Licensing: Permission Slips in Corporate and Fourth Amendment Law

I. INTRODUCTION This Article suggests the beginning of a general theory of licensing systems. I use the word license to refer to legally meaningful approval offered or required relatively early in a system of social control or private agreement. The presence of a licensing apparatus has implications for other, related tools so that the presence of a certification requirement or permission component will draw attention to the larger system of controls or incentives in which it is embedded. Generally speaking, a control, or regulatory, system can focus on inputs or outputs, and inputs can be examined from an ex ante-"upfront"-or ex post-"outcome-oriented"-vantage point. Thus, a negligence rule can normally be thought of as focusing on inputs from an ex post perspective, because it awaits an accident, or loss measured from some baseline, before asking about the character of the activity that caused this loss and the untaken precautions that might have averted the loss. Some strict liability systems can be thought of as geared to outputs and from an ex post perspective, because actors pay according to the injuries they actually cause. In turn, most (of what I will call) licensing systems pay considerable attention to inputs from an ex ante perspective. For example, one might need a license to operate a motor vehicle, market a drug, or search private premises. A general theory of licensing needs to grapple with (at least) three questions that reappear in disparate contexts: When are licensing techniques likely to be superior, in either functional or evolutionary terms? When should-or will-licensing requirements squeeze out seemingly duplicative, alternative means of social control? When should-or might-licensing be privatized as, for example, by the simple requirement that an actor be bonded by a private insurer who, in turn, would be free, with some enforcement help from the state, to set requirements for insurability? Market forces can be liberated in other ways as well. Thus, many licensing schemes raise the question of whether improvement is possible by simply permitting private parties to pay for speedier regulatory service. My intuition is that these questions benefit from a substantial dose of public choice theory, combined with considerations usually associated with work on deterrence and transaction costs.1 My focus in this Article, however, is not on these general questions about licensing, but rather on the disclosure element in licensing, or permission, schemes. The present Article does deal with the familiar problem of the consequences of a failure to comply with licensing requirements. The examples it I use raise questions about information and disclosure, and are selected in part to encourage an expansive conception of licensing. In addition to emphasizing this conception, or variety of licensing, I suggest that less information can sometimes be better than more. More specifically, I develop two ideas: first, in some settings the withholding of information might generate superior, unbiased licensing judgments and, second, the law might reflect some sensitivity to the likelihood that revelations are socially harmful. Lurking in the background of this examination is the hope that analysis of these specific points can begin to illuminate the grander questions regarding licensing schemes. Part II begins with some rules governing corporate fiduciaries. Al though the discussion might stand on its own, as a kind of old-fashioned case commentary or collection of ideas for classroom lectures on the subjects of corporate opportunities and self-interested transactions on the part of fiduciaries, I hope to show a number of interesting connections to licensing problems more generally. There is often an opportunity for fiduciaries to obtain consent, or a license, before investing or transacting in a way that is likely to lead to later conflict. The comparison between this private, or contractual sort of permission, or even ex ante regulation of an agent, and a more conventional licensing system, organized by a regulatory authority and often bounded by legislatively drawn categories and requirements, may seem far-fetched at the outset, but it offers a useful way to get at some of the complexities associated with licensing. …