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30 posts from October 2007

October 31, 2007

Thomas Miles and Cass R. Sunstein: Partisanship and Activism on the Supreme Court

(Please note: this essay is also posted at the New Republic Open University blog.)

We have been engaged in a long-term study of judicial voting patterns, and we  recently published an oped in the Los Angeles Times, in which we gave “awards” to Supreme Court justices, based on a statistical study of their votes. The Judicial Neutrality Award went to Justice Anthony Kennedy. The Judicial Restraint award went to Justice Stephen Breyer. The less coveted Partisan Voting Award went to Justice Clarence Thomas. Justice Antonin Scalia received the Judicial Activism Award. 

In various circles, our oped seems to have caused a bit of a stir – especially, we suspect, because Thomas emerges as the most partisan justice, and Scalia as the most activist. (But we did not spare liberal members of the Court; Justice John Paul Stevens was a close second for partisanship.) Our goals here are to offer a more detailed explanation of our method, to provide some general remarks on partisanship and activism on the Supreme Court, and to respond to some criticisms.

Continue reading "Thomas Miles and Cass R. Sunstein: Partisanship and Activism on the Supreme Court" »

October 30, 2007

Constitutional Vision

We are now several weeks into the Supreme Court’s 2007 Term. We should keep a watchful eye on the Court. With Chief Justice Roberts and Justice Alito now firmly ensconsed, we might be on the verge of a significant paradigm-shift within the Court. If their performance last Term is any indication of what is to come, we may be in for quite a ride.

A Balanced Court?

In the media, we constantly read about how “closely divided” the Court is and about how many cases are decided by a vote of five-to-four. There are, according to the media, the “conservative” Justices – Scalia, Thomas, Roberts, and Alito; the “liberal” Justices – Stevens, Souter, Ginsburg, and Breyer; and Justice Kennedy -- the “man in the middle.” The impression created by such accounts is that this is an “evenly balanced” Court. This is a fallacy, and a dangerous one at that. What do we mean by “balance”? Why don’t the many five-to-four decisions prove that this is a “well-balanced” Court?

Continue reading "Constitutional Vision" »

October 29, 2007

David Weisbach Analyzes the Taxation of Carried Interests in Private Equity

Weisbach David Weisbach, Walter J. Blum Professor of Law and Kearney Director of the Program in Law and Economics, recently posted this paper to SSRN. The abstract is below.

The Taxation of Carried Interests in Private Equity

DAVID A. WEISBACH
University of Chicago Law School
Virginia Law Review, 2007
U of Chicago Law & Economics, Olin Working Paper No. 365

Abstract:    
This essay analyzes the tax treatment of carried interests in private equity. It argues that there are two competing analogies: service income and investment income. Standard approaches are not able to resolve which of the competing analogies is better and often fail even to recognize that there are competing analogies. The best method for determining the proper treatment of carried interests is through direct examination of the effects of each of the possible treatments, known as the theory of line drawing in the tax law. From this approach, it is clear that the better treatment of holders of carried interests is as investors. Key pieces of evidence include the longstanding policy premises behind partnership taxation and the complexity and avoidance problems with attempts to tax carried interests as service income.

October 26, 2007

Lee Fennell on Homeownership 2.0

Fennell_lee Housing market volatility and the subprime lending crisis have raised questions about the institution of homeownership. In a paper posted on SSRN, forthcoming in the Northwestern University Law Review, Lee Fennell argues that the full measure of home investment risk need not come bundled with homeownership as a default matter. Financial innovations, such as housing futures and options offered by the Chicago Mercantile Exchange based on S&P/Case-Shiller home price indexes, are now making it possible to configure homeownership risk in new ways. Fennell's paper explores how the benefits of such innovations might be delivered to ordinary homeowners and examines some of the theoretical, cognitive, and societal implications of offering a reduced-risk version of homeownership. Her abstract is below, and the full paper is here.

Homeownership 2.0
LEE ANNE FENNELL
University of Chicago Law School
Northwestern University Law Review, Vol. 102
U of Chicago Law & Economics, Olin Working Paper No. 266

Abstract: Current legal arrangements make homeowners high-stakes gamblers. Homebuyers routinely take on crushing debt loads to put huge sums of money into risky, undiversified ventures that are utterly out of their personal control -- local housing markets. That these markets typically post positive returns over time is of little comfort to those caught on the downside of housing market volatility. Moreover, because rights to these expected gains are priced into the home, many would-be buyers are priced out of the market. The shortcomings of the homeowner's standard investment package have not escaped notice, and for decades scholars and innovators have tried to devise better ways to manage the upside and downside risks of owning a home. Derivatives markets for such risk have recently begun to emerge, due in large part to the collaborative efforts of Karl Case, Robert Shiller, and Allan Weiss. As the technical capacity to slice, dice, and trade homeownership risk advances, this paper steps back to examine how a reduced-risk version of homeownership fits together with property theory, human cognition, and the social dynamics of neighborhoods and metropolitan areas. To explore these questions, I present a new tenure form -- Homeownership 2.0 -- that seeks to optimally unbundle certain investment components from the core homeownership package.

October 25, 2007

Comparative Textualism: Land Sabbatical Battles in Israel and American Constitutional Compromises

Few readers of this Blog will have paid much attention to the Israeli Supreme Court’s recent decision disallowing that country’s chief (centralized) rabbinate’s decision to permit local variation in rabbinic councils’ certification of kosher foods, as some of these local councils preferred to be more textualist (and strict) in their understanding of how to abide by the biblical requirement that the holy land be fallow every seventh year (the sabbatical, or “shmita” year). Impermissibly harvested crops would then bring about a refusal to certify foods as kosher. That decision itself seems mysterious to those of us who are accustomed not only to more of a church-state separation, but also to the idea that certification standards should normally proliferate because consumers and producers can then decide on their own courses of action.

An interesting aspect of this far-away dispute is that it demonstrates the unreliability of precedent when there is a confounding text in the background. The law there begins with the biblical text calling for the earth to have a sabbatical year. In that year farming is forbidden and perennial crops are ownerless, with an explicit redistributive nod to poor people who will benefit from the freely available food. But how will the agricultural sector survive this extreme form of crop rotation? One possibility would have been for the lawmakers to interpret the text as requiring each parcel of land to enjoy some sabbatical year, but to permit rotation across the country. Instead, the entire land, within later-defined boundaries, is said to observe the same sabbatical cycle. Modern alternatives or loopholes permit hydroponics, growing crops in trays on tables (not on the “Land”), or transacting with non-Jews. But the most dramatic solution was to permit a form-over-function sale of the land, with the seller working the land as an employee of sorts, with the right or even obligation to buy the land back at the end of the year. This is not a sale-and-leaseback any legal system would accept for tax or criminal law purposes, but it became the dominant means of coping with the text.

One useful and comparativist way to think about this is that a structural argument about the text was allowed to trump a piece of text itself. The structural argument is that the text anticipates an agricultural sector and, for the state to thrive, some solution to the sabbatical prohibition was required. For a long time, only a tiny percentage of lawmakers and consumers found this permissive solution offensive. But affluence makes stricter religiosity possible. Consumers can import produce, and expect contributions or subsidies to prop up farmers who work the land but six of seven years. Sure enough, there is now a substantial movement to reverse the (religious law) precedent and to insist that the sale-and-leaseback accomplishes nothing. Restaurants and other intermediaries are caught in the middle. Law has become a cause of instability. It is possible that the solution was misguided. A more stable equilibrium might have come about through a decision to declare produce farmed in the sabbatical year as ownerless for a brief period of time and then “reclaimed” before sale to the public. Or perhaps the solution should have been to permit export of the otherwise forbidden produce, so that the cost of the text’s prohibition would be limited to the transactions costs of importing and exporting.

In our own legal system we are also accustomed to solutions of uncertain stability that are at odds with, or unanticipated by, our most important text. Roe v Wade’s trimester is one good example, and its stability became an open question after years of apparent precedential force. Dormant Commerce Clause cases may offer another. Various decisions with respect to affirmative action and Equal Opportunity provide other examples. In all these cases, my sense is that once there is serious questioning and “exposure” of the arbitrariness of the first anti-textual solution, we should expect a new (clever or arbitrary) solution, rather than stability based on the text itself or based on broad agreement to abide by the precedent that came to be accepted but then somehow became vulnerable to textual and other objections. Israel’s agricultural sector is too important to be cut down by fierce, minority religious opposition, but the lawmakers will probably need to come up with something new to take the place of, or improve upon, the sale-and-leaseback arrangement. Similarly, the prediction here (to be developed, I hope, in my future work) is that we should expect new means of compromise in the abortion and affirmative action debates. And then these solutions will also have significant but limited lives, for that is the nature of democracy, intense preferences, and the need to pay homage to a founding text.

October 24, 2007

Josh Bowers: "Contraindicated Drug Courts"

Bowers_josh In a paper recently uploaded to SSRN, Bigelow Teaching Fellow Josh Bowers argues that drug treatment courts fail to help those that they are intended to help. The abstract is below, and the full paper is here. You can also read for yourself the study that served as his primary data source.


Contraindicated Drug Courts

JOSH BOWERS
University of Chicago - Law School
UCLA Law Review, Vol. 55, 2008
U of Chicago, Public Law Working Paper No. 180

Abstract:    
Over the past two decades, drug treatment courts have gained traction as popular alternatives to the conventional war on drugs (and to its one-dimensional focus on incarceration). Specifically, the courts are meant to divert addicts from jails and prisons and into coerced treatment. Under the typical model, a drug offender enters a plea of guilty and is enrolled in a long-term outpatient treatment program that is closely supervised by the drug court. If the offender completes treatment, his plea is withdrawn and the underlying charges are dismissed. But, if he fails, he receives an alternative termination sentence. My premise is that drug courts provide particularly poor results for the very defendants that they are intended to help most. Specifically, the most likely participants to graduate are volitional drug users, who strategically game exit from undesired conventional punishment and game entry into treatment that they, in fact, do not need. By contrast, the most likely treatment failures are genuine addicts and members of historically disadvantaged groups, who thereafter receive harsh termination sentences that often outstrip conventional plea prices. In short, drug courts are contraindicated for target populations and may thereby lead to longer sentences for the very defendants who traditionally have filled prisons under the conventional war on drugs.

October 23, 2007

Susan Bandes Enters the Latke-Hamantash Fray

Bandes_susan_4The 61st Annual Latke-Hamantash Debate, a University of Chicago tradition, will take place on Tuesday, November 20 at 7:30 pm in Mandel Hall. This year's debate features Visiting Professor of Law Susan Bandes, along with Professors Austan Goolsbee (GSB), Matthew Stopler (Oriental Institute), and Alberto Simpser (political science). Each distinguished scholar will present an analysis from the perspective of his or her discipline addressing the question of which Jewish holiday food is superior, the latke or the hamantash. No word yet as to which treat Professor Bandes has decided to defend.

Contact the Newberger Hillel Center for more information.

October 22, 2007

Robin Effron Discusses Lessons from the September 11th Litigation

Effron_robin Although the tragedy of September 11th is already more than six years in the past, litigation of claims arising out of that event continues, with some of the cases still at the beginning phases. In a recent paper posted to SSRN, Bigelow Teaching Fellow and Lecturer in Law Robin Effron focuses on the continuing problems facing the judge and litigants in these cases, and argues that many of those difficulties are a result of the Air Transportation Safety and Systems Stabilization Act which gave the Southern District of New York exclusive jurisdiction over all cases arising out of the events of September 11th, and created a cap on damages limiting recovery to the total amount of available liability insurance. 

The abstract is below, and the full paper is here.

Event Jurisdiction and Protective Coordination: Lessons from the September 11th Litigation

ROBIN EFFRON
University of Chicago - Law School
Southern California Law Review, Vol. 81, No. 2, 2008

Abstract:    
Shortly after the tragic events of September 11, 2001, Congress passed the Air Transportation Safety and System Stabilization Act (ATSSSA). The September 11th Victim Compensation Fund (VCF) was the centerpiece of the statute and provided a source of no-fault compensation to the tragedy's victims and victims' families. The ATSSSA also allowed victims to elect to pursue traditional litigation instead.

The ATSSSA contains three jurisdictional features that have shaped the path of the litigation. The Act created a federal cause of action “for damages arising out of” the terrorist related aircraft crashes; it gave the Southern District of New York original and exclusive jurisdiction over all actions “resulting from or relating to the terrorist-related aircraft crashes.” Finally, it implemented a liability cap by limiting recovery in all actions to the defendants' available liability insurance. These jurisdictional aspects of the “traditional” litigation option under the ATSSSA contain unusual and practically unprecedented elements, yet they have received almost no scholarly attention. This Article attempts to fill that gap by telling the story of the course of the September 11th litigation, tracking the challenges and issues that have arisen as a result of the ATSSSA coordination mandate, and exploring the relationship between federalization of forum and aggregation of claims.

The jurisdictional puzzles seen in the September 11th litigation call for two new labels. “Event jurisdiction” refers to Congress's choice to give the federal courts subject matter jurisdiction over an “event” of perceived national importance, rather than locating subject matter jurisdiction over a certain class of cases or type of claim. The second phenomenon deserves the label “protective coordination” because, like protective jurisdiction, it evinces a congressional desire to protect certain real or perceived federal interests by manipulating the shape and direction of certain classes of lawsuits. The Article concludes by suggesting how Congress might better evaluate post-disaster litigation legislation in the future.

October 20, 2007

Privacy Externalities and Unraveling

I don’t smoke and if I went to buy life insurance tomorrow, I would want to disclose that fact to the insurance company. Insurance is priced based on a pool of risks, and as a nonsmoker, I want to be placed in a different pool than the smokers are in.

But when I reveal that I am not a smoker, I set in motion a chain of inferences which should, on average, have the consequence of revealing that smokers are smokers, even if they never say anything. This is a standard result in information economics—we call it unraveling—and creates what we might think of as a privacy externality: when I reveal information about me, it has the consequence of revealing something about you. My willingness to give up my privacy gives up your privacy too. This will bite most often when one group affirmatively wants to distance itself from a second group.

We might defend this in the smoking context on the notion that absent the waiver of privacy by the nonsmokers, we get pooled risks and non-smokers end up subsidizing the higher expected insurance costs of smokers. Smokers therefore won’t fully internalize the cost of smoking, and we will have too many smokers. Allowing nonsmokers to disclose information about their nonsmoking then turns out to be socially valuable in the way that it better channels the cost of smoking to smokers, but we need to figure out how to account for, if at all, the privacy loss of the smokers.

So a couple of questions. What are your preferences? Fewer smokers or more privacy for smokers? And, if you are a privacy fan, what is the best discussion in the literature of the way in which unraveling creates privacy externalities?

Awards for the Justices

Who are the activists on the Supreme Court? Which justices show the most partisan voting patterns? Such questions are usually answered anecdotally. Thomas Miles and I have tried to approach them more systematically, with some simple statistical methods. We have compiled and analyzed a large number of the justices' votes over an extensive period, and we now have some answers, in the form of awards for Judicial Neutrality and Judicial Restraint -- and less desirable awards for Partisan Voting and Judicial Activism.

Those answers are scheduled to appear in an oped in the Los Angeles Times this Monday. (Guesses are welcome.) A small preview: One member of the current Court has the honor of finishing second for both Judicial Neutrality and Judicial Restraint. That is, one member of the Court upholds conservative decisions (from federal agencies) and liberal decisions (ditto) at about the same rate, and thus fails to show a partisan tilt -- while also showing a high level of restraint, defined for purposes of analysis as a high level of willingness to uphold the decisions of a coordinate branch of government (the executive branch, where we have a lot of data). 

The member of the Court who finishes second for both neutrality and restraint is: Justice David Souter.