Author: Gerard Magliocca

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Budget Reconciliation

Here’s a question worth mulling over.  Suppose that Senate Democrats decide to jam the health care bill through using the reconciliation process, under which only 50 votes (plus Joe Biden) are required.  They do this through a set of favorable rulings by the presiding officer (Joe Biden) saying that everything in the health care bill is related to the budget process.  Would that raise a justiciable question?  In other words, would that be more properly viewed as an interpretation of the Budget Act of 1974, which created reconciliation, or an interpretation of the Senate’s precedents dealing with cloture?  If the former is correct, then one would think that the Senate’s statutory interpretation could be challenged in court.  If the latter is true, then the issue would deal with the Senate’s rules, which would make judicial intervention highly problematic.  Moreover, would anyone have standing to challenge these actions in either case?  If so, whom?

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The Future of Rewards

This is the last in my series of posts on rewards.  I want to give a nod to Nate, who pointed out to me that the first society to rely heavily on rewards as a regulatory tool was Liliput (as described in Gulliver’s Travels:

“Although we usually call reward and punishment the two hinges upon which all government turns, yet I could never observe this maxim to be put in practice by any nation except that of Lilliput . . .  And these people thought it a prodigious defect of policy among us, when I told them that our laws were enforced only by penalties, without any mention of reward.  It is upon this account that the image of Justice . . . [has] a bag of gold open in her right hand, and a sword sheathed in her left, to show she is more disposed to reward than to punish.”

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Times Have Changed

I was going through some materials on John Marshall when I came across the epitaph on his mother’s grave:

“She was good, not brilliant; useful, not ornamental, and the mother of 15 children.”

Perhaps it’s a good thing that the tradition of putting epitaphs on tombstones has largely died out.  (With the important exception of Mel Blanc, who has “That’s All Folks” on his.  Now that’s worthwhile.)

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Price Gouging

The double-blizzard in DC (described this morning as “The Ice Planet Hoth”) raises the issue of price gouging and rationing.  I always teach price gouging in my Unfair Competition class because it helps students think about the question of when market practices should be regulated.  Every state, after all, gives its attorney general some kind of power to bring an action under some circumstances against merchants who charge “exorbitant” prices.  Why is this appropriate?

It is easy to make the case against price controls, even in an emergency.  They lead to shortages because the incentive to stock the price-controlled good is reduced and consumer demand does not reflect scarcity. Nevertheless, people tend to be very critical, for example, of gas stations that jack up prices at the pump following a hurricane or stores that raise prices of necessities after an earthquake.

One possibility is that a local store or gas station, in effect, becomes a monopoly under extreme conditions (a natural or man-made disaster) and thus price gouging statutes are a kind of antitrust scheme (albeit an arbitrary one–since these state statutes rarely define what an unfair price is and are enforced bluntly after the fact).  Another thought is that we only care about unfair prices when the good in question seems really important.  Many of these statutes only cover gas or food, for instance.  Or perhaps the issue is that society wants a rationing scheme in emergencies but doesn’t want to bear the administrative costs, so we resort to jawboning by state officials and a few prosecutions to enforce a rationing norm.

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Reward Characteristics and Transaction Costs

I want to continue my discussion of rewards as a regulatory tool by focusing on: (1) the traits that rewards can have; and (2) how transaction costs affect the decision to choose rewards rather than property rights or sanctions.

One significant decision for a reward is whether it should be what I’ll call “ex ante” or “ex post.”  In other words, the state could say “We will give you a specific sum if you do something.”  Or the reward could be structured as: “If you do something, then we will give you a reward.”  The former usually involves a more specific valuation (a bounty or a subsidy), while the latter tends to be more indefinite (salvage or a medal).  Another important issue is whether the reward will be a lump sum, a percentage, or some bundle of benefits.  Once again, valuation difficulties play a significant role in this decision, as the % reflects greater uncertainty about how valuable a particular action (such as a qui tam suit) should be.

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The Advantages and Disadvantages of Rewards

In my last post I explained that the state sometimes offers money or status (a reward) to regulate behavior instead of imposing sanctions or granting property rights.  Now let me explain the pros and cons of this approach.

On the positive side, a reward is almost always less intrusive than sanctions.  The best example is the difference between the draft (or any compulsory labor) and the volunteer military.  While in that case offering inducements is the more expensive option, in many instances rewards are also a cheaper form of regulation because their enforcement costs are insignificant compared to criminal law, tort law, or property rights.  When I discuss the lack of a “Good Samaritan” duty in common-law tort with my students, I point out that the high costs of imposing such a duty (both from a libertarian and a litigation standpoint) compare unfavorably to maritime salvage doctrine, which rewards rescuers rather than going after those who are indifferent.  Finally, a reward is more transparent than the regulatory alternatives, both because the cost of the policy can be measured easily (and often ex ante) and because enforcement costs are low.

What are the downsides of rewards?  First, they are susceptible to fraud.  Any time you offer a pot of money con artists will come out of the woodwork, in part because the value of success is so clearly defined and the costs of applying are pretty low (unlike, say, in litigation).  Second, the state must establish the value of the reward, and that is often very difficult.  For example, few people would suggest that the state should buy inventions or books in lieu of granting a property right for them, because there would be almost no way to know how much they are worth.  Finally, there are many situations in which people simply feel that a reward is inappropriate because citizens have a duty to do what the state wants them to do.  We could (as I’ll point out in a subsequent post) increase tax collection through a reward system, but many would object on the grounds that people should pay their taxes even if, in practice, many don’t — not be rewarded for doing so.

In the next post, I’ll talk about some factors that shape the scope of rewards and role that transaction costs play in the decision to use them.

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Defining Rewards

Last year I briefly discussed a project that I’m working on that treats “rewards” as a distinctive legal category.  Well, I’m still working on it, but I thought I would do a series of posts about this topic, as I’m getting close to writing up my work.

What do I mean by rewards?  I’m referring to money or status that is given by the state, acting in its regulatory capacity, to induce socially valuable behavior.  As a result, I am excluding rewards by private parties (“Find my lost cat and I’ll give you $50″), property rights (e.g., patents or copyrights), or state action as an employer (“Sally did a great job — give her a raise.”)  The distinction with property rights is conceptual, as rewards are closely related to liability rules because the state establishes the valuation.  The other exclusions are a matter of convenience, though I’m also unsure that there is anything distinctive about private rewards or how the state acts as an employer.

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The Limits of Intellectual Property

The recent dustup between the NFL and T-shirt producers in New Orleans over who owns the phrase “Who ‘Dat?” — a rallying cry for the Saints — illustrates an important limiting principle for intellectual property — adverse public relations.  (Full Disclosure:  I live in Indianapolis.  Go Colts!)

The NFL initially said that its trademark  registration of “Who Dat?” prohibited the sale of unauthorized merchandise with that phrase.  This claim was rather broad given that the phrase probably was used in New Orleans long before the league obtained its registration in 1988.  In any event, the cease-and-desist letters sent by the NFL led to public outrage and a subsequent “clarification” that the league was referring only to merchandise that could be confused with official apparel.

While the formal rights accorded to patents, copyrights, and trademarks are sweeping, in practice they cannot be enforced to their limits because that would alienate potential customers.  The suits brought by the music studios against illegal downloads were largely abandoned for this reason.  Of course, there are many situations where shining the light of publicity on litigation will not deter someone from enforcing IP rights.  Nevertheless, counsel representing someone who is the target of such a suit — especially when the defendant is David fighting Goliath — would be well-advised to concentrate on their media strategy rather than on their legal one.