cssi/SciSciGPT-SciSciNet huggingface dataset:
Righting Others' Wrongs: A Critical Look at Clawbacks in Madoff-Type Ponzi Schemes and Other Frauds

In a typical Ponzi scheme, early investors earn “profits” not through any legitimate investment activity on the part of the Ponzi scheme operator; instead the operator simply transfers money that later investors deposit to the earlier investors who seek redemptions. As such, when the scheme goes bust, as it must, the Ponzi scheme operator will not have enough money to cover all of the investors’ deposits, let alone the earnings on those deposits that the investors thought they were owed. Should the scheme’s winners – i.e., those who withdrew more money than they deposited – be compelled to return their fictitious profits to help defray the losses to the scheme’s losers? Should they be required to do so even if they did not know, and had no reason to know, that theirs was not a legitimate investment? Caselaw permits clawbacks from innocent winners in a Ponzi scheme, and there has been a dramatic rise in the number of such cases over the last decade. But, as courts have noted, the clawback suits rest upon two bodies of law – securities and bankruptcy – that are on a “collision course.” The two were never intended to interact and their interaction has produced confusion, unpredictability and unfairness. More troubling still, there has been no sustained inquiry into the foundational normative question – viz. whether innocent winning investors should be made to help defray the losses of the losing investors in the first place. This Article addresses that question, and it argues that clawback suits targeting blameless winners lack a compelling legal and equitable basis. More specifically, the Article examines the relevant statutory framework as well as other restitutionary doctrines, and it finds that none of these can adequately justify attempts to have those who innocently profit from a fraud help restitute the fraud’s victims. Nor, the Article argues, can the clawback suits be justified by appeal to basic concepts of fairness: It is true that mere luck differentiates the innocent winners of a fraud from its equally innocent losers, but it is also true that mere luck differentiates the innocent winners of a legitimate investment from the equally innocent winners of a fraud. All three sets of investors are in a morally equivalent position. It is unfair, then, to require only those who benefited innocently from a fraud to defray the losses to the fraud’s victims. Instead, the Article concludes, all of those who benefit from playing the market – whether through legitimate or fraudulent investment vehicles – should share responsibility for restituting the losses in which financial fraud results. The Article ends by proposing a mechanism for implementing the expansive restitutionary obligations that the Article seeks to defend.
Achieving Early and Substantial Greenhouse Gas Reductions Under a Post-Kyoto Agreement

It has been more than 15 years since the United Nations Framework Convention on Climate Change was opened for signature in 1992, and more than a decade since the Kyoto Protocol was agreed to in 1997. We are now at the beginning of the 2008-2012 compliance period for the Kyoto Protocol, the first and only agreement under the Framework Convention that imposes binding greenhouse gas emission limitations. Yet little evidence exists to indicate that either agreement has had any significant effect on overall greenhouse gas emissions, and substantial doubt that the Kyoto Protocol can achieve significant reductions by 2012 even among the parties that are subject to Kyoto’s emissions reduction targets.
Taking a Different Tack on Just Compensation Claims Arising Out of the Endangered Species Act

In Casitas Municipal Water District v. United States, the Federal Circuit again grappled with the difficult question of how to analyze Fifth Amendment just compensation claims arising out of endangered species protections. Currently, the doctrine distinguishes between physical and regulatory takings, with numerous per se tests created to classify especially problematic situations. However, by simply focusing on the classification of particular government actions while ignoring their consequences, the jurisprudence continues to move away from the underlying concerns of fairness that motivate the Fifth Amendment, leaving the government, private landowners, and the courts with remarkably little guidance in specific cases.I argue that the nexus and rough proportionality tests articulated by the Supreme Court in Nollan v. California Coastal Commission and Dolan v. City of Tigard provide a better means of achieving fair results and should be extended from the context of development exactions to endangered species takings claims.Applied to the fish ladder construction mandated to protect the West Coast steelhead trout in Casitas, the Court’s exaction tests would redirect the focus in takings cases to the fairness of the government action, while also providing a strong incentive for cooperation between the government and private parties at the initial permitting stage. These benefits increase the transparency of judicial decisions and reduce the difficulty in classifying hard cases concerning endangered species protections.
The nanny state meets the inner lawyer: overregulating while underprotecting human participants in research.

Without any systematic data or evidence of a problem, or even a thoughtful analysis of costs and benefits, the application of the human participant review system within universities is overreaching at the same time that some risky experimentation on humans outside of universities is unregulated. This article questions the purpose, feasibility, and effectiveness of current IRB approaches to most "2 people talking" situations and proposes scaling back the regulatory system to increase respect accorded it by researchers and its ability to protect human participants of research from real versus imagined harms. In too many cases, the focus is on form over ethical substance: counting what can be counted, rather than focusing instead on what counts. Some disciplines—oral history and journalism, for example—simply do not belong within the scope of institutional review board jurisdiction. Others, such as survey research, informational interviews, and informal interactions, call for a shift from centralized review ...
Politics Not as Usual: Inherently Destructive Conduct, Institutional Collegiality, and the National Labor Relations Board

The National Labor Relations Board (Board or NLRB) is a collegial administrative body whose adjudications are not significantly tainted by the blight of political bias. Nonetheless, it has been roundly assumed by most commentators that the Board engages in politically motivated decisionmaking because of the natural affinity between conservative Republican Board Members and employers on the one hand, and liberal Democratic Board Members and unions and individual employees on the other. Yet, this Article's empirical study of agency adjudication at the NLRB - involving a comprehensive examination of all Board cases implementing the highly indeterminate inherently destructive conduct standard - covincingly suggests otherwise. Instead, it appears that Board Members are able to overcome their ideological biases and arrive at a surprising number of consistent decisions in order to foster the institutional integrity of their organization. This Article posits that the concept of institutional collegiality, developed by Judge Harry T. Edwards in the domain of federal appellate court decisionmaking, helps best explain how this counterintuitive result is possible in the midst of a purportedly partisan agency environment and under circumstances where amorphous legal standards would appear to permit the most aggressive forms of political adjudication. The ramifications of these empirical findings are at least three-fold. First, if Board Members do not consider their own political interests in making inherently destructive conduct determinations, the Board gains stature not only in the eyes of the Supreme Court and other reviewing courts, as Professor Summers has observed, but also increases its credibility in the eyes of labor and management groups that appear before it. Second, such consistent adjudicative outcomes assist parties in planning their future conduct and predicting the legality of their conduct, thereby fostering a more constructive labor relations environment throughout the country. Third, and perhaps most significantly, this empirical study suggests that institutional collegiality is playing a central and pivotal role in administrative agency adjudications. And although one study should not be interpreted too broadly, by establishing that Board Members are successfully able to act in a collegial manner by separating their political ideologies from their institutional roles and by seeking to get the law right, this Article confirms that agency adjudication can indeed play a valuable role in protecting the increasing number of individuals who seek vindication of their rights in front of these administrative tribunals.
Governance and Equity Prices: Does Transparency Matter?*

This article examines how accounting transparency and corporate governance interact. Firms with better governance are associated with higher abnormal returns, but even more so if they also have higher transparency. The effect is largely monotonic--it is small and insignificant for opaque firms and large and significant for transparent firms--and survives numerous robustness tests. We find supportive evidence for firm value and operating performance. Hence, governance and transparency are complements. This complementarity effect is consistent with the view that more transparent firms are more likely takeover targets, because acquirers can bid more effectively and identify synergies more precisely. Copyright 2013, Oxford University Press.
International Governance of Climate Engineering

Continued failure to limit emissions of carbon dioxide and other greenhouse gases that are causing global climate change has brought increased attention to climate engineering (CE) technologies, which actively modify the global environment to counteract heating and climate disruptions caused by elevated greenhouse gases. Some proposed forms of CE, particularly spraying reflective particles in the upper atmosphere to reduce incoming sunlight, can cool the average temperature of the Earth rapidly and cheaply, thereby substantially reducing climate-related risks. Yet CE interventions provide only imperfect corrections for the climatic and other environmental effects of elevated greenhouse gases, and carry their own environmental risks. Moreover, they may also increase other risks, by weakening political support for essential emissions reductions or providing new triggers for international conflict. These technologies thus require international governance, but also pose novel and severe challenges to current international laws and institutions. Effective governance of CE will require a capacity to make decisions regarding the conditions, if any, under which specific interventions are authorized, plus realtime operational oversight of any interventions that are conducted. Decision processes must be effectively linked with scientific research and assessment, and with institutions to manage and respond to threats of CE-related conflict. We advance preliminary suggestions to address two priority areas for early investigation: how international cooperation on early CE research can help develop shared norms that can grow robust enough to support future decision needs; and how early research and development on CE can be made to complement and encourage, rather than undermine, parallel efforts to reduce climate risks by cutting emissions.
Corporate social media: How two-way disclosure channels influence investors

Abstract I examine how firm-investor communications on social media affect investors' perceptions of the firm. I focus on a case in which a Twitter user criticizes a discretionary accrual adjustment and management chooses whether and how to respond. I collect data using multiple experiments in which I vary the perceived validity of a criticism via the number of retweets it receives and/or the firm's response. Results suggest that the influence the criticism has on nonprofessional investors' perceptions depends on the number of times it has been retweeted. Results also suggest that following a criticism perceived to be valid, there are benefits of addressing the criticism directly or of redirecting attention to a positive highlight from the firm disclosure (relative to not responding). The findings advance our understanding of how a firm can effectively manage investors' perceptions by participating in, rather than abstaining from, conversations about the firm on social media.
Combating Obesity in the Courts: Will Lawsuits Against McDonald's Work?

Abstract A proposed method of combating obesity in the United States is to hold food companies legally liable for obesity-related damages. Recent lawsuits against fast-food restaurants, such as Pelman v. McDonald's Corp., have tried to draw on the success of tobacco litigation by claiming that fast-food marketers provide misleading information about the nutritional value of their products, leading consumers to overconsume and, thus, become obese. The Pelman plaintiffs also allege that fast food is addictive and have asked to represent a class of children who have become obese as a result of McDonald's products. This article compares legal efforts against the aggressive marketing of fast food with those against the marketing of tobacco products and argues that, for several reasons, such legal efforts will face substantial hurdles. In particular, this article argues that to be successful, such lawsuits must show either that McDonald's acted deceptively or that it has a duty to warn consumers about the unhea...
Has the Financial Crisis Permanently Changed the Practice of Monetary Policy? Has It Changed the Theory of Monetary Policy?

Large-scale asset purchases—and sales too—are likely to become part of the standard toolkit of monetary policymaking. Central banks' purchases since the financial crisis have lowered long-term interest rates relative to short-term rates, and lowered interest rates on more-risky compared to less-risky obligations. Moreover, their introduction fills a conceptual vacuum that has long stood at the heart of monetary policy analysis and implementation. In contrast to the traditional focus on central banks' liabilities, the effectiveness of this policy tool turns on the role of the asset side of central banks' balance sheet. The implications for monetary theory are profound.
Legalize Drugs Now!: An Analysis of the Benefits of Legalized Drugs

The legalization of drugs would prevent our civil liberties from being threatened any further, it would reduce crime rates, reverse the potency effect, improve the quality of life in the inner cities, prevent the spread of disease, save the taxpayer money, and generally benefit both individuals and the community as a whole. Our arguments are based on a basic appreciation of the benefits provided by voluntary exchange and the role markets play in coordinating human activities. Legalizing drugs would eliminate many inconsistencies, guarantee freedoms, and increase the effectiveness of the government’s anti-drug beliefs. The present war on drugs has not and will not produce a decisive victory. We advocate a new approach to this important social problem.
Stock market liberalizations: Financial and macroeconomic implications

The paper presents new evidence on the effects of stock market liberalization on financial and macroeconomic development. Using a panel of 27 countries, liberalization is associated with a short-term increase in real private investment growth of about 14 percentage points cumulatively in the four years following liberalization and a cumulative 4 percentage point increase in real GDP per capita growth. The benefits of liberalization are higher in countries that have improved their institutional framework prior to liberalization. In contrast to other studies, we find some evidence for a permanent growth effect of about 0.4 percent a year in an extended sample of 72 countries. JEL no. F3, G1, O1
Defensive publishing by a leading firm

Abstract I consider the use of defensive publishing by a firm with a patentable innovation in hand. Such publishing discloses technical information to rivals and foregoes the publisher’s legal right to exclude, but also prevents rivals from patenting. My analysis identifies why firms choose defensive publishing over patenting and trade secrecy. I present summary data suggesting that defensive publishing has become more common recently, that the composition of firms using it is changing, and that it has emerged especially as a response to the fear of bad patents being issued in the area of software and business methods. These data are consistent with my theoretical results.
Automatic Perfection of Sales of Payment Intangibles: A Trap for the Unwary

Under Section 9-309(3) of the Uniform Commercial Code, sales of “payment intangibles” are automatically perfected without the requirement of filing financing statements. Originally intended as a concession to the banking industry (to perfect sales of loan participations without filing), this provision has become a trap for the unwary—including unwary banks. It misleads those who think they’re buying payment intangibles (and thus need not file to perfect) only to find out, too late, that a court has construed that arcane definition too narrowly. It also undermines the ability to know one’s priority in purchased or pledged payment intangibles. This essay analyses these problems, examines their historical origins, and suggests potential solutions.
The Limitations of Experimental Design: A Case Study Involving Monetary Incentive Effects in Laboratory Markets

We replicate an influential study of monetary incentive effects by Jamal and Sunder (1991) to illustrate the difficulties of drawing causal inferences from a treatment manipulation when other features of the experimental design vary simultaneously. We first show that the Jamal and Sunder (1991) conclusions hinge on one of their laboratory market sessions, conducted only within their fixed-pay condition, that is characterized by a thin market and asymmetric supply and demand curves. When we replicate this structure multiple times under both fixed pay and pay tied to performance, our findings do not support Jamal and Sunder’s (1991) conclusion about the incremental effects of performance-based compensation, suggesting that other features varied in that study likely account for their observed difference. Our ceteris paribus replication leaves us unable to offer any generalized conclusions about the effects of monetary incentives in other market structures, but the broader point is to illustrate that experimental designs that attempt to generalize effects by varying multiple features simultaneously can jeopardize the ability to draw causal inferences about the primary treatment manipulation.
"I think I do": another perspective on consent and the law.

This contribution to a Festschrift in honor of Jay Katz takes up two areas that have long independently interested him: informed consent and family law. The doctrine of informed consent, introduced by the courts in 1957, is but one of many legally imposed duties to disclose to arise over the last several decades. In myriad areas of everyday life, including medical decision-making, the law has come to require that a person or entity with presumptively superior information as to risks, contents, or consequences take affirmative steps to disclose that information at the time another individual is faced with a decision for which it might prove pertinent. One of the most common contexts in which we thus far have not required disclosure of information to the ordinary individual by the party presumed to possess superior knowledge is the legal formalizing of a decision to marry. In this brief essay, I offer some tentative thoughts on the question of why, as a matter of law, do we not impose similar requirements of disclosure and consent in the marital and medical decision-making contexts?
Adaptive expectations, underparameterization and the Lucas critique☆

Abstract A striking implication of the replacement of adaptive expectations by rational expectations was the “Lucas critique,” which showed that expectation parameters, and endogenous variable dynamics, depend on policy parameters. We consider this issue from the vantage point of bounded rationality, where for transparency we model bounded rationality by means of simple adaptive expectations. We show that for a range of processes, monetary policy remains subject to the Lucas critique. However, there are also regimes in which the expectation parameter is locally invariant and the Lucas critique does not apply.
The Value Relevance of Financial Institutions' Fair Value Disclosures: A Study in the Difficulty of Linking Unrealized Gains and Losses to Equity Values

This article provides a residual-income valuation framework for assessing whether fair value disclosures required by SFAS 119, Disclosures About Derivative Financial Instruments and Fair Values of Financial Instruments, are value-relevant. The primary theoretical and empirical result is that when using a residual-income valuation model, the estimated relation between variables measuring fair value-book value differences for financial instruments and security prices may be contrary to what one would have expected. Specifically, the greater the firm’s return on invested capital and growth rate relative to its cost of capital, the more negative the estimated relation between fair value-book value differences for financial instruments and security prices. A generalization of this result is that tests linking equity values to various types of unrecognized gains and losses are, in many cases, unlikely to generate the hypothesized positive relation between equity values and the unrecognized gains and losses.
Ripe Standing Vines and the Jurisprudential Tasting of Matured Legal Wines – and Law & Bananas: Property and Public Choice in the Permitting Process

From produce to wine, we only consume things when they are ready. The courts are no different. That concept of “readiness” is how courts address cases and controversies as well. Justiciability doctrines, particularly ripeness, have a particularly important role in takings challenges to permitting decisions. The courts largely hold that a single permit denial does not give them enough information to evaluate whether the denial is in violation of law. As a result of this jurisprudential reality, regulators with discretion have an incentive to use their power to extract rents from those that need their permission. Non-justiciability of permit denials creates perverse incentives for regulators. This Article examines that phenomenon.
Earnings Inequality and Market Work in Husband–Wife Families

Constructing pseudo-panel data from successive Current Population Surveys, this paper analyzes earnings inequality in husband and wife families over the life cycle and over time. Particular attention is devoted to the role of labor supply in influencing measures of earnings inequality. Compact and accurate descriptions of earnings inequality are derived that facilitate the analysis of the effect of the changing market employment of wives on earnings inequality. The growing propensity of married women to work for pay has mitigated the increase in family earnings inequality. Alternative measures of earnings inequality covering people with different degrees of attachment to the labor market are constructed. Inferences about the extent and changes in earnings inequality are sensitive to alternative labor supply definitions especially in the case of wives.
Pay-what-you-want pricing: Can it be profitable?

Abstract Using a game theoretic framework, we show that not only can pay-what-you-want pricing generate positive profits, but it can also be more profitable than charging a fixed price to all consumers. Further, whenever it is more profitable, it is also Pareto-improving. We derive conditions in terms of two cost parameters, namely the marginal cost parameter for the seller, and the social preference parameter of a consumer to incorporate behavioral considerations for paying too little compared to her reference price.
Globalization and Inflation: a Swiss Perspective

Is inflation caused by global developments instead of domestic monetary factors? This paper explores the role of globalization for inflation, especially in Switzerland, one of the smallest and most open economies where the globalization hypothesis should be most relevant. It provides tests of whether Swiss inflation is causally related to inflation elsewhere. It also examines Swiss inflation in a P* model and whether it is also influenced by inflation abroad or by import prices. It finds that Swiss inflation is made at home. Evidence is presented of a co-integrating relationship of Swiss and German inflation, likely due to common inflation objectives.
Minimalism, Perfectionism, and Common Law Constitutionalism: Reflections on Sunstein's and Fleming's Efforts to Find the Sweet Spot in Constitutional Theory

Cass Sunstein's "Radicals in Robes: Why Extreme Right-Wing Courts are Wrong for America" and James Fleming's "Securing Constitutional Democracy: The Case of Autonomy," share a great deal: they reflect a left liberal communitarian vision of what the U.S. Constitution would best be interpreted to say, and yet they both struggle to find a sweet spot in constitutional theory, rejecting the extremes around them. Sunstein's minimalism is meant to strike a balance between conservative fundamentalism and liberal perfectionism; Fleming's constitutional constructivism aims to strike a balance between the process-based approaches favored by thinkers like Ely and the untethered moralism of a natural law theorist. I argue that neither succeeds: Sunstein because he relies in the end upon a very thin form of pragmatism, that leaves legitimacy out of the picture; Fleming, because he is unduly optimistic about the possibility of cabining the domain of rights claims. The essay concludes by proposing a "sweet spot" of its own; common law constitutionalism. Adapting Sunstein's minimalism to a sort of incrementalism, and using well-rooted exceptions to ground developing individual rights, common law constitutionalism finds the sweet spot between Sunstain and Fleming.
Self-selection and internal migration in the United States.

Abstract Within the conceptual framework of the Roy model, this paper provides an empirical analysis of internal migration flows using data from the National Longitudinal Survey of Youth. The theoretical approach highlights regional differences in the returns to skills: regions that pay higher returns to skills attract more skilled workers than regions that pay lower returns. Our empirical results suggest that interstate differences in the returns to skills are a major determinant of both the size and skill composition of internal migration flows. Persons whose skills are most mismatched with the reward structure offered by their current state of residence are the persons most likely to leave that state, and these persons tend to relocate in states which offer higher rewards for their particular skills.
Head, Examined: Clarence Darrow's X-Ray Vision of Criminal Responsibility

Shortly after Roentgen’s discovery of X-rays and their application to human imaging, the legal profession began to use the technology in litigation. Though the use of brain imaging did not find its way into formal arguments about criminal responsibility early in its evolution, such an analysis has been sought. 19th Century attempts to connect “pathological anatomy” to behavior were mostly disappointing. In 1924, the celebrated murder trial of Leopold and Loeb in Chicago became an early example of the use of scientific testimony that included radiographic exhibits. The penalty-phase decision to spare the defendants’ lives was not based on scientific arguments. Sixty years later, the trial of John Hinckley included admission of CT scans to aid psychiatric testimony. Using excerpts from the expert reports and testimony, this article examines the nature and purpose of scientific evidence pertaining to blameworthiness. The author concludes that improvements in neuroimaging will continue to force a dialog between science and the law.
Debating Law’s Irrelevance: Legal Scholarship and the Coase Theorem in the 1960s

This paper examines the diffusion of Coase’s negotiation result -- now better known as the 'Coase theorem' -- in the legal literature during the 1960s, with particular attention paid to the challenge that this result posed for received legal thinking, how the it related to far older attempts to bring economic thinking to bear on the law, how legal scholars utilized it in their analysis, and how the treatment of this result by legal scholars compares to that accorded it by economists during this formative stage in the Coase theorem’s history. What will emerge, in the end, is an enhanced understanding of how the Coase theorem came to have a place in legal scholarship, as well as some additional insight into this neglected epoch in the history of the economic analysis of law.
The Interaction between Human Rights, Democracy and Governance and the Displacement of Populations

At no other time in its post-independence history has Africa witnessed the sharp contradiction and confusing admixture of hope and despair. The ripples of vitality sent forth from South Africa appear to be canceled by the savagery of the Rwandese carnage. For every Malawi that votes out a demonic despot, there seems to be a Nigeria that blatantly rejects freedom. The catastrophic tragedies of nations once called Somalia and Liberia haunt Africa’s conscience, and the list continues. Despite a few bright spots, it is painfully true that even optimists cannot talk about this dear continent with a smile. The threat of political and economic extinction is only too real. It is the duty of Africans, the State as well as the citizens, to realize the promise of democratization, the one political device that can certainly reduce, if not eliminate altogether, the coerced movements of populations. But the OAU can play a pivotal role in the process. The only salvation for the continent, and the one sure cure for the problem of displacement, lies in governments that are freely elected, states that are accountable and transparent, and societies that respect human rights. Otherwise, Africa’s demise is inevitable.
The structure of Canadian terrorism

Why has radical right‐wing violence been so invisible? Academics have produced endless studies of criminal, political, ethnic, and racist violence. But little emphasis has been put on the radical right's violence, either on its own or as part of the violence that has received more attention. To begin filling this void, we should more closely examine the dimensions of this kind of violence, particularly as they manifest themselves in Canada. Unlike the U.S., Canada is not a bastion of right‐wing violence; nevertheless, when it does occur, it shares several important traits with its southern neighbor.
The Aftermath of Catastrophes: Valuing Business Interruption Insurance Losses

With the onslaught of tornadoes, hurricanes, and floods in recent years, business interruption losses have been staggering. Many businesses do not survive such catastrophes. Even business owners that purchased business interruption insurance, which is intended to ensure that a business’s revenue stream continues during an interruption in its operations, often find that their insurers have dramatically different views regarding the amount of the losses that should be reimbursed. The reason for this disparity in views is that the loss valuation provisions in business interruption insurance policies provide very little guidance regarding how business interruption losses should be calculated. Thus, disputes regarding the valuation of business interruption losses frequently arise and courts and juries are forced to resolve such disputes with widely varying, inconsistent, and unpredictable results. This lack of predictability has placed a burden on the legal system because far more business interruption cases are tried than are necessary. This Article analyzes the origins and purpose of business interruption insurance, as well as the courts’ inconsistent interpretations of the standard form business interruption loss valuation provisions. The Article then offers an interpretation of the existing loss valuation provisions under the rules of policy interpretation and considers whether the result would be different if * Christopher C. French is a Visiting Assistant Professor at the University of Pittsburgh School of Law; J.D., Harvard Law School; B.A., Columbia University. The author gratefully acknowledges the legal research contributions of Amanda Lusk to this article. The author also would like to thank Daniel Schwarcz, Jim Chen, and all of the participants in a workshop at Villanova Law School for providing thoughtful comments on earlier drafts of this article. 462 GEORGIA STATE UNIVERSITY LAW REVIEW [Vol. 30:2 the language were analyzed from a product liability perspective in light of the fact that policies are non-negotiated contracts of adhesion sold on a take-it-or-leave-it basis. The Article concludes with an analysis of the public policy considerations related to the payment of business interruption insurance losses and proposes alternative loss valuation formulas to be used in the future that should provide for consistent, fair and predictable loss valuations and payment of claims without litigation.
Hicks v. Dowd, Conservation Easements, and the Charitable Trust Doctrine: Setting the Record Straight

This is the fourth in an exchange of articles published by the Wyoming Law Review discussing the application of charitable trust principles to conservation easements conveyed as charitable gifts. In 2002, Johnson County, Wyoming, attempted to terminate a perpetual conservation easement that had been conveyed to the County as a tax-deductible charitable gift. The County’s actions were challenged, first in a suit brought by a resident of the County, Hicks v. Dowd, and then in a suit brought by the Wyoming Attorney General, Salzburg v. Dowd. This article supports the position taken by the Wyoming Attorney General – that conservation easements conveyed as charitable gifts for the purpose of protecting the conservation values of the land they encumber in perpetuity constitute restricted charitable gifts or charitable trusts and, thus, such easements cannot be terminated without court approval obtained in a cy pres or similar equitable proceeding. For readers who do not have easy access to court documents in Wyoming, this article includes the relevant portion of the Motion for Summary Judgment filed by the Wyoming Attorney General in Salzburg v. Dowd as Appendix A.
Client Risk Management: A Pecking Order Analysis of Auditor Response to Upward Earnings Management Risk

SUMMARY: This study examines Big N auditors' client risk management strategy in response to the risk of upward (i.e., income-increasing) earnings management in the post-SOX era. Specifically, we empirically study the relation between clients' signed discretionary accruals and subsequent audit pricing and auditor resignation decisions. We find that audit fees and resignations are positively associated with the risk of upward earnings management. We document a pecking order of auditor responses and find that auditors are more likely to respond in the order of charging higher abnormal audit fees if the trade-off between upward earnings management risk and return is within an acceptable level, and then resign if the risk is more severe and exceeds the auditors' tolerance level. Our results are robust to alternative accruals measures, controlling for clients' internal control quality and corporate governance characteristics.
A Krylov subspace approach to large portfolio optimization

Abstract With a large number of securities (N) and fewer observations (T), deriving the global minimum variance portfolio requires the inversion of the singular sample covariance matrix of security returns. We introduce the Break-Down Free Generalized Minimum RESidual (BFGMRES), a Krylov subspaces method, as a fully automated approach for deriving the minimum variance portfolio. BFGMRES is a numerical algorithm that provides solutions to singular linear systems without requiring ex-ante assumptions on the covariance structure. Moreover, it is robust to illiquidity and potentially faulty data. US and international stock data are used to demonstrate the relative robustness of BFGMRES to illiquidity when compared to the “shrinkage to market” methodology developed by Ledoit and Wolf (2003) . The two methods have similar performance as assessed by the Sharpe ratios and standard deviations for filtered data. In a simulation study, we show that BFGMRES is more robust than shrinkage to market in the presence of data irregularities. Indeed, when there is an illiquid stock shrinkage to market allocates almost 100% of the portfolio weights to this stock, whereas BFGMRES does not. In further simulations, we also show that when there is no illiquidity, BFGMRES exhibits superior performance than shrinkage to market when the number of stocks is high and the sample covariance matrix is highly singular.
The Relation between Analysts' Forecasts of Long‐Term Earnings Growth and Stock Price Performance Following Equity Offerings*

In this paper we evaluate the role of sell-side analysts' long-term earnings growth forecasts in the pricing of common equity offerings. We find that, in general, sell-side analysts' long-term growth forecasts are systematically overly optimistic around equity offerings and that analysts employed by the lead managers of the offerings make the most optimistic growth forecasts. In additional, we find a positive relation between the fees paid to the affiliated analysts' employers and the level of the affiliated analysts' growth forecasts. We also document that the post-offering underperformance is most pronounced for firms with the highest growth forecasts made by affiliated analysts. Finally, we demonstrate that the post-offering underperformance disappears once we control for the overoptimism in earnings growth expectations. Thus, the evidence presented in this paper is consistent with the “equity issue puzzle” arising from overly optimistic earnings growth expectations held at the time of the offerings.
Evidence-Based Sentencing and the Scientific Rationalization of Discrimination

This paper critiques, on legal and empirical grounds, the growing trend of basing criminal sentences on actuarial recidivism risk prediction instruments that include demographic and socioeconomic variables. I argue that this practice violates the Equal Protection Clause and is bad policy: an explicit embrace of otherwise-condemned discrimination, sanitized by scientific language. To demonstrate that this practice should be subject to heightened constitutional scrutiny, I comprehensively review the relevant case law, much of which has been ignored by existing literature. To demonstrate that it cannot survive that scrutiny and is undesirable policy, I review the empirical evidence underlying the instruments. I show that they provide wildly imprecise individual risk predictions, that there is no compelling evidence that they outperform judges’ informal predictions, that less discriminatory alternatives would likely perform as well, and that the instruments do not even address the right question: the effect of a given sentencing decision on recidivism risk. Finally, I also present new, suggestive empirical evidence, based on a randomized experiment using fictional cases, that these instruments should not be expected merely to substitute actuarial predictions for less scientific risk assessments, but instead to increase the weight given to recidivism risk versus other sentencing considerations. * Professor of Law, University of Michigan. Thanks to Don Herzog, Ellen Katz, Richard Primus, and participants in Michigan Law’s Faculty Scholarship Brownbag Lunch for their comments, and to Grady Bridges, Matthew Lanahan, and Jarred Klorfein for research assistance. 2 Law & Economics Working Papers, Art. 90 [2013] http://repository.law.umich.edu/law_econ_current/90 66 STANFORD LAW REVIEW __ (FORTHCOMING 2014) ii INTRODUCTION 1 I. Actuarial Risk Prediction and the Movement Toward Evidence-Based Sentencing ......... 5 II. The Disparate Treatment Concern 12 A. Gender Classifications and the Problem with Statistical Discrimination 13 B. Wealth-Related Classifications in the Criminal Justice System 17 C. The Social Harm of Demographic and Socioeconomic Sentencing Discrimination 22 III. Assessing the Evidence for Evidence-Based Sentencing 25 A. Precision, Group Averages, and Individual Predictions 26 B. Do the Instruments Outperform Clinical Prediction and Other Alternatives? 32 C. Do the Risk Prediction Instruments Address the Right Question? 36 IV. Will Risk Prediction Instruments Really Change Sentencing Practice? 41 A. Does EBS Merely Provide Information? 41 B. Does EBS Merely Replace One Form of Risk Prediction With Another? 43 CONCLUSION 47
The Association between External Monitoring and Earnings Management in the Property-Casualty Insurance Industry

This paper examines the association between external monitoring and earnings management by property-casualty insurers. We extend previous work by Petroni and Beasley (1996) by expanding the set of external monitors to include both auditors and actuaries. We investigate whether certain auditor-actuary pairs are associated with less understatement of the loss reserve account by financially struggling insurers. Our data consist of loss adjustments reported by 465 property-casualty insurers for reserves established in 1993. The results indicate that under-reserving by weak insurers is essentially eliminated when the firm uses auditors and actuaries that are both from Big Six accounting firms. In contrast, non-Big Six actuaries have less impact on under-reserving by weak insurers. Our results suggest that the quality usually associated with Big Six auditors falls when the audit firm relies on third party actuaries to evaluate the loss reserve estimates of struggling insurance clients. We conjecture that Big Six actuaries insist on more conservative loss reserve levels because, compared to actuarial consulting firms, they are more attuned to the liability exposure of the auditor.
Strategy for Labor Revisited

What follows is an unofficial transcript of an off-the-record conversation among three of the labor movement's leading strategists. The meeting was convened by C, or "cooperationist," who had been for over ten years the president of a local union, part of a major industrial union, representing 3,000 employees who had been hired to staff a new manufacturing plant in a Southern town ("Newplant"). Newplant had been widely touted as a breakthrough in U.S. labor-management relations because it was consciously designed to promote greater participation of production and maintenance workers in business decisions. In bitterly contested local elections last year, C was voted out of office and now serves in a staff capacity at the AFL-CI0. A, or "adversarialist," a longstanding friend of C, is the research director of another industrial union. A was very active in the Students for A Democratic Society in the 1960s, and after graduating from Antioch College began his career as a labor organizer, working for a succession of unions that had been active in the McGovern-Kucinich wing of the Democratic Party. S, or "stay the course," is the highly respected chief of staff for a national union representing government workers. Section headings and citations are supplied by the editor and do not appear in the original transcript.
Corruption as an Assurance Problem

This paper suggests that corruption presents an assurance problem. An assurance problem exists when all actors are better off if they adhere to at least the same minimal standard, but are second best off if, in the event that there are defectors, they join the defectors rather than continue to adhere to the standards, and are worst off if there are defectors but they do not join those defectors. Actors faced with an assurance problem, therefore, must choose between cooperating in hopes of accruing the greatest benefit or defecting as a defensive measure. The best mechanism for society to prevent the difficulties created by assurance problems is to impose legal penalties on defectors, but that is not possible in endemically corrupt systems. In that case, collective action offers the best solution. Bribery often presents an assurance problem for business actors in markets that experience corruption. Arguably paying a bribe in some circumstances confers a short term advantage. Business firms understand, however, that paying bribes imposes long term costs, and firms would prefer not to pay bribes. If bribery does confer a short term advantage, then even firms that would prefer to enjoy the long term benefits of not paying bribes might feel pressure to pay bribes in order to survive short term competition. Collective action offers a solution to this dilemma. This paper draws from the lessons of the Panamanian group, Asociacion Panamena de Ejecutivos de Empresa (APEDE), which was an early leader in collective business responses to the difficulties created by bribery.
Searching for the Electoral Connection: Parliamentary Party Switching In the Ukrainian Rada, 1998–2002

Studies of legislative behavior almost universally begin with the assumption that legislators desire reelection. For scholars who study the Ukrainian Verkhovna Rada, this assumption is perhaps tenuous, given the weaknesses of political parties and the significant party switching. Yet an analysis of party switching between 1998 and 2002 using a new method that controls for selection bias demonstrates that, although turnover among parties was high, this turnover followed an electoral logic: deputies changed parties, in part, to secure reelection. Thus, the electoral connection, assumed in so much of the legislative behavior literature, existed even in the chaotic Rada.
Political Constraints on International Courts

The complicated relationship between politics and law has long been a central concern among international lawyers. The project of international law has, for more than a century, sought to construct a zone for autonomous legal decision-making, immune from political considerations, to solve international disputes. Yet the context of international adjudication is, almost by definition, an intensely political one, and the efficacy of international law requires some consideration of that context. International disputes frequently involve high stakes, and so the dream of autonomous law providing technically correct solutions to resolve problems has always confronted the hard realities of international politics.
Institutions and Parameter Heterogeneity

Abstract The role of institutions has taken center stage in the empirical growth literature recently, with many innovative approaches and suggestive results. Most of the previous literature has focused on the direct correlation between institutions and growth or its determinants. In this paper, I investigate the indirect effect that institutions may have on growth through parameter heterogeneity. In particular, the quality of a country’s institutions could affect the relationship between growth and its other determinants, such as human and physical capital accumulation, geography, and government policies. After allowing for several types of nonlinearities, the results are generally supportive of Glaeser et al. [Glaeser, E.L., La Porta, R., Lopez-de-Silanes, F., Shleifer, A., 2004. Do institutions cause growth? Journal of Economic Growth, 9 (3), 271–303] in that most of their preferred measures of institutions are not correlated with growth. However, there is some evidence that institutions do matter for policy variables, particularly those associated with trade policy.