Vote-Trading in International Institutions

There is evidence that countries trade votes among each other in international institutions on a wide range of issues, including the use of force, trade issues and elections of judges. Vote-trading has been criticized as being a form of corruption, undue influence and coercion. Contrary to common wisdom, however, I argue in this paper that the case for introducing policy measures against vote-trading cannot be made out on the basis of available evidence. This paper sets out an analytical framework for analyzing vote-trading in international institutions, focusing on three major contexts in which vote-trading may generate benefits and costs: (1) agency costs (collective good), (2) coercive tendering and (3) agency costs (constituents). The applicability of each context depends primarily on the type of decision in question - i.e. preference-decision or judgment-decision - and the interests that countries are expected to maximize when voting. The analytical framework is applied to evidence of vote-trading in four institutions, the Security Council, the General Assembly, the World Trade Organization and the International Whaling Commission. The application of the analysis reveals that while vote-trading can create significant costs, there is only equivocal evidence to this effect, and in several cases vote-trading generates important benefits

Regulatory Competition and the Market for Corporate Law

This article develops an empirical model of firms’ choice of corporate laws under inertia. Delaware dominates the incorporation market, though recently Nevada, a state whose laws are highly protective of managers, has acquired a sizable market share. Using a novel database of incorporation decisions from 1995- 2013, we show that most firms dislike protectionist laws, such as anti-takeover statutes and liability protections for officers, and that Nevada’s rise is due to the preferences of small firms.Our estimates indicate that despite inertia, Delaware would lose significant market share and revenues if it adopted protectionist laws. Our findings support the hypothesis that Delaware faces competitive pressure to maintain its current laws, and that managers are willing to commit to such laws in order to attract capital

Will Delaware Be Different? An Empirical Study of TC Heartland and the Shift to Defendant Choice of Venue

Why do some venues evolve into litigation havens while others do not? Venues might compete for litigation for various reasons, such as enhancing their judges’ prestige and increasing revenues for the local bar. This competition is framed by the party that chooses the venue. Whether plaintiffs or defendants primarily choose venue is crucial because, we argue, the two scenarios are not symmetrical. The Supreme Court’s recent decision in TC Heartland v. Kraft Foods illustrates this dynamic. There, the Court effectively shifted venue choice in many patent infringement cases from plaintiffs to corporate defendants. We use TC Heartland to empirically measure the impact of this shift using an event study, which measures how the stock market reacted to the decision. We find that likely targets of “patent trolls”— entities that own and assert patented inventions but do not otherwise use them—saw their company valuations increase the most due to TC Heartland. This effect is particularly pronounced for Delaware-incorporated firms. Our results match litigation trends since TC Heartland, as new cases have dramatically shifted to the District of Delaware from the Eastern District of Texas, previously the most popular venue for infringement actions. Why do investors believe Delaware will do better than Texas in curbing patent troll litigation? Unlike Texas, Delaware’s economy depends on attracting large businesses that pay high incorporation fees; it is thus less likely to encourage disruptive litigation and jeopardize its privileged position in corporate law. More broadly, we explain why giving defendants more control over venue can counterbalance judges’ incentives to increase their influence by encouraging excessive litigation. Drawing on Delaware’s approach to corporate litigation and bankruptcy proceedings, we argue that Delaware will compete for patent litigation through an expert judiciary and well- developed case law that balances both patentee and defendant interests

Will Delaware Be Different? An Empirical Study of \u3cem\u3eTC Heartland\u3c/em\u3e and the Shift to Defendant Choice of Venue

Why do some venues evolve into litigation havens while others do not? Venues might compete for litigation for various reasons, like enhancing their judges’ prestige and increasing revenues for the local bar. This competition is framed by the party that chooses the venue. Whether plaintiffs or defendants primarily choose venue is crucial because, we argue, the two scenarios are not symmetrical. The Supreme Court’s recent decision in TC Heartland LLC v. Kraft Foods LLC illustrates this dynamic. There, the Court effectively shifted venue choice in many patent infringement cases from plaintiffs to corporate defendants. We use TC Heartland to empirically measure the impact of this shift using an event study, which measures how the stock market re- acted to the decision. We find that likely targets of “patent trolls”—entities that own and assert patented inventions but do not otherwise use them—saw their company valuations increase the most due to TC Heartland. This effect is particularly pronounced for Delaware-incorporated firms. Our results match litigation trends since TC Heartland, as new cases have dramatically shifted to the District of Delaware from the Eastern District of Texas, previously the most popular venue for infringement actions. Why do investors believe Delaware will do better than Texas in curbing patent-troll litigation? Unlike Texas, Delaware’s economy depends on attracting large businesses that pay high incorporation fees; it is thus less likely to encourage disruptive litigation and jeopardize its privileged position in corporate law. More broadly, we explain why giving defend- ants more control over venue can counterbalance judges’ incentives to increase their influence by encouraging excessive litigation. Drawing on Delaware’s approach to corporate litigation and bankruptcy proceedings, we argue that Delaware will compete for patent litigation through an expert judiciary and well-developed case law that balances both patentee and defendant interests

The Role of Social Enterprise and Hybrid Organizations

Recent years have brought remarkable growth in hybrid organizations that combine profit-seeking and social missions. Despite popular enthusiasm for such organizations, legal reforms to facilitate their formation and growth—particularly, legal forms for hybrid firms—have largely been ineffective. This shortcoming stems in large part from the lack of a theory that identifies the structural and functional elements that make some types of hybrid organizations more effective than others. In pursuit of such a theory, this Article focuses on a large class of hybrid organizations that has been effective in addressing development problems, such as increasing access to capital and improving employment opportunities. These organizations, which are commonly referred to as “social enterprises,” include microfinance institutions, firms that sell fair trade products, work integration firms, and low-cost sellers of essential goods and services such as eyeglasses, bed-nets, and healthcare. The common characteristic of social enterprises is that they have a transactional relationship with their beneficiaries, who are either purchasers of the firms’ goods or services or suppliers of inputs (including labor) to the firm. The essence of this Article’s theory is that through these transactions, social enterprises perform a measurement role; that is, they measure or gather information on their patron-beneficiaries’ abilities to transact with commercial firms (for example, workers’ skills, borrowers’ creditworthiness, and consumers’ ability to pay). That information permits social enterprises to tailor the form and amount of subsidies to the specific needs of individual beneficiaries. This “measurement” function makes social enterprises relatively effective vehicles for allocating subsidies as compared to traditional donative organizations and other forms of hybrid organization, in particular firms that pursue corporate social responsibility policies. Thus, the measurement function can serve as the basis for designing a legal form for social enterprises

Designing Business Forms to Pursue Social Goals

The long-standing debate about the purpose and role of business firms has recently regained momentum. Business firms face growing pressure to pursue social goals and benefit corporation statutes proliferate across many U.S. states. This trend is largely based on the idea that firms increase long-term shareholder value when they contribute (or appear to contribute) to society. Contrary to this trend, this Article argues that the pressing issue is whether policies to create social impact actually generate value for third-party beneficiaries—rather than for shareholders. Because it is difficult to measure social impact with precision, the design of legal forms for firms that pursue social missions should incorporate organizational structures that generate both the incentives and competence to pursue such missions effectively. Specifically, firms that have a commitment to transacting with different types of disadvantaged groups demonstrate these attributes and should thus serve as the basis for designing legal forms. While firms with such a commitment may be created using a variety of control and contractual mechanisms, the related transaction costs tend to be very high. This Article develops a social enterprise legal form that draws on the legal regime for community development financial institutions (CDFIs) and European legal forms for work-integration social enterprises (WISEs). This form would certify to investors, consumers, and governments that designated firms have a commitment as social enterprises. By obviating the need for costly social impact measurement, this form would facilitate the provision of subsidy-donations to social enterprises from multiple groups, particularly investors (through below-market investment) and consumers (via premiums over market prices). Thus, this social enterprise form would be to altruistic investors and consumers what the nonprofit form is to donors. Moreover, the proposal could facilitate the flow of investments by foundations in social enterprises (known as program-related investments, “PRIs”) because it would help foundations verify the social impact of their investees. In addition, by giving subsidy-providers greater assurance that social enterprises pursue social missions effectively, the proposed legal form could facilitate public markets for social enterprises

Opportunity Zones: A Program in Search of a Purpose

In 2017, Congress created the Opportunity Zone (“OZ”) program to stimulate economic growth in low-income communities. The program was characterized by its unprecedented scale relative to previous place-based development efforts and was described as “perhaps the most ambitious economic development tool to come out of Congress in a generation.” However, the program was quickly criticized on numerous grounds, and its design flaws are so severe that several legislators have called for its reform or repeal. This Essay argues that the root of the OZ program’s problems is a strong mismatch between its stated purpose and its actual terms. We discuss how the OZ program works and why the actual terms of its enabling legislation encourage investors to focus on real estate projects. We show that, contrary to common perceptions of the OZ program, its intended purpose was to promote entrepreneurship and startup activity. We conduct an empirical analysis to show that low-income tracts did not experience any increase in startup investment following OZ designation. Overall, our results suggest that OZ designation has generally failed to achieve its stated goal and that the serious concerns about its manipulability to favor specific investors are warranted. Finally, we consider various proposals to make the OZ program more consistent with its original goal and briefly note how the legislative process behind the OZ statute may have contributed to its shortcoming

The Enduring Distinction Between Business Entities and Security Interests

What are business entities for? What are security interests for? The prevailing answer in legal scholarship is that both bodies of law exist to partition assets for the benefit of designated creditors. But if both bodies of law partition assets, then what distinguishes them? In fact, these bodies of law appear to be converging as increasing flexibility irons out any differences. Indeed, many legal products, such as securitization vehicles, insurance products known as captive insurance, and mutual funds, employ entities to create distinct asset pools. Moreover, recent legal innovations, such as “protected cells,” which were created to facilitate such products, further blur the boundaries between security interests and entities, suggesting that convergence has already arrived. This Article identifies and defends a central distinction between business entities and security interest. We argue that while both bodies of law support asset partitioning, they do so with different priority schemes. Security interests construct asset pools subject to fixed priority, meaning that the debtor is unable to pledge the same collateral to new creditors in a way that changes the existing priority scheme. Conversely, entities are associated with floating priority, whereby the debtor retains the freedom to pledge the same assets to other creditors with the same or even higher priority than existing ones. The distinction is valuable in understanding financial products, such as securitization, captive insurance, and mutual funds. We show that such products are driven by an appetite for assets pools with a fixed priority scheme, and recent legal innovations are primarily designed to meet this need. This distinction is consistent with the intuitive view of entities as managed going concerns and security interests as mere interests in assets. The distinction is also enduring. Despite the apparent convergence of forms, we predict that the distinction we offer will survive legal and technological innovations

Does Government Play Favorites? Evidence from Opportunity Zones

The Opportunity Zone (OZ) program is one of the most comprehensive to promote development in distressed communities. A criticized feature is that state governors designate zones as OZs from many eligible tracts without scrutiny. We find that governors are more likely to select tracts with higher distress levels and tracts on an upward economic trajectory, which indicates that they select OZs in a systematic way on the basis of objective criteria. However, we also provide evidence that favoritism plays a role in governors’ decisions. The OZ designation is more likely for tracts in counties that supported the governor in an election and when executives or firms with an economic interest in the tract donated to the governor’s campaign. We further explore whether transparency and accountability measures affected states’ decisions. Our analysis suggests that while most measures had no discernible impact, publishing draft selections may mitigate favoritism and promote systematic decision-making

Is Corporate Law Nonpartisan?

Only rarely does the United States Supreme Court hear a case with fundamental implications for corporate law. In Carney v. Adams, however, the Supreme Court had the opportunity to address whether the State of Delaware’s requirement of partisan balance for its judiciary violates the First Amendment. Although the Court disposed of the case on other grounds, Justice Sotomayor acknowledged that the issue “will likely be raised again.” The stakes are high because most large businesses are incorporated in Delaware and thus are governed by its corporate law. Former Governors and Chief Justices of Delaware lined up to defend the state’s “nonpartisan” approach to its judiciary. The case raises the question of why nonpartisanship is taken to be an advantage for Delaware and whether the processes by which corporate law is made are generally politically partisan or not. Despite these developments, however, the place of political partisanship in corporate law has been largely overlooked. This Article offers a framework for analyzing the role of political partisanship in corporate law. It begins by showing that there is suggestive evidence of a relationship between political partisanship and the substance of corporate law at the state level. When corporate law materially differs across states, those differences are often predicted by which party controls the state’s government. Political party entrepreneurs also agitate for corporate law reforms at the state level. Yet, Delaware adopts a conspicuously nonpartisan approach to corporate law. As is widely observed, how Delaware makes corporate law, from its constitution, to its legislature, to its judiciary, is unusual. It is designed to insulate that law from political partisanship. More surprisingly, this began when Delaware first became a leading home to incorporations a century ago. In fact, the same thing was true of New Jersey during its brief period of prominence before Delaware. Why? We suggest that the answer relates to corporate law’s central debate regarding the “market for corporate law.” In the United States, the internal affairs doctrine allows corporations to choose the state whose corporate law governs them by incorporating in the jurisdiction of their choice. This doctrine produces a form of regulatory competition that is structurally biased to produce a winner that favors “demand-side” interests, i.e., the interests of corporate decision-makers themselves. Understanding this dynamic has been one of corporate law’s foundational concerns. We complement that literature by arguing that nonpartisanship provides a competitive advantage in Delaware’s quest to appeal to these interests. Delaware’s approach enables it to afford great weight to the interests of nationally diverse and heterogeneous shareholders and makes it less likely that the state will sacrifice shareholders’ interests to please local constituents. The internal affairs doctrine thus indirectly works to favor incorporations to a state with a nonpartisan approach. Our framework also offers new insights into the debate on the federalization of corporate law and the Supreme Court litigation. Specifically, we argue that within First Amendment jurisprudence, the Supreme Court can and should carefully consider its ruling’s effects on Delaware nonpartisanship