Black Metropolis Research Consortium
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Crime and (a Preference for) Punishment: The Effects of Drug Policy Reform on Policing Activity
Get PDFResearchers still know very little about the incentives of police. Using geocoded crime data and a novel source of within-city variation in punishment severity, I shed light on enforcement behavior. I find a 13 percent decrease in drug arrests in parts of a city where drug sale penalties were weakened. There is no displacement of nondrug offenses. If offenders are significantly deterred by harsher penalties, as the law intended and Becker’s model of criminal behavior predicts, drug arrests should increase in areas with weaker penalties. My results are therefore consistent with police officers treating enforcement effort and punishment severity as complements. I also find that citywide crime and drug use do not increase after the reform. I thus call into question the War on Drugs view of punishment and suggest that certain types of enforcement can be reduced without incurring large public safety costs
Antitrust in the Information Economy: Digital Platform Mergers
Get PDFThe growth of large digital platforms has caused some observers to claim that merger policy has been too lax to protect consumer welfare, stating a predicate for antitrust policy reform. We address this by exploring the relative importance of past mergers to the current value of the five largest platforms (Google, Amazon, Facebook, Apple, and Microsoft). We find that mergers have not been as important to these platforms’ size compared with other large technology companies. Even so, it could be argued that the mergers engaged in by these platforms have harmed efficiency. Listing the combinations often used to advance this view, we find that such mergers cited by reform advocates have often been associated with competitive or benign outcomes rather than with adverse effects associated with creation of a monopoly. Further analysis (and government litigation) will likely inform this perspective
International Institutions and Platform-Mediated Misinformation
Get PDFThe Essay is part of a Symposium on Tom Ginsburg’s insightful book Democracies and International Law. It explores one particular kind of interaction between democratic nation states and international instruments and institutions: how international law and institutions either mitigate or exacerbate harms to democracy from the diffusion of misinformation and hate speech on social-media platforms. I identify three distinct pathways not covered by Ginsburg: (a) international law as an off-the-rack legal regime for content-moderation by such platforms; (b) international contouring of feasible domestic regulation; and (c) ex ante and ex post international regulation of platform-mediated misinformation. Reflection upon these pathways confirms some of Ginsburg’s insights, but also complicates other parts of his analysis
Appellate Panels of One
Get PDFAppellate review can be understood as an opportunity to correct errors made by lower courts and, by virtue of their multi-member panels, as a way to benefit from the wisdom of crowds. Appellate panels of three judges, and then a larger Supreme Court of nine, are likely to interpret, apply, or advance law more correctly, or simply better, than a single lower-court judge whose effort is under review.1 Appellate review can also be understood as relying on more experienced or otherwise superior decision-makers or as designed to make law more uniform, inasmuch as lower court decisions on many matters will converge as they follow precedents. It has also been understood as a way to take advantage of the knowledge that litigants themselves have about lower court errors.2 Appellate review is surely a means of encouraging more careful work by lower courts; people are often more careful when they know that their work can be reviewed or observed by superiors or well-regarded peers. Finally, appellate review may be of great value (even) when it affirms a lower court, because each step adds to the development of a lasting precedent. Most of these perspectives have counterparts in other settings where the familiar question of when to seek and pay for a second opinion arises. But most second opinions, whether sought before agreeing to a medical procedure or contracting for an auto repair, are given by a single analyst, while appellate review in the federal and most state systems normally involves three jurists, and then yet more in the event of a further appeal.3 This Essay examines the logic of second and third opinions – even without the added complexity introduced by the precise cost of review (in the form of time or money) – and reaches several counterintuitive results. Most appellate processes should be restructured so that one judge alone reviews the lower court. Only if this single appellate judge disagrees with the lower court, should one more judge enter the fray, and even that may be wasteful. Legal questions that are appealed will normally be decided by 2-0 or 2-1 decisions, involving just one or two appellate judges in addition to the lower court judge.
There are other reasonable conclusions to reach once the logic of appellate review, and second opinions quite generally, is examined. There is a case to be made for having the first appellate judge always decide whether further review is in order. On the other hand, and to the contrary, the appellate process could always stop after one review – subject to the Supreme Court’s deciding to take the case. These and other possibilities are examined here, but mostly set aside in favor of the central argument about the appellate process. The arguments that drive the conclusions are fueled by some probability theory, and have surprising implications for areas outside of law in which second opinions are commonly sought. I begin with the idea that reaching the correct decision (defined presently) is the immediate goal. As the argument proceeds, the value of long-lasting rules and other aims are brought into play.
Part I begins with the most familiar use of second opinions. It rethinks the wisdom of soliciting another assessment before following a recommendation regarding a serious medical intervention. There are important differences between medical and legal decisions, but it is instructive to begin with an example where it is easier to insist that there is a correct answer. The analysis shows that the common thinking about the value of a second medical opinion is poorly conceived. The goal in Part I is not to give medical advice, though there is some of that, but to rethink the logic of second opinions, before applying it to judicial review. Part II then takes account of some of the ways in which judicial review is unlike other calls for review. It suggests that if we incorporate the likelihood that a lower court judge is correct, it is sensible to move to a system where we begin, and usually end, with a single appellate judge. Part III tests the idea of a single reviewer by looking not only at the value of discussion and teamwork among judges, but also at the importance of some assumptions made here about the probability that a judge is correct. Part IV turns to the possibility that appellate judges are not deployed to find correct answers, perhaps because there is often no such thing, but rather to reflect and aggregate preferences, a distinction familiar to students of public choice, not to mention to observers who regard much of what judges do as reflecting political preferences. Part V extends the analysis of appellate review to committees and boards of directors, and then to juries. The insights offered here suggest some changes in law, though some of these are likely to be politically impossible in the near future
An Information-Production Theory of Liability Rules
Get PDFThe negligence-versus–strict liability debate is over in tort law, and negligence has clearly won. Yet the fact that our accident-compensation system is fault based continues to attract much opposition in popular sentiment and academic circles. Standard economic analysis views strict liability as preferable to negligence because it is easier to administer and leads to better risk reduction: strict liability induces injurers not only to optimally invest in precaution but also to optimally adjust their activity levels. Standard analysis thus views the prevalence of negligence as unjustifiable on efficiency grounds. This Article challenges the conventional wisdom and clarifies an efficiency rationale for negligence by spotlighting the information production function of tort law. Tort litigation affects behavior not just directly through imposing sanctions but also indirectly through producing information on how the disputants behaved. Third parties can then use information from litigation to decide whether to avoid the defendant or not. And the choice of liability rules dictates the magnitude and scope of these informational effects: negligence produces more valuable information on the behavior of market actors than strict liability does.
Litigation under negligence produces granular information on whether the defendant could have reasonably avoided the harm, how she fares relative to others in her profession, and so on. Such information, to the extent it becomes public, allows outside observers to infer whether the past accident is indicative of the defendant’s future behavior or not, which in turn affects their willingness to do business with her going forward. A physician found negligent may lose future patients, a seller failing the consumer-expectations test in products liability may lose future consumers, and so on. Litigation under strict liability produces much coarser information— namely, that a harm occurred as a result of the defendant’s activity. It rarely provides outside observers with information on the competence or integrity of the defendant vis-à-vis her peers. The efficiency rationale for negligence thus stems from facilitating more robust market discipline. In contrast to what influential accounts in economic analysis suggest, negligence does affect the activity levels of potential injurers, albeit from the demand side: by warning third parties, it reduces market demand for the services of risky actors.
This Article explains how information from litigation translates to reputation, identifies the circumstances under which these reputational effects are more (or less) pronounced, and uses the reputational perspective to reevaluate timely debates such as the desirability of secret settlements or how to set the liability standard for autonomous-vehicle accidents
Duplicative Taxation Among the States: a Problem Not Worth Solving?
Get PDFRecent legal and economic changes—not to mention the rise in telecommuting caused by COVID--have raised the salience of a long-simmering fact about the operation of state and local income tax systems: some multistate employers and employees pay a combined income tax liability that is higher than the tax they would have borne had they operated in just one jurisdiction. Seemingly beyond the reach of the courts to correct, there have been persistent calls for Congressional action to eliminate or reduce this “duplicative” taxation. This Article suggests that the alleged problem may be both less of a problem, and more resistant to a solution, than is commonly understood. One of the predicates of a national marketplace is the abolition of many state laws that favor instate over interstate commerce. In practice, this aim, though embedded in Constitutional text1 and practice,2 is remarkably hard to attain. In particular, it has proven difficult to reconcile state sovereignty over fiscal affairs with tax neutrality between single state and multistate taxpayers.3 In their efforts to maximize their own tax revenues and other economic interests, states often enact (or try to enact4 ) tax rules that lead to double taxation of multistate taxpayers, that is, rules which result in more than one state imposing tax on a tax base without offset or other regard for taxes levied by other states on that same base. In turn, this duplicative taxation appears to distort taxpayer behavior in ways that confound both the concept and operation of a national economic marketplace. Legal changes and increases in the fiscal pressure on states have exacerbated these distortions, as they have caused many states to raise tax rates and cleverly expand their (asserted tax) jurisdiction. The end result is an increase in the cost and likelihood of disparities in the tax treatment of wholly in-state and multistate taxpayers.
For an old and familiar example of duplicative taxation, one needs to look no further than the states’ use of different formulas for apportioning the business income earned by taxpayers with multistate business activities. For a short period of time, almost all states employed a three-factor apportionment formula.5 This formula apportioned one-third of taxpayers’ income on the basis of in-state sales versus total sales, one-third on the basis of in-state business property versus total business property, and the final third on the basis of in-state payroll versus total payroll.6 Thus, if 30% of Acme Corporation’s total sales were made to customers in State A, a state which also accounted for 20% of its business property and 10% of its payroll, 20% of Acme’s business income would be apportioned to, and taxed by, State A. The other 80% percent would be apportioned to, and taxed by, other states in similar fashion.7 In the best of all worlds, 100% of its income would be taxed in some state.8 However, Iowa, a state with few factories and office buildings but disproportionately more consumers, decided to increase its income tax revenues— in a way that would not scare off actual business investors--by adopting another apportionment formula, one which took into account only the location of sales.9 The difference between the two formulas is readily apparent. If Iowa were just like State A, the sales only formula would apportion 30% of Acme’s income to Iowa—and if the other states in which Acme did business continued to use the three-factor formula, those other states would continue to claim the right to tax a total of 80% percent of Acme’s income. As a result, Acme would be subject to state income taxes calculated with respect to 110% of its actual business income. In short, 10% of its income would be taxed, in full, by two different states, and its overall tax burden would be higher than if it had carried out its business operations in only one state, including Iowa.10
Another example of duplicative taxation arises from the disparate state tax treatment of remote working arrangements. These disparities can lead to duplicative state taxation at both the employer and employee level. Although the existence (and effect) of these disparities is not new,11 the remote working arrangements spurred by the COVID pandemic has drawn renewed attention to them.
At the employer level, a remote worker may provide the state in which the employee is physically present both the “nexus” required to impose a corporate income tax,12 and a tax apportionment based on the “in state” salary of the remote worker.13 Meanwhile, the state in which the employer’s home office is located, using a different definition of an “in state” employee, may include that same salary in the numerator of its apportionment fraction for purposes of determining the corporate income tax owed to that state. The combination would again lead to duplicative taxation.14
Differing definitions of the source of salary income also may lead to duplicative taxation at the employee level. Some states claim the right to tax an individual’s wage income based on the location of the person performing the services,15 while others claim the right to tax such income based on the location of the empIoyer’s office.16 Thus, an individual working from a home located in a state other than the one in which her employer’s office is found might find her salary subject to tax in two states without any offset for taxes paid to the other state.17 There is at present no legal remedy for any of these examples of duplicative taxation. The Supreme Court explicitly blessed Iowa’s use of its single factor formula in 1978, in the case of Moorman Manufacturing Co. v. Bair, 18 and more recently refused to grant leave to hear a case brought by the State of New Hampshire, challenging Massachusetts’ adoption of the location of the employer source rule for apportioning individuals’ personal services income.19
A solution to this apparent problem would probably require action by Congress.20 Conventional wisdom is that the federal government, which is to say Congress if not the federal courts, should restore some level of tax neutrality between single state and multistate taxpayers.21 This Article shows, however, that there is no easy solution to this problem, and perhaps simply none worth attempting. Congress could eliminate some instances of double taxation, at the (possible) expense of overall state tax revenues and while re-allocating revenue from some states to others. But any intervention of this kind would be politically tricky and – more interesting – difficult to justify as a theoretical matter. Moreover, there is no guarantee that states would not work around any rules that Congress established; the duplicative taxation problem could well re-emerge in a slightly different (and perhaps less attractive) guises. Congressional intervention may not be worth the candle, especially when one considers existing opportunities for taxpayer self-help.
Part I of this Article explains how judicial decisions loosening Constitutional nexus requirements have increased opportunities for double taxation. Part II details the failure of state efforts— embodied in UDITPA and the Multistate Tax Compact—to standardize state laws for taxing the income of multistate business income. Part III explains the comparable problem faced by telecommuting employees. Part IV explains why federal courts are incapable of eliminating duplicative taxation using their powers under the dormant Commerce Clause. Part V explores the difficulties inherent in designing a “neutral” tax rule eliminating duplicative taxation, leading to questions about the desirability of ameliorating double taxation through Congressional action. Parts VI and VII continue this discussion by detailing the actions taxpayers currently take to minimize duplicative taxation, and those that states adversely affected by Congressional attempts to eliminate duplicative taxation are likely to take. Part VIII concludes
Cash Substitution and Deferred Consumption as Data Breach Harms
Get PDFIn a series of federal court cases, judges have debated whether data breaches that expose consumer information satisfy Article III of the United States Constitution’s requirement that plaintiffs suffer an “injury in fact.” Judicial opinions find no constitutional standing in a narrow majority of such cases, and plaintiffs are likely to lose absent causal links to subsequent identity theft or the disclosure of embarrassing information. Consumers whose data are breached thus are left without a federal remedy, and firms’ incentives to invest in data security are diminished. Our paper identifies a novel injury that results from data breaches. Upon learning about local data breaches, consumersimmediately reduce their purchases and shift from credit card purchases to cash transactions. These effects are more pronounced with respect to purchases that are characterized by greater elasticity of demand. The changes we identify are short-lived, though. After a data breach, many consumers forego both the benefits of a short-term loan from their credit card issuer, cash-back benefits, and other perks associated with card purchases. They also forego purchases they otherwise would have made. In light of our empirical results, the standing barrier that has thwarted so many data breach suits may be easily surmounted
Are Property Rights Really So Good?
No full textTwo, or even three, of Chicago’s Best Ideas (in the past) involve the genius of simple rules, such as clear property rights. Parties are expected to bargain with one another after they have knowledge of who controls what. Most of contracts, corporate law, employment law, and intellectual property start with this idea, while torts, family law, and environmental law are usually understood as beginning with what can be called a fair-division norm. In this CBI, Professor Levmore described the great ideas behind these approaches, and then offered some new ideas about the evolution of law around the question of when a single-winner baseline makes sense
Cash Substitution and Deferred Consumption as Data Breach Harms
Get PDFIn a series of federal court cases, judges have debated whether data breaches that expose consumer information satisfy Article III of the United States Constitution’s requirement that plaintiffs suffer an “injury in fact.” Judicial opinions find no constitutional standing in a narrow majority of such cases, and plaintiffs are likely to lose absent causal links to subsequent identity theft or the disclosure of embarrassing information. Consumers whose data are breached thus are left without a federal remedy, and firms’ incentives to invest in data security are diminished. Our paper identifies a novel injury that results from data breaches. Upon learning about local data breaches, consumers immediately reduce their purchases and shift from credit card purchases to cash transactions. These effects are more pronounced with respect to purchases that are characterized by greater elasticity of demand. The changes we identify are short-lived, though. After a data breach, many consumers forego both the benefits of a short-term loan from their credit card issuer, cash-back benefits, and other perks associated with card purchases. They also forego purchases they otherwise would have made. In light of our empirical results, the standing barrier that has thwarted so many data breach suits may be easily surmounted
