Essays in law and business

Chapter 1: Despite the vast sums transferred through the legal system, the foundations of the procedures used to compensate plaintiffs for unobservable losses remain unclear. Standard remedies can compensate plaintiffs for unknown harms, but it is expensive to do so. Damage awards will generally undercompensate or overcompensate a plaintiff whose true harm is unknown, while equitable remedies that provide more tailored compensation are generally wasteful. In this paper I develop a novel remedy that compensates plaintiffs for unobservable private values at the lowest possible cost to the defendant. This remedy consists of offering the plaintiff the choice between intermediate damages and an inalienable injunction that restores the underlying harm at the conclusion of the trial. I show that this remedy is robust to errors by the court and potential post judgment renegotiation. Furthermore, I demonstrate that this remedy reduces litigants' incentives to lie during trial. Finally, I consider ex ante deterrence and show conditions under which the remedy improves social welfare relative to optimal damages. Chapter 2: Corporate sanctions are meant to deter bad behavior and to compensate victims. Yet the imposition of sanctions may lead to negative consequences including missed debt payments, job losses, and insolvency. In this article I show that how a corporation pays sanctions has important implications for deterrence, compensation, and collateral consequences. With debt in place, shareholders pay sanctions through selling assets rather than through issuing securities, shifting some of the incidence of the sanctions onto creditors and imposing collateral consequences on workers. I show that shareholders can benefit from social-welfare decreasing corporate malfeasance even when detection is certain and the sanctions are equal to the harm caused. Furthermore, the presence of restrictive debt covenants does not solve the problem. I propose that officials mandate that firms issue equity to pay sanctions, and show that this eliminates the tradeoff between the benefits and costs of sanctions and better aligns the interests of corporations and society. Chapter 3: Large asset managers manage trillions of dollars of assets on behalf of tens of millions of clients. In this article, I take a close look at the underlying interests of those clients. Because asset managers' clients are affected by corporate actions as customers, employees, creditors, taxpayers, and the general public, they are interested in more than the financial performance of the corporations in their portfolios. Instead of maximizing the profits of individual firms, an asset manager acting in their clients' best interests should instead focus on improving the alignment between corporations and society more broadly. I show that asset managers can induce significant changes at portfolio companies. I then put forward a set of actions that asset managers could implement that would significantly increase clients' collective welfare. Finally, I show that there is little legal risk from a reorientation towards client welfare by asset managers.

Keywords: Business.
Advisor: Callander Steven 
Admati Anat R. 
Polinsky A. Mitchell