The University of Chicago Law School Faculty Blog

Organ Donations: Sorting or Queuing?

The centerpiece of the United States organ policy is a flat prohibition against the use of “valuable consideration” to purchase a live or cadaveric organ.  One obvious consequence of this (indefensible) decision is the creation of chronic organ shortages that result in the death of thousands of individuals per year.  As happens in all other markets where prices are capped or exchanges are prohibited, queues form.  The money that would have been a simple transfer payment between buyer and seller can no longer be paid.  Instead, frustrated buyers invest in time by waiting in line for the goods or services that they so desperately need.  The upshot is that the buyers have to pay in time, not cash.  But their outlays in time are deadweight losses, not simple transfer payments. Organs are no exception to the general behavioral response to maximum prices, here set at zero. 

Temporary CEO's?

One of the more notable developments in bankruptcy practice over the past two decades has been the development of professionals who take control of companies when they are in financial distress. They are tasked with guiding the corporation through crisis. They differ from other executives in that there is no expectation that they will remain with the corporation, even if the corporation survives. If they do their job well, they will leave. To give one notable example, Enron hired a seasoned turnaround professional to oversee the sale of its assets (it sold it last major asset last week for $2.9 billion). Even while still serving as CEO of Enron, he become CEO of Kripsy Kreme when it encountered financial difficulties.

This path differs sharply from the normal expectation about leaders of companies. Generally, the thought is that they will stay so long as they do well (unless, of course, they voluntarily leave). Yet by all accounts being a CEO is difficult, and corporations face different challenges at different times. The rise of the tournaround profession to deal with the problem of financial distress raises the question of whether we will see the development of other professional managers designed to allow corporations to meet specific challenges. In other words, would some corporations be better off being run by a person whose future compensation turns on the ability to get the boards of other corporations to hire her in the future?

The Prime Directive

Much of the discussion in corporate law centers on executive compensation. While there is a debate over whether the current system is better described as mangers capturing directors so as to pad their pay packet or as the the result of a competitive market, all share the notion the goal of executive compensation is to align the incentives of the managers with the shareholders. Such an alignment may be important, but it is an odd place to start dicussions of corporate governance.

When we think of other organizations, we don't attribute their success to the compensation contracts that are in place. No one attributed the Chicago White Sox winning the World Series to the contracts that employed Ozzie Guillen and the players. When law faculties participate in a dean search, no one asks whether the administration is going to give the new dean a contract that will ensure that she is a faithful agent.

Do We Overcompensate Tort Victims?: Reading Stumbling on Happiness

Over Memorial Day weekend, I read Daniel Gilbert’s new book Stumbling on Happiness. Gilbert is a Harvard psychology professor and the book isn’t a how-to—that would be a big seller—but is instead on the “science” of happiness. In econ grad school, I learned that we maximize utility subject to constraints. It is a long, long way from that to knowing how people do that or—another step—how people actually experience happiness. Gilbert’s book is an effort at situating a great deal of serious research on happiness and is well worth reading.

To tort victims and I guess we call it hedonic adaptation. Here is what Gilbert says: “Able-bodied people are willing to pay far more to avoid becoming disabled than disabled people are willing to pay to become able-bodied again because able-bodied people underestimate how happy disabled people are (p. 153).” That is backed up by references to three studies, one of which references “hedonic adaptation” in its title.

We can see quickly where we might go with this. If able-bodied jurors can’t really understand that accident victims will adapt, they will over-compensate victims. In the extreme case of full habituation, the disabled would report identical happiness levels to the abled, and no “compensation” would be required.

Guest Blogger: Bob Rasmussen

This Summer, we are excited to welcome a series of guest bloggers to the site, each for one week stints.  The idea is to reach out to members of the Chicago family who are no longer here in Hyde Park but whose work and friendship are and always will be a part of this place.

We begin with someone for whom that sentence is perhaps most richly true: Professor Robert Rasmussen, a 1985 Chicago graduate, a frequent co-author with our own Douglas Baird, and truly a friend to many of us here.

Bob, welcome.

Corporate Prediction Markets

Many people are familiar with the predictive success of small, low-stakes “prediction markets” run by the University of Iowa (predicting political elections better than the pollsters) and firms such as Tradesports.com (predicting everything from whether Hamas will recognize Israel to whether Scooter Libby will be convicted) and the Chicago Board of Trade (predicting U.S. unemployment and other key economic indicators).  As colleagues Saul Levmore and Cass Sunstein have pointed out, these markets are routinely better at forecasting what is going to happen than any other available means.  The insight here is a Hayekian one: markets, when they work, are the best available mechanism for gathering, aggregating, and processing information.

Those familiar with this literature may also be familiar with the use of these markets by firms such as Hewlett-Packard and Google, which have made increasing use of prediction markets to help make business decisions.   Initial studies suggest that these markets provide relatively reliable predictions and are not easily manipulated by those who have a stake in decision making.  For example, HP’s market estimated sales of a particular product better than traditional forecasting methods.  Other results suggesting the usefulness of simple prediction markets have been seen at Google, Siemens, Intel, and many other firms. More promising still, David Pennock’s patent-pending dynamic pari-mutuel market and Robin Hanson’s market scoring rule make it possible to generate sound predictions even in very thin markets.

In a forthcoming paper, Michael Abramowicz, a law professor at George Washington, and I explore how these markets may help solve a number of corporate law problems.

More Driving: Do We Like Automated Tickets?

Lior’s two recent posts on driving focus on the possibility of distributed reputation systems as a means of enforcing driving rules (and more generally). I want to consider a different alternative: automatic tickets.

I haven’t received that many driving tickets over time, but it is always startling to see the flashing blue light behind you. We had a new startle the other day at my house: my wife got a ticket in the mail for—I will say allegedly—running a red light. No blue lights, no “may we see your registration, please mam,” just a ticket in the mail with two pictures. One picture purported to be our minivan and a red light—very hard to make out the color of the light in the picture— the second was a close up of our license plate. The ticket says that all of this was done automatically. (In my wife’s defense, I was test-driving a new car in front of her and she was following me to the dealership’s remote lot; I should have stopped on the yellow to keep the cars together; mea culpa (though my wife doesn’t read the blog).)

But the issue of interest is the title of the post: do we like automated tickets (and what does that have to do with the Digital Millennium Copyright Act)?

Attention Felons: Reducing Gun Crime in Chicago

On May 10, 2006, Tracey Meares closed out our "Chicago's Best Ideas" season with a talk entitled "Attention Felons: Reducing Gun Crime in Chicago." The talk focused on an initiative started by Tracey and others to reduce the incidence of gun ownership by convicted felons by increasing their awareness that such ownership was illegal. The dramatic results of the program are explained in the podcast. You will likely want to follow along with the powerpoint presentation to see the data to which she refers.

The podcast may be heard here, the powerpoint is here: Download meares_cbi_slides.ppt. Instructions are here, the full blurb of the talk from the posters is after the jump.

Podcasting (as well as blogging) will be somewhat lighter over the summer, but we're looking forward to bringing you some very interesting archival items. Watch this space!

"How's My Driving?" for Everything - Pervasive Reputation Tracking as Legal Theory

Why are cops needed in Times Square but not on a small town's Main Street?  Why are small town drivers so much safer than big city drivers? Why do blog commenters sometimes say harsher, meaner, sillier or more unorthodox things than they would dare say to their friends or family?  These are complex questions that defy simple and singular answers. But one partial answer that draws together these three examples is the role of anonymity and obscurity. Reputation may be the most effective mechanism around for getting individuals to behave in a socially cooperative way; more effective than law and more effective than conscience or altruism.

In my earlier post, "How's My Driving?" for Everyone, I discussed whether we might rely on reputation and feedback mechanisms (similar to those used on eBay) to improve the performance of urban drivers.  The paper that I was blogging about focuses on driving.  But it implicates a much bigger issue too.  Namely, as reputation and feedback systems become more reliable, more ubiquitous, and less expensive, we can expect to see these systems displace criminal and tort law as mechanisms for social control.  After the jump, I will offer some thoughts about the effects of that displacement.   

Chief Justice Roberts and Minimalism

By their nature, commencement addresses tend to be platitude-filled and substance-free. But Chief Justice Roberts, in his first commencement speech (at Georgetown University Law Center), recently said some quite interesting things -- and they bear on his views about the role of the Court and of the Chief Justice.

Chief Justice Roberts made a plea for more consensus within the Court -- for unanimous or near-unanimous decisions, on the ground that they promote the rule of law. But that wasn't the most interesting part. He also argued that unanimous or near-unanimous decisions lead to narrow, minimalist opinions. “The broader the agreement among the justices, the more likely it is that the decision is on the narrowest possible ground." In his view, narrow decisions tend to be best. In an aphoristic summary of the minimalist position in constitutional law, he added, “If it is not necessary to decide more to dispose of a case, in my view it is necessary not to decide more."