Retrospective

  Joseph H. H. Weiler

  European integration proceeds apace, most recently with the introduction of the Euro in most of the countries of the European Community. Yet many of the same problems have troubled this group since its inception, problems foreshadowed in many ways by the American debates over the nature of our own federation. Eric Stein began the scholarly study of the developing law of the European Community almost at the time of its birth. His thoughts on various problems with integration in Europe demonstrate remarkable prescience and remain important contributions to the ongoing debates and discussions. Viewing European integration both from the perspective of the American experience with federalism and the personal experience of a Europe torn apart by war, Stein offers a unique understanding of the forces propelling and restraining European union. The essays collected in this volume deal with the development of a harmonized set of laws, the comparative study of law, the development of a common European foreign policy, the role of courts in the European Community, and the dissolution of the Czech and Slovak federation, among other topics. These essays are essential reading for all scholars interested in studying the European Community, the development of law, and advantages and pitfalls of the development of federal systems. Eric Stein is Hessel E. Yntema Professor of Law Emeritus, University of Michigan Law School and is the author of Czecho/Slovakia: Ethnic Conflict, Constitutional Fissure, Negotiated Breakup.