Why the Law Hates Speculators: Regulation and Private Ordering in the Market for OTC Derivatives

A wide variety of statutory and common law doctrines in American law evidence hostility towards speculation. Conventional economic theory, however, generally views speculation as an efficient form of trading that shifts risk to those who can bear it most easily and improves the accuracy of market prices. This Article reconciles the apparent conflict between legal tradition and economic theory by explaining why some forms of speculative trading may be inefficient. It presents a heterogeneous expectations model of speculative trading that offers important insights into antispeculation laws in general, and the ongoing debate concerning over-the-counter (OTC) derivatives in particular. Although trading in OTC derivatives is presently largely unregulated, the Commodity Futures Trading Commission recently announced its intention to consider substantively regulating OTC derivatives under the Commodity Exchange Act (CEA). Because the CEA is at heart an antispeculation law, the heterogeneous expectations model of speculation offers policy support for the CFTC\u27s claim of regulatory jurisdiction. This model also, however, suggests an alternative to the apparently binary choice now available to lawmakers (i. e., either regulate OTC derivatives under the CEA, or exempt them). That alternative would be to regulate OTC derivatives in the same manner that the common law traditionally regulated speculative contracts: as permitted, but legally unenforceable, agreements. By requiring derivatives traders to rely on private ordering to ensure the performance of their agreements, this strategy may offer significant advantages in discouraging welfare-reducing speculation based on heterogeneous expectations while protecting more beneficial forms of derivatives trading

The Evolution of Antitrust Doctrine After \u3ci\u3eOhio v. Amex\u3c/i\u3e and the \u3ci\u3eApple v. Pepper\u3c/i\u3e Decision That Should Have Been

If the Supreme Court’s recent decision in Apple Inc. v. Pepper (Apple) had hewed to the precedent established by Ohio v. American Express Co. (Amex), it would have begun its antitrust inquiry with the observation that the relevant market for the provision of app services is an integrated one, in which the overall effect of Apple’s conduct on both app users and app developers must be evaluated. A crucial implication of the Amex decision is that participants on both sides of a transactional platform are part of the same relevant market, and the terms of their relationship to the platform are inextricably intertwined. We believe the Amex Court was correct in deciding that effects falling on the “other” side of a tightly integrated, two-sided market from challenged conduct must be addressed by the plaintiff in making its prima facie case. But that outcome entails a market definition that places both sides of such a market in the same relevant market for antitrust analysis. As a result, the Amex Court’s holding should also have required a finding in Apple that an app user on one side of the platform who transacts with an app developer on the other side of the market, in a transaction made possible and directly intermediated by Apple’s App Store, is similarly deemed to be in the same market for standing purposes. Under the proper conception of the market, it is difficult to maintain that either side does not have standing to sue the platform for alleged anticompetitive conduct relating to the terms of its overall pricing structure, whether the specific terms at issue apply directly to that side or not. Both end users and app developers are “direct” purchasers from Apple—of superficially different products, but in a single, inextricably interrelated market. Both groups should have standing and should be able to establish antitrust injury—harm to competition—by showing harm to either group, as long as they can establish the requisite interrelatedness of the two sides of the market. As we discuss, such a result would have been consistent with the way antitrust doctrine has long evolved—in both its substantive and its procedural aspects—to reflect new economic knowledge, particularly with respect to such “nonstandard” business models. I. Introduction ... A. Ohio v. American Express Co. and Apple Inc. v. Pepper: A Failure of Antitrust Doctrinal Evolution II. The Nexus Between Procedure and Substance in Antitrust Law ... A. Quick Look and the Evolution of the Standards of Antitrust Review ... B. The Interplay of Procedure and Substance in the Doctrines of Antitrust Standing ... 1. Antitrust Injury and Antitrust Standing ... 2. The Indirect Purchaser Doctrine III. Nonstandard Contracts and Antitrust Doctrine: Accommodating the Economics of Two-Sided Markets in Antitrust Procedure ... A. The Basic Economics of Two-Sided Markets ... B. Amex, Market Definition, and Effects Analysis ... 1. Implications for the Consideration of “Out-of-Market” Effects ... C. The Relationship Between Market Definition and Standing IV. The Court’s Failure to Incorporate the Economics of Two-Sided Markets in Its Apple Inc. v. Pepper Decision ... A. Campos v. Ticketmaster and the Error of Doctrinal Formalism ... 1. The Consequences of the Formalistic Application of Illinois Brick to New Business Models V. What the Proper Procedural Analysis in Apple Inc. v. Pepper Would Have Looked Like ... A. Procedure Does Not Determine Substantive Outcomes VI. Conclusio

Investigation of the Quantitative Determination of Point and Areal Precipitation by Radar Echo Measurements: Fourth Quarterly Technical Report

published or submitted for publicationis peer reviewedOpe

A law of the iterated logarithm sublinear expectations

In this paper, motivated by the notion of independent identically distributed (IID) random variables under sub-linear expectations initiated by Peng, we investigate a law of the iterated logarithm for capacities. It turns out that our theorem is a natural extension of the Kolmogorov and the Hartman-Wintner laws of the iterated logarithm

Size and complexity as stimulus characteristics effecting choice behaviors on a learning task in young children

Includes bibliographical references.The study examines the effects of the qualitative factors size and complexity of stimulus objects on preschool and first grade children on a learning task. Choice behavior is looked at with regards to initial choice (with the eyes) and final choice (with the hands). Other variables included in the analysis are long-term novelty and proportion of looks towards the rewarded object as a function of positive (choosing the rewarded object) and negative (choosing the unrewarded) choice outcomes. The results showed that first grade children are better at utilizing stimulus characteristics to aid their choice behavior, and further, that the specific levels of the characteristics studied that are attended to are high complexity and large size, as well as high long-term novelty

Risk, Speculation, and OTC Derivatives: An Inaugural Essay for Convivium

Speculative trading, including speculative trading in derivatives, is often claimed to provide social benefits by decreasing risk and improving the accuracy of market prices. This assumption overlooks the possibility that speculation can be driven not just by differences in traders\u27 risk aversion and information investments, but also by differences in traders\u27 subjective expectations. Disagreement-based speculation erodes traders\u27 returns, increases traders\u27 risks, and can distort market prices. There is reason to believe that by 2008, the market for OTC derivatives may have been dominated by disagreement-based speculation that contributed to the Fall 2008 credit crisis

Share Price as a Poor Criterion for Good Corporate Law

Academics, reformers, and business leaders all yearn for a single, objective, easy-to-read measure of corporate performance that can be used to judge the quality of public corporation law and practice. This collective desire is so powerful that it has led many commentators to grab onto the first marginally plausible candidate: share price. Contemporary economic and corporate theory, as well as recent business history, nevertheless warn us against unthinking acceptance of share price as a measure of corporate performance. This Essay offers a brief reminder of some of the many reasons why stock prices often fail to reflect true corporate performance, including the problem of private information; obstacles to effective arbitrage; investors\u27 cognitive defects and biases; options theory and the problem of multiple residual claimants; and the problem of corporate spillover effects that erode diversified shareholders\u27 returns. These considerations argue against assuming there is a tight connection between stock prices and underlying corporate wealth generation. A corporation or a corporate law system designed around the philosophy that anything that raises share price is good is likely to produce a firm that cooks its books; that avoids long-term projects that won\u27t appeal to unsophisticated investors; that chases after investment fads and fancies; that tries to opportunistically exploit creditors, employees, and customers; and that pursues business strategies that harm its diversified shareholders\u27 other investment interests. The Essay concludes that, if we allow our desire for a universal performance measure to blind us to the fallibility of share price, we court costly error. The Essay examines three recent examples of just such erroneous triumphs of hope over experience: the rise and fall of the Revlon doctrine; the 1990s infatuation with options-based executive compensation; and academics\u27 current preoccupation with event studies, regressions on Tobin\u27s Q, and other forms of empirical scholarship that attempt to judge the quality of corporate law and practice according to changes in share price

Killing Conscience: The Unintended Behavioral Consequences of Pay for Performance

Contemporary lawmakers and reformers often argue that ex ante incentive contracts providing for large material rewards are the best and possibly only way to motivate corporate executives and other employees to serve their firms\u27 interests. This Article offers a critique of the pay for performance approach. In particular, it explores why, for a variety of mutually reinforcing reasons, workplaces that rely on ex ante incentive contracts suppress unselfish prosocial behavior (conscience) and promote selfishness and opportunism. The end result may not be more efficient, but more uncooperative, unethical, and illegal employee behavior