Empirical Law and Economics

This article begins with a stylized history of empirical work in law and economics. It links the success of the empirical movement in law and economics with the so-called ‘credibility revolution’. The hallmark of this revolution has been a focus on research designs that helped overcome some of the impediments to empirical work in law schools. It then provides some methodological observations about a number of commonly used approaches to estimating policy effects. Next, it uses the literature on the economics of crime and criminal procedure to illustrate the ways in which many of these techniques have been used. It provides examples of fields — corporate law and economics and civil procedure — that would benefit from increased attention to modern empirical analysis and methods

The Value of the Right to Exclude: An Empirical Assessment

markdownabstractProperty theorists have long deemed the right to exclude fundamental and essential for the efficient use and allocation of property. Recently, however, proponents of the progressive property movement have called into question the centrality of the right to exclude, suggesting that it should be scaled back to allow the advancement of more socially beneficial uses of property. Surprisingly, the debate between the opponents and detractors of the right to exclude is devoid of any empirical evidence. The actual value of the right to exclude remains unknown. In this Article, we set out to fill this void by measuring, for the first time, the value of the right to exclude. To that end, we use the passage of the Countryside and Rights of Way Act in England and Wales in 2000 as a natural experiment to provide some empirical insight on this issue. We show that the Act’s passage led to statistically significant and substantively large declines in property values in areas of England and Wales that were more intensively affected by the Act relative to areas where less land was designated for increased access. While property prices may not capture all social value, our findings provide a critical input to the debate regarding access to private property. Given that the access rights provided by the “right to roam” included in the Act represent seemingly minimal intrusions on private property, our findings indicate that property owners view even small restrictions on their right to exclude very negatively. We believe that our findings are of significant importance to lawmakers in the U.S. as they provide an empirical basis for policymaking in the realms of property and land use. In the U.S., private property rights enjoy constitutional protection under the Takings Clause of the Fifth Amendment. Hence, any attempt to formalize a general right to roam or other intrusions on the right to exclude may require the government to pay just compensation to affected property owners. Our study suggests what the compensation amounts are likely to be. This information would allow law-makers to make better decisions about the social desirability of various land use measures. We would like to emphasize that our findings should not be read as a call against the adoption of a right to roam, or any other public privilege. Our only goal is to furnish a much needed empirical foundation that would permit law-makers to conduct a more precise cost-benefit analysis of different policies

Everything's Bigger in Texas: Except the Medmal Settlements

Recent work using Texas closed claim data finds that physicians are rarely required to use personal assets in medical malpractice settlements even when plaintiffs secure judgments above the physician's insurance limits. In equilibrium, this should lead physicians to purchase less insurance. Qualitative research on the behavior of plaintiffs suggests that there is a norm under which plaintiffs agree not to pursue personal assets as long as defendants are not grossly underinsured. This norm operates as a soft constraint on physicians. All other things equal, while physicians want to lower their coverage, they do not want to violate the norm and trigger an attack on their personal assets. This constraint should be less effective when physicians have other ways to shield their assets, such as through large personal bankruptcy exemptions like those available in Texas. Settlement data from the National Practitioner Data Bank indicate that settlements in Texas are abnormally low, just as they are in other jurisdictions with unlimited homestead exemptions in bankruptcy. Consistent with theory, we find that more generous exemptions are also associated with lower insurance prices and lower levels of insurance coverage. These results suggest that the large "haircuts" and low insurance limits observed in the Texas data may be driven by Texas's generous bankruptcy provisions. At a minimum, Texas is not generally representative of other jurisdictions. This weakens the case for extrapolating conclusions from Texas data to other jurisdictions

The Logic and Limits of Event Studies in Securities Fraud Litigation

Event studies have become increasingly important in securities fraud litigation, and the Supreme Court’s 2014 decision in Halliburton Co. v. Erica P. John Fund, Inc. heightened their importance by holding that the results of event studies could be used to obtain or rebut the presumption of reliance at the class certification stage. As a result, getting event studies right has become critical. Unfortunately, courts and litigants widely misunderstand the event study methodology leading, as in Halliburton, to conclusions that differ from the stated standard. This Article provides a primer explaining the event study methodology and identifying the limitations on its use in securities fraud litigation. It begins by describing the basic function of the event study and its foundations in financial economics. The Article goes on to identify special features of securities fraud litigation that cause the statistical properties of event studies to differ from those in the scholarly context in which event studies were developed. Failure to adjust the standard approach to reflect these special features can lead an event study to produce conclusions inconsistent with the standards courts intend to apply. Using the example of the Halliburton litigation, we illustrate the use of these adjustments and demonstrate how they affect the results in that case. The Article goes on to highlight the limitations of event studies and explains how those limitations relate to the legal issues for which they are introduced. These limitations bear upon important normative questions about the role event studies should play in securities fraud litigation

The Value of the Right to Exclude: An Empirical Assessment

Property theorists have long deemed the right to exclude fundamental and essential for the efficient use and allocation of property. Recently, however, proponents of the progressive property movement have called into question the centrality of the right to exclude, suggesting that it should be scaled back to allow the advancement of more socially beneficial uses of property. Surprisingly, the debate between the opponents and detractors of the right to exclude is devoid of any empirical evidence. The actual value of the right to exclude remains unknown. In this Article, we set out to fill this void by measuring, for the first time, the value of the right to exclude. To that end, we use the passage of the Countryside and Rights of Way Act in England and Wales in 2000 as a natural experiment to provide some empirical insight on this issue. We show that the Act’s passage led to statistically significant and substantively large declines in property values in areas of England and Wales that were more intensively affected by the Act relative to areas where less land was designated for increased access. While property prices may not capture all social value, our findings provide a critical input to the debate regarding access to private property. Given that the access rights provided by the “right to roam” included in the Act represent seemingly minimal intrusions on private property, our findings indicate that property owners view even small restrictions on their right to exclude very negatively. We believe that our findings are of significant importance to lawmakers in the U.S. as they provide an empirical basis for policymaking in the realms of property and land use. In the U.S., private property rights enjoy constitutional protection under the Takings Clause of the Fifth Amendment. Hence, any attempt to formalize a general right to roam or other intrusions on the right to exclude may require the government to pay just compensation to affected property owners. Our study suggests what the compensation amounts are likely to be. This information would allow law-makers to make better decisions about the social desirability of various land use measures. We would like to emphasize that our findings should not be read as a call against the adoption of a right to roam, or any other public privilege. Our only goal is to furnish a much needed empirical foundation that would permit law-makers to conduct a more precise cost-benefit analysis of different policies

Reducing False Guilty Pleas and Wrongful Convictions through Exoneree Compensation

A great concern with plea-bargains is that they may induce innocent individuals to plead guilty to crimes they have not committed. In this article, we identify schemes that reduce the number of innocent-pleas without affecting guilty individuals' plea-bargain incentives. Large compensations for exonerees reduce expected costs associated with wrongful determinations of guilt in trial and thereby reduce the number of innocent-pleas. Any distortions in guilty individuals' incentives to take plea bargains caused by these compensations can be off-set by a small increase in the discounts offered for pleading guilty. Although there are many statutory reform proposals for increasing exoneration compensations, no one has yet noted this desirable separating effect of exoneree compensations. We argue that such reforms are likely to achieve this result without causing deterrence losses

Everything's Bigger in Texas: Except the Medmal Settlements

Recent work using Texas closed claim data finds that physicians are rarely required to use personal assets in medical malpractice settlements even when plaintiffs secure judgments above the physician's insurance limits. In equilibrium, this should lead physicians to purchase less insurance. Qualitative research on the behavior of plaintiffs suggests that there is a norm under which plaintiffs agree not to pursue personal assets as long as defendants are not grossly underinsured. This norm operates as a soft constraint on physicians. All other things equal, while physicians want to lower their coverage, they do not want to violate the norm and trigger an attack on their personal assets. This constraint should be less effective when physicians have other ways to shield their assets, such as through large personal bankruptcy exemptions like those available in Texas. Settlement data from the National Practitioner Data Bank indicate that settlements in Texas are abnormally low, just as they are in other jurisdictions with unlimited homestead exemptions in bankruptcy. Consistent with theory, we find that more generous exemptions are also associated with lower insurance prices and lower levels of insurance coverage. These results suggest that the large "haircuts" and low insurance limits observed in the Texas data may be driven by Texas's generous bankruptcy provisions. At a minimum, Texas is not generally representative of other jurisdictions. This weakens the case for extrapolating conclusions from Texas data to other jurisdictions

After Halliburton: Event Studies and Their Role in Federal Securities Fraud Litigation

Event studies have become increasingly important in securities fraud litigation after the Supreme Court’s decision in Halliburton II. Litigants have used event study methodology, which empirically analyzes the relationship between the disclosure of corporate information and the issuer’s stock price, to provide evidence in the evaluation of key elements of federal securities fraud, including materiality, reliance, causation, and damages. As the use of event studies grows and they increasingly serve a gatekeeping function in determining whether litigation will proceed beyond a preliminary stage, it will be critical for courts to use them correctly. This Article explores an array of considerations related to the use of event studies in securities fraud litigation. It starts by describing the basic function of the event study: to determine whether a highly unusual price movement has occurred and the traditional statistical approach to making that determination. The Article goes on to identify special features of securities fraud litigation that distinguish litigation from the scholarly context in which event studies were developed. The Article highlights the fact that the standard approach can lead to the wrong conclusion and describes the adjustments necessary to address the litigation context. We use the example of six dates in the Halliburton litigation to illustrate these points. Finally, the Article highlights the limitations of event studies – what they can and cannot prove – and explains how those limitations relate to the legal issues for which they are introduced. These limitations bear upon important normative questions about the role event studies should play in securities fraud litigation