Downloadable Papers from Today’s Workshops:
University of Chicago, Law & Economics: Anup Malani, Accounting for Expectations About Law
A large number of empirical, law-related papers examine forward-looking behavior but estimate static or backward-looking regression models. Common among them are papers that examine the effect of a law, organizational form or other contracting behavior on sticky outcomes. Examples include papers that study the effect of employment or anti-discrimination law on hiring or the effect of corporate governance on firm value. In each case the outcome is a function of both current treatment and expectations of future treatment. Yet the vast majority of papers estimate treatment effects by regressing current behavior on, e.g., a current or lagged law. This approach suffers omitted variable bias because it omits future values of a law. Where the treatment variable is binary, e.g., whether a state has a particular law, the error attenuates estimates of permanent treatment effects because expectations lie between 0 and 1 whereas actual laws are typically coded as 0 or 1. This paper documents the failure to estimate forward looking models, describe the bias from this failure, offers a diagnostic test for forward looking behavior, and considers easily-implementable solutions to the problem. It applies these to data from Miles (2000) and finds that that paper overestimates the one-year effects of exceptions to the doctrine of employment-at-will on employment by more than one-half and under-estimates the permanent effects by more than one-third.
Georgetown: William Bratton, Shareholder Primacy’s Corporatists Origins: Adolf Berle and The Modern Corporation
Many corporate law discussants think of themselves as picking up where Adolf Berle and E. Merrick Dodd left off in a famous, precedent-setting debate in the 1930s. The generally accepted historical picture puts Berle in the position of the original ancestor of today’s shareholder primacy position while Dodd is cast as the original ancestor of today’s corporate social responsibility (CSR). This Article shows that both categorizations amount to mistaken readings of old material outside of its original context. The Article corrects the mistakes, offering new readings of some of corporate law’s fundamental texts, texts that recently reached their 75th anniversaries and include Berle’s famous book with Gardiner C. Means, The Modern Corporation and Private Property. Seventy-five years ago the normative issue of the day was the appropriate policy response to the crisis of the Great Depression. Both Berle and Dodd addressed the issue from a corporatist perspective which views the corporation as an entity that operates as an organ of the state and assumes social responsibilities. In so doing Berle took on the fundamental question “for whom is the corporation managed” at a time when the answer had crucial implications for social welfare. In answering the question, Berle articulated a political economy that integrated a theory of corporate law within a theory of social welfare maximization. It was a great accomplishment, but it was in a context very different from today’s debates about corporate management and responsibility. Accordingly, Berle was not advocating shareholder primacy as we understand it today. Nor is there a strong claim that Berle was a CSR advocate; he never did make the final jump of advocating reorganization of the legal firm as a social welfare maximizer. His unqualified statements on the subject all presupposed a strong regulatory state and a public consensus against a corporate profit maximand. Dodd does not present a clear picture either. Dodd’s Depression-era writing, once contextualized, offers only indirect support to today’s CSR advocates. He is most plausibly read as a managerialist, and social responsibility within management’s discretion is not what CSR tends to be about. The biggest lesson from this analysis is that the shareholder primacy school impairs its own position by making a claim on Berle.
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