Showing papers in "Journal of Legal Analysis in 2021"

Shining a Light on Dark Patterns

Abstract: Dark patterns are user interfaces whose designers knowingly confuse users, make it difficult for users to express their actual preferences, or manipulate users into taking certain actions. They typically exploit cognitive biases and prompt online consumers to purchase goods and services that they do not want, or to reveal personal information they would prefer not to disclose. Research by computer scientists suggests that dark patterns have proliferated in recent years, but there is no scholarship that examines dark patterns’ effectiveness in bending consumers to their designers’ will. This article provides the first public evidence of the power of dark patterns. It discusses the results of the authors’ large-scale experiment in which a representative sample of American consumers were randomly assigned to a control group, a group that was exposed to mild dark patterns, or a group that was exposed to aggressive dark patterns. All groups were told they had been automatically enrolled in an identity theft protection plan, and the experimental manipulation varied what acts were necessary for consumers to decline the plan. Users in the mild dark pattern condition were more than twice as likely to remain enrolled as those assigned to the control group, and users in the aggressive dark pattern condition were almost four times as likely to remain enrolled in the program. There were two other striking findings. First, whereas aggressive dark patterns generated a powerful backlash among consumers, mild dark patterns did not – suggesting that firms employing them generate substantial profits. Second, less educated subjects were significantly more susceptible to mild dark patterns than their well-educated counterparts. Both findings suggest that there is a particularly powerful case for legal interventions to curtail the use of mild dark patterns. The article concludes by examining legal frameworks for ameliorating the dark patterns problem. Many dark patterns appear to violate federal and state laws restricting the use of unfair and deceptive practices in trade. Moreover, in those instances where consumers enter into contracts after being exposed to dark patterns, their consent could be deemed voidable under contract law principles. The article proposes a quantitative bright-line rule for identifying impermissible dark patterns. Dark patterns are presumably proliferating because firms’ secret and proprietary A-B testing has revealed them to be profit maximizing. We show how similar A-B testing can be used to identify those dark patterns that are so manipulative that they ought to be deemed unlawful.

Drawing the Legal Family Tree: An Empirical Comparative Study of 170 Dimensions of Property Law in 129 Jurisdictions

Abstract: Traditional comparative private law scholars have a firm grasp of laws in several countries, but rarely of those in more than one hundred countries Quantitative comparative private law scholars have placed dozens of countries into a legal family genealogy, but not based on a systematic understanding of legal substance around the world Using a unique, hand-coded data set on 108 property doctrines (transformed into 170 binary variables) in 129 jurisdictions, we ran supervised and unsupervised machine-learning algorithms Some of our findings confirm the conventional wisdom: French and German property laws are influential; mixed jurisdictions like South Africa and Scotland are one of a kind; common law jurisdictions form a group of their own; and a handful of formerly socialist countries, led by Russia, cluster together Unlike the prior literature, however, we do not find that East Asian jurisdictions warrant a category of their own; but belong to distant groups Spain and many Latin American countries form a separate group Rather than finding a clear-cut common versus civil law division, we observe that the France-inspired group is one supercluster, separate from other jurisdictions

Reassessing the Legislative Veto: The Statutory President, Foreign Affairs, and Congressional Workarounds

Abstract: There have long been complaints about the growth of presidential power. These complaints intensified during the Trump administration, and there are now calls for a host of separation-of-powers reforms designed to restore congressional authority. As some advocates for reform recognize, many of the controversial actions that presidents take are based on statutory authorization. For example, the Trump administration’s “travel ban,” its re-imposition of sanctions against Iran, and its shifting of funds to be used to construct the southern border wall were all based, at least principally, on statutory delegations rather than on claims of independent presidential authority. A chief reason that the President is insufficiently constrained when exercising such statutorily-delegated power, it is claimed, is the Supreme Court’s disallowance of legislative vetoes in its decision in INS v. Chadha, a claim that intensified during the Trump administration. This Article challenges this account, arguing that the availability of the legislative veto was less important before Chadha to congressional-executive relations than legal scholars commonly assume, and that, to the extent that the legislative veto was (or would have become) important for checking some exercises of statutorily-delegated authority, Congress has developed a host of effective workarounds in the years since Chadha. It illustrates this claim with case studies concerning war powers, arms sales, and emergency declarations. The Article also argues that the functional case for allowing legislative vetoes is more debatable than many critics of Chadha have acknowledged.

The Governance of Foundation-Owned Firms

Abstract: Despite the extensive attention paid to corporate governance in the literature of both law and economics in recent years, empirical work to date has largely failed to establish a link between formal governance structures and economic performance. In this paper, we explore the relationship between corporate governance structures and economic performance in a setting that is, in important respects, more favorable than the publicly-traded U.S. business corporations that are the typical focus of previous research. We work with a rich data set comprising 121 Danish industrial foundations, which are industrial companies controlled by autonomous nonprofit foundations. These industrial foundations have several important advantages as subjects of study. First, by conventional measures, the industrial companies perform, on average, as efficiently as their investor-owned counterparts – a remarkable fact, given their ownership structure. Second, because the management of the companies is ultimately in the hands of a self-perpetuating board of directors that is free of control by outside owners, the impact of the firm’s internal governance structure on managerial decision-making, and hence on company performance, should be both more intense and more easily isolated than in conventional investor-owned firms. Third, the industrial foundations display broader variance in internal governance structures than do U.S. business corporations. We focus in particular on a composite structural factor we term “managerial distance.” We interpret this as a measure of the clarity and objectivity with which a firm’s top managers are induced to focus on the operating company’s profitability. More particularly, managerial distance seems best interpreted as a factor, or aggregate of component factors, that put the firm's top managers in the position of “virtual owners,” in the sense that the information and decisions facing the managers are framed for them in roughly the way they would be framed for true owners of the firm. Our empirical analysis shows a positive, significant, and robust association between managerial distance and company economic performance. The findings appear to illuminate not just foundation governance, but corporate governance more generally.

Judges in the Lab: No Precedent Effects, No Common/Civil Law Differences

Abstract: In our lab, 299 real judges from seven major jurisdictions (Argentina, Brazil, China, France, Germany, India, USA) spend up to 55 minutes to judge an international criminal appeals case and determine the appropriate prison sentence. The lab computer (1) logs their use of the documents (briefs, statement of facts, trial judgment, statute, precedent), and (2) randomly assigns each judge (i) a horizontal precedent disfavoring, favoring, or strongly favoring defendant, (ii) a sympathetic or an unsympathetic defendant, and (iii) a short, medium, or long sentence anchor. Document use and written reasons differ between countries but not between common and civil law. Precedent effect is barely detectable and estimated to be less, and bounded to be not much greater, than that of legally irrelevant defendant attributes and sentence anchors.

The Law and Economics of “Forced” Technology Transfer and Its Implications for Trade and Investment Policy (and the U.S.–China Trade War)

Abstract: “Forced technology transfer” is a central issue in the ongoing U.S.–China trade row. The phrase encompasses a number of different practices, but the most significant according to various commentators involve measures that require foreign investors in China to partner with domestic entities as a condition of making an investment, either by forming a joint venture or affording Chinese investors a controlling equity stake. These “corporate structure requirements” empower prospective Chinese partners to bargain for technology transfer as a condition of forming a new venture or otherwise enable them to learn the details of foreign technology through participation in the business enterprise. Foreign investors are free to reject such requirements and forego the associated investment opportunities, and in this sense any technology transfer pursuant to China’s requirements is “consensual.” For ease of reference, this essay refers to these corporate structure requirements as CSR. The analysis to follow examines the economics of CSR from both the national and global welfare perspectives. It indicates how CSR may undercut the national welfare of the USA even if it is profitable for U.S. investors. The global welfare implications of CSR, however, are much less clear, which offers an explanation for the absence of any constraints on CSR in typical trade agreements. A clear role for restrictions on CSR does emerge, however, in investment agreements that seek to eliminate investment protectionism by requiring “pre-establishment national treatment” for foreign investors. This analysis has immediate policy implications for the ongoing trade dispute with China.

Machine Advice with a Warning about Machine Limitations: Experimentally Testing the Solution Mandated by the Wisconsin Supreme Court

Abstract: The Wisconsin Supreme Court allows machine advice in the courtroom only if accompanied by a series of warnings. We test 878 US lay participants with jury experience on fifty past cases where we know ground truth. The warnings affect their estimates of the likelihood of recidivism and their confidence, but not their decision whether to grant bail. Participants do not get better at identifying defendants who recidivated during the next two years. Results are essentially the same if participants are warned in easily accessible language, and if they are additionally informed about the low accuracy of machine predictions. The decision to grant bail is also unaffected by the warnings mandated by the Supreme Court if participants do not first decide without knowing the machine prediction. Oversampling cases where defendants committed violent crime does not change results either, whether coupled with machine predictions for general or for violent crime. Giving participants feedback and incentivizing them for finding ground truth has a small, weakly significant effect. The effect becomes significant at conventional levels when additionally using strong graphical warnings. Then participants are less likely to follow the advice. But the effect is counterproductive: they follow the advice less if it actually is closer to ground truth.

The Best of Both Worlds: Compensation via Price-Caps for Passed-On Overcharges

Abstract: We present a market-based compensation approach to antitrust litigation and other cases of price overcharges. Instead of lump-sum compensation, paid either directly or through coupons, defendants are required to lower their prices for a certain designated period, i.e. price-cap compensation (PCC). We show why previous criticism of PCC was misguided. And, in sharp contrast to the common view in the literature, implementing PCC may have many substantive and procedural advantages. Importantly, although PCC is implemented vis-a-vis direct purchasers only, it reconciles the U.S. and European Union legal approaches and solves the challenge of passed-on damages to indirect purchasers.

Democratizing the Senate from Within

Abstract: This article proposes that the U.S. Senate adopt a “popular-majoritarian cloture rule,” under which a motion to close debate and proceed to a final vote would carry if but only if supported by a majority of Senators who collectively represent a larger share of the population than those Senators in opposition. This rule, which would be a constitutional exercise of the Senate’s power to set the rules of its proceedings, would make the body more democratic and more functional, and would be preferable both to the current filibuster rule and to simple majority rule.

Distributing Attorney Fees in Multidistrict Litigation

Abstract: As consolidated multidistrict litigation (MDL) has come to dominate the federal civil docket, the problem of how to divide attorney fees among participating firms has become the source of frequent and protracted litigation. For example, in the NFL Concussion Litigation, the judge awarded the plaintiff attorneys over $100 million in fees, but the division of those fees among the 26 firms involved sparked two additional years of litigation. In this Essay, we explore solutions to this fee division problem, drawing insights from the economics, game theory, and industrial organization literatures. Ultimately, we propose a novel division method based on peer reports. Participating firms assess the relative contribution of other firms to the litigation, and then optimization or Bayesian techniques arrive at a consensus or compromise fee allocation. Our methods are intuitively easy to understand, enable broad participation, and are resistant to collusion or other strategic behavior, making them likely to be accepted by the firms involved. Our Essay thus provides courts with an important mediation tool or decision rule for these fee division disputes.

The Behavioral Elasticity of Tax Revenue

Abstract: This article presents a refined measure of the efficiency consequences of tax policies and explains how this measure sheds light on a wide range of tax law debates. We build upon the “elasticity of taxable income” approach pioneered by public finance scholars over the last quarter century and a number of extensions of that approach developed in recent years. The resulting measure—the behavioral elasticity of tax revenue, or BETR—captures the change in real resources available to society caused by any marginal change in tax rates, the tax base, or tax enforcement. We illustrate the BETR’s utility by applying it to questions such as the proper treatment of mixed personal/business expenses and the optimal mix of audits, reporting requirements, and penalties. We also consider the relationship between the BETR and the distributional aims of tax law. While the BETR is a measure of efficiency and not distribution, the BETR can aid policymakers in deciding both how much to redistribute and how to accomplish distributional objectives most efficiently. We end with reflections on the implications of the BETR for the design of non-tax legal rules.