Volume 80, Number 3

How can groups elicit and aggregate the information held by their individual members? There are three possibilities. Groups might use the statistical mean of individual judgments; they might encourage deliberation; or they might use information markets. In both private and public institutions, deliberation is the standard way of proceeding; but for two reasons, deliberating groups often fail to make good decisions. First, the statements and acts of some group members convey relevant information, and that information often leads other people not to disclose what they know. Second, social pressures, imposed by some group members, often lead other group members to silence themselves because of fear of disapproval and associated harms. As a result, deliberation often produces a series of unfortunate results: the amplification of errors, hidden profiles, cascade effects, and group polarization. A variety of steps can be taken to ensure that deliberating groups obtain the information held by their members; restructuring private incentives, in a way that increases disclosure, is the place to start. Information markets have substantial advantages over group deliberation; such markets count among the most intriguing institutional innovations of the last quarter-century and should be used far more frequently than they now are. One advantage of information markets is that they tend to correct, rather than to amplify, the effects of individual errors. Another advantage is that they create powerful incentives to disclose, rather than to conceal, privately held information. Information markets thus provide the basis for a Hayekian critique of many current celebrations of political deliberation. They also provide a valuable heuristic for understanding how to make deliberation work better. These points bear on the discussion of normative issues, in which deliberation might also fail to improve group thinking, and in which identifiable reforms could produce better outcomes. Applications include the behavior of juries, multimember judicial panels, administrative agencies, and congressional committees; analogies, also involving information aggregation, include open source software, Internet “wikis,” and weblogs.

Ecosystem services are created by the interactions of living organisms with their environment, and they support our society by providing clean air and water, decomposing waste, pollinating flowers, regulating climate, and supplying a host of other benefits. Yet, with rare exception, ecosystem services are neither prized by markets nor explicitly protected by the law. In recent years, an increasing number of initiatives around the world have sought to create markets for services, some dependent on government intervention and some created by entirely private ventures. These experiences have demonstrated that investing in natural capital rather than built capital can make both economic and policy sense. Informed by the author’s recent experiences establishing a market for water quality in Australia, this Article examines the challenges and opportunities of an ecosystem services approach to environmental protection. This Article reviews the range of current payment schemes and identifies the key requirements for instrument design. Building off these insights, the piece then examines the fundamental policy challenge of payments for environmental improvements. Despite their poor reputation among policy analysts as wasteful or inefficient subsidies, payment schemes are found throughout environmental law and policy, both in the U.S. and abroad. This Article takes such payments seriously, demonstrating that they should be favored over the more traditional regulatory and tax-based approaches in far more settings than commonly assumed.

The canonical law and economics view holds that corporate managers do and should have a duty to profit-maximize because such conduct is socially efficient given that general legal sanctions do or can redress any harm that corporate or noncorporate businesses inflict on others. Professor Elhauge argues that this canonical view is mistaken both descriptively and normatively. In fact, the law gives corporate managers considerable implicit and explicit discretion to sacrifice profits in the public interest. They would have such discretion even if the law pursued the normative goal of corporate profit-maximization because minimizing total agency costs requires giving managers a business judgment rule deference that necessarily confers such profit sacrificing discretion. Nor is corporate profit-maximization a socially efficient goal because even optimal legal sanctions are necessarily imperfect and require supplementation by social and moral sanctions to fully optimize conduct. Accordingly, pure profit-maximization would worsen corporate conduct by overriding these social and moral sanctions. In addition to being socially inefficient, pure profit-maximization would harm shareholder welfare whenever shareholders value the incremental profits less than avoiding social and moral sanctions. For companies with a controlling shareholder, that shareholder is exposed to social and moral sanctions and has incentives to act on them, and thus controlling shareholders are well-placed to decide when to sacrifice corporate profits in the public interest. In contrast, the structure of large publicly-held corporations insulates dispersed shareholders from social and moral sanctions and creates collective action obstacles to acting on any social or moral impulses they do feel. Thus, in public corporations, optimizing corporate conduct requires giving managers some operational discretion to sacrifice profits in the public interest even without shareholder approval because, unlike shareholders, managers are sufficiently exposed to social and moral sanctions. Managerial incentives toward excessive generosity are constrained by various market forces, which generally mean that any managerial decision to sacrifice profits in the public interest substitutes for more self-interested profit sacrificing exercises of agency slack. Managerial discretion to sacrifice profits is further constrained by legal limits on the amount of profit sacrificing, which become much tighter when market constraints are inoperable because of last-period problems. Managers should have donative discretion because courts cannot distinguish profit-enhancing donations from profit sacrificing ones, because shareholders are insulated from the social and moral processes that desirably generate the special donative impulses that arise from running business operations, and because otherwise managers would often inefficiently substitute more costly operational profit sacrificing decisions to avoid social and moral sanctions. This explains the legal requirement that corporate donations have a nexus to corporate operations. Antitakeover laws can partly be explained as necessary to preserve sufficient managerial discretion to consider social and moral norms.

A court’s method of decisionmaking regarding interstate choice of law affects forum shopping and class action strategy. Rather than read vaguely worded state statutes with the expectation of discovering a legislative intent with respect to extraterritorial application, as the Restatement (Second) of Conflict of Laws suggests, courts should employ a rebuttable presumption that the legislature has not considered the choice of law issue. When a court is faced with an interstate choice of law question in which one potentially applicable law is a statute of the forum state, in the absence of explicit statutory language regarding how a choice of law analysis should be conducted for the forum statute in question, the court should decide which law to apply not by attempting to divine some nonexistent legislative intent but by resorting to the general choice of law principles utilized in the forum state.