The University of Chicago Law School Faculty Blog

Student Blogger - Law and Economics Workshop: How IP Rights Affect Supply Chain Management

This week’s Law and Economics Workshop featured Professor Jonathan Barnett and his paper, entitled, “Intellectual Property as a Law of Organization,” available at http://www.law.uchicago.edu/files/files/barnettdraftfeb1.pdf.

What It’s About

If innovation happens even in industries with weak IP rights, what is the point of having IP rights? In the prior literature, some academics had raised concerns that having a costly system of patent rights could be redundant and unnecessary when private measures, such as contracts, barriers to reverse-engineering, and limiting the amount of outsourcing, could protect a firm’s intellectual capital just as well. Professor Barnett’s paper counters this viewpoint by arguing that patent rights can incentivize innovation indirectly in other ways, by changing the way firms bring innovations to market (e.g., patent rights can give businesses more flexibility in deciding how to roll out their products, from testing to structuring the supply chain).

No matter how innovative an idea is, there’s got to be some way to bring the idea to market in order for the public to capture some benefit. According to Professor Barnett, the problem with a world without patent rights is not so much the lack of innovation, but rather the way that firms will react to the possibility of expropriation. In this world, firms will still come up with new ideas, but they will be more reluctant to partner too closely with other firms because it will be harder to prevent their partners from stealing their ideas without IP rights. For example, if an idea-generating firm wanted to make a contract with an idea-buying firm, it would have to disclose the idea before the firms can come to an agreement. Once the seller discloses the idea, though, the buyer already has the idea; the buyer has no reason to agree to give something back to the seller, if the seller didn’t hold something back (Arrow’s Paradox).

Student Blogger - Law and Econ Workshop: Racial/Political Biases in Bankruptcy?

Last week, Professor Paige Marta Skiba of Vanderbilt Law School presented her paper, titled, “Race, Gender, and Political Ideology in Personal Bankruptcy Outcomes,” to the Law and Economics Workshop here at Chicago (the most recent draft is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1548473).

What It's About

The study collected 9,526 bankruptcy petitions across the United States, comparing dismissal rates based on gender, race, and the probable political allegiances of the judge and county. Although the dismissal rate differences between male and female petitioners were negligible, the study indicated that African American petitioners had their petitions dismissed more than White petitioners (24% compared with 7%), with this general trend holding true across all judge demographic types. Yet, African American petitioners’ repayment plans, once approved, did not require Black petitioners to pay significantly more than their White counterparts. Results also suggested that gender and political affiliation of judges may affect petitioners’ Chapter 13 approval rates (White male Democrats in a Republican county and White female Republicans in a Republican county tend to dismiss at a higher rate). The study also investigated the effects of race and gender on decisions to file under Chapter 7 versus Chapter 13, the amount of attorney fees charged, but most of the discussion in the workshop centered on the issue of dismissal.

What Was Discussed

From the outset, the workshop participants seemed most interested in discussing methodology, with critiques being about evenly divided between 1. concerns about the accuracy of the measurements and 2. the problem of omitted variables:

 On the accuracy issue, several participants raised concerns about the way the study determined the race of petitioners. Since petitions do not contain information about race, the study had extrapolated probabilities of race based on zip codes and surnames (matching surnames to census data, and only using those names where probability of race membership passed a certain threshold). One concern was that this method of determining race, by using zip codes, could inadvertently introduce confounding variables based on neighborhood locations (which may relate to real estate values). The study also collected data on race and gender of bankruptcy judges by looking at pictures available to the public.

Moving Forward in Google Book Search

Yesterday, the Department of Justice filed its second statement of interest in the pending Google Book Search (GBS) case. We now have a full slate of second-round filings as we head towards the fairness hearing set for a New York federal court on February 18, 2010. Where do we stand?

To recap very quickly, Google launched GBS with one core thought: all books available everywhere instantly. To try to come even close to that, Google entered into partnerships with leading libraries to gain access to their holdings so as to make digital copies of those works. Google then put the books online but did so in a way that tried to be sensitive to copyright (putting to one side, of course, the massive copying that it took to reach that point). Google offered full-text download access to works in the U.S. public domain. Google also offered more limited access to in-copyright works through agreements it struck with publishers.

Student Blogger - Winter WIP: Malani Asks if We Can Select Beliefs Without Evidence

Most (not all) models of human preferences are rather agnostic about the process by which we form beliefs about the world. And on the occasion that scholars do think about the subject, they general posit that people change their beliefs based on the acquirement of new information.

But this can't be right -- or at least, not always. First, people have to at some point form a set of priors, which necessarily occurs mostly devoid of factually inquiry. Second, people do seem to form beliefs about certain subjects that are not typically amenable to factual support (such as a belief in God). Third, people often seem to resist updating prior beliefs even in the face of contradictory data, indicating that belief construction can be affected by considerations other than hard data. There are situations where there might be utility considerations in "selecting" between different beliefs -- for example, someone who suffers from anxiety might prefer to believe that good things will happen in the future, because they experience a utility loss from worrying about future losses. Eliminating this loss might outweigh any utility gains from forming a more accurate belief structure about the future.

In this week's WIP, Professor Anup Malani presented the findings of an experiment designed to test the possibility of forming beliefs without evidence. The trick was to use the placebo effect, which fundamentally is the statistically measurable boost one gets from taking an action that one believes will improve performance, divorced from any "objective" reasons that performance should actually be enhanced. The (rather ingenuous) model of the study, in a simplified form, is as follows:

Student Blogger - Information Acquisition and Panel Diversity

The notion that political ideology may influence judicial decisionmaking is today neither new nor particularly noteworthy. Political scientists and legal academics have long suspected as much, and even a cursory glance at Supreme Court decisions over the years should suffice to convince even the most ardent of skeptics. But while the idea may not be new, empirical evidence of such partisanship has only emerged in recent years. Professors Tom Miles and Cass Sunstein, for instance, have studied a phenomenon that has come to be known as panel effects—briefly, that the political ideology of the judges who compose an appellate panel influences the outcome of the decision. In a new paper, presented at last week's Public Law & Legal Theory Workshop, Professors Matthew Spitzer and Eric Talley expand upon this literature. In particular, they propose a general model that seeks to understand the panel effects phenom as a result of strategic information acquisition by individual panel members.

Those who enjoy sifting through mathematical models—and who doesn't?—might want to take a look at the paper (which is here). But for the lazy or insouciant, a description of the model will have to suffice. Put briefly, the argument advanced by Professors Spitzer and Talley is as follows: in mixed panels (that is, those composed of both Republicans and Democrats), the member in the minority will have incentives to invest in acquisition of additional information about the case in hopes of swaying the middle voter whereas she would not have had such incentives were the panel composed of members of only one political persuasion. In other words, when the panel is split 2–1 in favor of Republicans, for example, the Democratic member will be more inclined to dig into the case law in hopes of convincing the more centrist Republican on the panel to switch sides. These incentives, argue the professors, might explain the panel effects observed by Miles and Sunstein, among others.

The faculty, though generally receptive to the argument, nevertheless had many questions. What if search costs are really low? asked one faculty member; then, everyone on the panel would have incentives to search. That is true, replied Professor Talley, but search costs also reflect the opportunity costs associated with working on other cases, hearing more cases, foregoing other productive activities, bypassing leisure, and the like. While there is no easy way to measure such costs directly, they are likely greater than zero. Could this theory explain why we only observe panel effects in some bodies of law? wondered another faculty member. The idea in this case would be that panel effects would only occur in situations where ideology was likely to influence the decision and there was some set of discoverable information that could change judges' minds. What about amici? inquired a third professor. The answer: When they are filed, amicus briefs would provide yet another source of information for the minority member on a mixed panel. The minority member, of course, would still have to read and digest them, which is a process that is similar to the one studied in the paper.

Questions aside, a model based on information acquisition has some intuitive appeal. And if true, it would almost certainly have implications for judicial decisionmaking. This account, however, joins a number of competing theories that seek to explain panel effects. More data and empirical analysis will tell which theory works best.