This Is Not Your Parents “Market Efficiency” . . .

Dan Awrey, The Mechanisms of Derivatives Market Efficiency, 91 N.Y.U. L. Rev. 1104 (2016).

“Market efficiency” is one of the most widely used, and frequently over-used, concepts in modern financial economics and its cross-disciplinary offspring, law and economics. Every student taking corporate finance or securities regulation knows about the Efficient Market Hypothesis. Every policy proposal must grapple with the issue of how it would impact the relevant market’s “efficiency.” And, of course, innumerable law review articles employ the vocabulary of “market efficiency” to support a variety of doctrinal, empirical, and normative claims. Yet, this theoretically elegant concept often seems to be a rather imperfect representation of what actually happens in real-life financial markets. The latest financial crisis made this problem simply impossible to ignore. Of course, a sensible way to bridge the gap between theory and practice is to refine or revise the theory, so that it provides a better explanation of the relevant reality. That’s easier said than done, however. Not surprisingly, the post-crisis explosion of academic writings on financial markets and regulation has produced disappointingly little by way of true theoretical advancement, at least so far.

Dan Awrey’s new article, The Mechanisms of Derivatives Market Efficiency, is one of the few rare exceptions in that respect. It is cleverly framed as an attempt to update and extend the theoretical framework originally laid out by Ron Gilson and Reinier Kraakman in their canonical 1984 article, The Mechanisms of Market Efficiency. Gilson and Kraakman were the first to identify and map out the key channels through which any particular piece of new information, depending on the cost of acquiring and processing it, gets incorporated into the publicly-traded stock prices. Among other things, they explained how numerous professional traders (broker-dealers, research analysts, investment managers, etc.) obtain, process, and disseminate costly private information, thus collectively enabling stock market prices to move to the new optimal levels. Continue reading "This Is Not Your Parents “Market Efficiency” . . ."

 
 

Contract Theory: A View From the Other Side of the Atlantic

Martijn W. Hesselink, Contract Theory and EU Contract Law, in Research Handbook on EU Consumer & Contract Law (Christian W. Twigg-Flesner ed., forthcoming), available at SSRN.

Some analyses are particularly suitable for novices, while others suit experts. Few analyses may be of interest to both. Martijn Hesselink’s contribution to a forthcoming handbook on EU Consumer and Contract Law belongs to the latter category. In this chapter, Hesselink discusses the “mismatch between much of the existing contract theory, on the one hand, and EU contract law on the other.” Ostensibly, this discussion is only relevant to a narrow audience—namely, the rather few (especially in the United States) who are interested in both contract theory and EU contract law. In fact, however, this chapter would benefit anyone interested in contract theory even if they have little interest in EU law—or conversely, anyone interested in EU contract law who may not care much about contract theory. Indeed, reading this chapter may persuade U.S. contract professionals that they should take interest in EU law, and convince EU contract people that contract theory is important to understanding their field in a broader context.

Hesselink’s chapter consists of three parts. The first part provides a highly useful typology of contemporary theories of contract law. The second delineates EU contract law and describes its basic features. The third part points to the mismatch between most contract theories and EU contract law, and explores its ramifications. Continue reading "Contract Theory: A View From the Other Side of the Atlantic"

 
 

Infusing Civil Rulemaking with Economic Theory

Paul Stancil, Substantive Equality and Procedural Justice, Iowa L. Rev. (forthcoming), available at SSRN.

For the most part, civil procedure teachers are dedicated doctrinalists. Nothing wrong in that, especially if well done.

Departing from this norm, Paul Stancil’s Substantive Equality and Procedural Justice is a highly ambitious piece that strives to anchor civil procedure and the rulemaking process in a theoretical construct, largely moored in sophisticated economic analysis. Continue reading "Infusing Civil Rulemaking with Economic Theory"

 
 

We Are Family, Aren’t We? Modern Families and Outdated Probate Laws

In her article, Inheritance Equity: Reforming the Inheritance Penalties Facing Children in Nontraditional Families, Professor Danaya C. Wright examines the negative effect that outdated intestate succession statutes have on today’s modern families. Even though a majority of children today do not live in a 1950s type nuclear family, the intestate succession statutes in each of the fifty states still only protect those children. Families have evolved; state probate codes have not. Step-children, children born out of wedlock, children raised by lesbian or gay couples, and children raised by relatives are just some of the children who are disadvantaged by out of date inheritance laws. If laws of inheritance are to effectuate the desires of decedents, then they are failing. Professor Wright advocates for change and provides us with a model statute.

Professor Wright’s article begins a much-needed discussion about how probate codes and family law codes are not aligned. She states, and I agree, that an article such as this one could be written for each state. While family law has expanded the definition of family, probate codes remain rigid. Family law recognizes functional parents; probate law does not. Therefore, there are instances where a person may be responsible for child support while alive, but at his death the supported child is not entitled to an inheritance from him. Continue reading "We Are Family, Aren’t We? Modern Families and Outdated Probate Laws"

 
 

‘Benchmarking’ Ethical Identity of Law Students and How it is (or is not) Impacted by Law School

Richard Moorhead, Catrina Denvir, Rachel Cahill-O’Callaghan, Maryam Kouchaki and Stephen Gloob, The Ethical Identity of Law Students, International Journal of the Legal Profession, (2016).

Much has been written about the ‘ethical identity’ of law students with what Elizabeth Chambliss describes as a dominant ‘corruption narrative’ informing philosophical and empirical accounts.1 In another myth-busting study from Richard Moorhead and others, The Ethical Identity of Law Students, the diminishment thesis is tested, somewhat supported and problematized.

Blame is often leveled at an ever more commercialized profession and the (poor) signals it sends to law students about role morality. Moorhead’s research suggests that pre-conceptions of differing legal practice might attract differently ethically inclined students. . What these students then learn at law school is also subject to what Wald and Pearce describe as an ’industry’ of criticism.2 Scholarship across the common law world points to the negative effect of a neo-liberal turn of law schools; in Australia, Margaret Thornton has long argued that we produce ‘narrow technocrats.’3 Elizabeth Mertz describes a language of indoctrination at law school which favours professional ‘hubris’ over social justice and moral reasoning.4 While not all legal education has been implicated in ethical diminishment—notably clinical education—smaller-scale studies have produced little evidence of positive impact. Nevertheless, Chambliss argues that our student days and professional lives may be subject to many instances of ‘ethical learning’ and ‘ethical fading’. The difficulty then for any researcher trying to measure this influence is to understand the context and the subject. Continue reading "‘Benchmarking’ Ethical Identity of Law Students and How it is (or is not) Impacted by Law School"

 
 

Business Lobbying Goes Global

Melissa J. Durkee, Astroturf Activism, 69 Stanford L. Rev. (forthcoming 2017), available at SSRN.

Citizens for Sensible Control of Acid Rain. Consumers for World Trade. The American Forest and Paper Association. The Turkish Confederation of Businessmen and Industrialists. These are a few of the 4600 organizations that are formal, registered consultants to the United Nation’s Economic and Social Council. They are also examples of the mode of corporate access to international lawmaking that is the subject of Melissa J. Durkee’s excellent article, Astroturf Activism.

At the heart of Astroturf Activism is a nuanced description of institutionalized corporate participation in international lawmaking. It takes readers behind the curtain at the United Nations to examine a system of registering non-governmental organizations (NGOs) as consultants with a special advisory role. The article’s pithy title captures a central concern: that businesses lobby international lawmakers through “’astroturf’ imitations of grassroots organizations,” using “nonprofit NGOs as front groups to advance business interests through the U.N. consultancy system.” Despite the title, however, the author resists simple identification of NGOs as the good guys and business as the bad. She suggests here and in other work that business participation can sometimes be beneficial, lending expertise or breaking “geopolitical logjams.” Continue reading "Business Lobbying Goes Global"

 
 

Rethinking Remedies

Nicholas Bagley, Remedial Restraint in Administrative Law, Columbia Law Review (forthcoming 2017), available via SSRN.

We have all heard the saying that you “don’t need a sledgehammer to kill a gnat.” Yet, when it comes to fashioning remedies for agencies’ transgressions of administrative law principles, the courts often use the equivalent of legal sledgehammers to remedy agency transgressions—no matter how minor the transgressions. This, at least, is the picture painted by Professor Nicholas Bagley in his draft article titled Remedial Restraint in Administrative Law, which will be published in 2017 in the Columbia Law Review.

As Professor Bagley’s article carefully describes, when a court determines that agency action violates the Administrative Procedure Act (APA), the usual response is for the reviewing court to reflexively invalidate the agency action and to remand to the agency. Administrative law’s adherence to this rigid, rule-like approach to remedies—one that generally vacates and remands without pausing to ask how the agency’s mistake harmed or prejudiced the complaining party—means that courts “treat every transgression as worthy of equal sanction.” (P. 4.) This, in turn, leads to what Professor Bagley perceives as a frequent mismatch between the underlying APA violation and the harshness of invalidating the agency action.

Until I picked up Professor Bagley’s piece, I must admit that I had not given the question of remedies in administrative law much sustained or critical thought. And, as it turns out, I am not alone. Indeed, as Professor Bagley describes it, “systematic inattention” plagues remedial questions in administrative law. (P. 2.) This is the main reason why I highly recommend that you read his article. Unless you are unlike most administrative law observers, the article will likely push you to consider issues that you have not carefully thought through before despite their central importance to administrative law disputes. Continue reading "Rethinking Remedies"

 
 

Jim Crow’s Unwritten Code

In The Jim Crow Routine, historian Stephen Berrey brings fresh eyes to the intricate set of legal rules that maintained racial segregation in the American South. Building on works like Leon Litwack’s Trouble in Mind: Black Southerners in the Age of Jim Crow and Neil R. McMillen’s Dark Journey: Black Mississippians in the Age of Jim Crow, Berrey focuses not on the rise or demise of Jim Crow so much as the manner in which it disciplined daily life. For average folks, argues Berrey, Jim Crow turned the South into a stage where whites and blacks learned to negotiate one another’s presence on the street, in stores, at the post office, and at work – according to elaborate, albeit unwritten, scripts.

Taking Mississippi as a point of focus, Berrey demonstrates that Jim Crow involved a complex set of scripted “exchange[s]” between whites and blacks that were at once “subtle and dynamic, intimate and volatile,” exchanges that in a sense formed a customary law of interaction independent of legislatures and courts. (P. 4.) Closely linked to this were strategies of resistance that African Americans developed to avoid white recriminations, as well as strategies that whites developed to enhance, or modernize, the legal challenges of racial control. Such modernizations exploded dramatically following the Supreme Court’s decision in Brown v. Board of Education in 1954, as southern states moved quickly to erase overt racial classifications from their law, meanwhile imposing new, more subtle forms of surveillance rooted in the rubrics of maintaining the peace, protecting property, and preventing crime.

At least one startling observation emerges from Berrey’s study. First, as much as southern law worked to achieve racial separation, whites and blacks in the Deep South interacted and existed in a near constant state of racial togetherness, working, playing, shopping, fishing, and even eating in close proximity to one another, often to the point that racial segregation was adhered to only in the flimsiest, most ad hoc fashion. For example, Berrey presents us with stories of whites and blacks attending the same functions divided only by a row of stools (P. 19), attending the same theaters separated only by a rope (P. 25), eating together in fishing boats separated only by a casually placed stick (P. 24), and sitting in the same rows in courthouses with only one extra space between them (P. 27). Such divisions, which hardly kept the races apart, were further compromised by outright concessions that allowed for black servants to join their employers on train cars and trolleys and even live in their homes. Continue reading "Jim Crow’s Unwritten Code"

 
 

What the Sharing Economy and Environmental Law Have In Common

Kellen Zale, When Everything is Small: The Regulatory Challenge of Scale in the Sharing Economy, San Diego L. Rev. (forthcoming 2016), available at SSRN.

There has been a lot of literature about the so-called “sharing” economy lately, in particular focusing on the conflicts over whether and how that economy will fit within the existing regulatory systems at the local, state, and federal levels. And at first blush, the question of whether Uber drivers should be regulated as taxis or not doesn’t seem to have much of a connection with the standard concerns of environmental law—particularly the regulation of large industrial sources of pollution.

But as Kellen Zale’s excellent article points out, the problems that the sharing economy poses to existing regulatory systems are ones that we have seen before, and ones that we will see again. Zale notes that the sharing economy poses regulatory challenges precisely because of its scale of a large number of small activities—thousands and thousands of individual drivers working for Uber or Lyft, or of homeowners renting through Air BnB. Large numbers of individually small activities are incredibly difficult to regulate effectively, and that regulation can impose substantial social costs. As a result, the law has traditionally exempted many small scale actions from regulation. On the other hand, the accumulation of all of these individually small actions can impose significant harms on neighbors, communities, and the environment. For instance, the congestion and noise impacts of large numbers of Air BnB rentals have been a source of major complaint in some tourist communities. Zale also identifies how the sharing economy is but one example of this phenomenon—a growth of the impacts from individually small activities to the point at which regulation is required—and discusses how it can be discerned in a range of areas, including landlord-tenant law. Continue reading "What the Sharing Economy and Environmental Law Have In Common"

 
 

Connecting Nineteenth-Century Antislavery and Labor Movements with Twenty-First-Century Workers’ Rights

Rebecca E. Zietlow, A Positive Right to Free Labor, 39 Seattle U. L. Rev. 859 (2016).

In her article, A Positive Right to Free Labor, Professor Zietlow recounts the history of the working person’s claim to free labor. Zietlow traces that history from its roots – in the antislavery and labor movements of nineteenth-century antebellum America – right through to the post-Title-VII era of today, showing us that there is much more work to be done.

Professor Zietlow begins by defining a positive right to free labor as including “the right to work for a living wage free of undue coercion and free from discrimination based on immutable characteristics. Not merely the negative guarantee against the state’s infringement on individual equality and liberty, a positive right to free labor is immediately enforceable against state and private parties.” (P. 861.) From there, she states her thesis – a positive right to free labor cannot be found in the Fourteenth Amendment but is found in the Thirteenth Amendment, which is unique among constitutional provisions insofar as it applies to non-state actors and obliges the state to take positive action to ensure workers’ rights. In Zietlow’s view, by picking up this strand of positive rights that have been lost to history, the potential for progressive regulation of private employers’ duties to employees is great. Continue reading "Connecting Nineteenth-Century Antislavery and Labor Movements with Twenty-First-Century Workers’ Rights"