Volume 74, Number 3

June 1999

Taking Behavioralism Seriously: The Problem of Market Manipulation

Jon D. Hanson, Douglas A. Kysar

In recent years, legal scholars dissatisfied with the behavioral assumptions of the rational actor model have increasingly turned to the findings of cognitive psychologists and decision theorists to enhance the accuracy of efficiency analysis. Jon Hanson and Douglas Kysar review those findings in this Article, concluding that scholars have been well justified in incorporating the behavioralist account of human behavior into law and economics. Nevertheless, Hanson and Kysar argue that those scholars simultaneously have failed to take the findings of behavioral research to their logical conclusion. Using the scholarly application of behavioralist insights to products liability theory as an example, the authors demonstrate that legal scholars thus far have treated cognitive anomalies as relatively fixed and independent influences on individual decisionmaking. Rather than such an exogenous analysis, Hanson and Kysar advocate an endogenous examination of behavioralist findings that allows for internal, dynamic effects of cognitive biases within the decisionmaking model. By recognizing that cognitive anomalies influence not only the behavior of biased decisionmakers but also the incentives of other economic actors, Hanson and Kysar reveal the possibility of market manipulation–that is, the possibility that market outcomes can be influenced, if not determined, by the ability of one actor to control the format of information, the framing and presentation of choices, and, more generally, the setting within which market transactions occur. Again using the field of products liability theory as an example, the authors argue that such market manipulation will come to characterize consumer product markets; powerful economic incentives will drive manufacturers to engage in practices that, whether consciously or not, utilize non-rational consumer tendencies to influence consumer preferences and perceptions for gain. The authors conclude by previewing the evidence from their companion article that demonstrates the seriousness of the problem of market manipulation and the need for corrective legal devices such as enterprise liability.

The Legal Infrastructure of High Technology Industrial Districts: Silicon Valley, Route 128, and Covenants Not To Compete

Ronald J. Gilson

In recent years, scholars and policymakers have rediscovered the concept of industrial districts–spatial concentrations of firms in the same industry or related industries. In this Article, Professor Gilson examines the relationship between high-technology industrial districts and legal infrastructure by comparing the legal regimes of California’s Silicon Valley and Massachusetts’s Route 128. He contends that legal rules governing employee mobility influence the dynamics of high technology industrial districts by either encouraging rapid employee movement between employers and to startups, as in Silicon Valley, or discouraging such movement, as in Route 128. Because California does not enforce post-employment covenants not to compete, high technology firms in Silicon Valley gain from knowledge spillovers between firms. These knowledge spillovers have allowed Silicon Valley firms to thrive while Route 128 firms have deteriorated. Professor Gilson concludes with three cautionary notes. First, the success of Silicon Valley firms suggests that per capita firm value will be greater where intellectual property protection is somewhat diluted, in contrast to tie traditional law and economics prescription that emphasizes full protection of intellectual property. Second, the doctrine of inevitable disclosure, as developed in recent trade secret cases, threatens to undermine the advantages conferred by California’s legal regime and should be considered with caution. Third, other regions may not be able to emulate California’s success simply by replicating its legal rules. Rather, policymakers in other states should consider the characteristics of local industries, weighing the advantages to those industries of knowledge spillovers against the reduced incentives for initial innovation that result from decreased employer intellectual property rights.


United States v. Chrysler: The Conflict Between Fair Warning and Adjudicative Retroactivity in D.C. Circuit Administrative Law

Kieran Ringgenberg

This Comment will analyze the fair warning rule in three Parts. Part I chronicles the Chrysler litigation. Part II summarizes the current state of the two competing doctrines of fair warning and retroactivity. Part III argues that the current articulation of the fair warning rule is overly broad in two ways. First, while the rule is rooted in due process, it now extends further than due process concerns warrant. The retroactivity rule, by contrast, more accurately balances the procedural concerns of regulated parties with the general public interest. Second, the overly broad fair warning rule creates perverse incentives for regulated parties and administrative agencies, incentives which ultimately call into question the rule’s efficacy at creating clear regulations and which hinder the efforts of agencies to pursue their statutory objectives effectively. The retroactivity rule, on the other hand, fosters cooperation between agencies and regulated parties by encouraging regulated parties to seek administrative clarifications of ambiguous regulations before disputes arise.

“If It Suffices To Accuse”: United States v. Watts and the Reassessment of Acquittals

Elizabeth E. Joh

This Comment tries to extract Watts from the context of statutory and constitutional interpretation and reread it as an inquiry into the meaning of acquittals in the current sentencing regime. Part I of this Comment places the enactment of the Guidelines into historical context and also looks at the limited ways in which the Supreme Court attempted to justify the practice sanctioned in Watts. Part II examines the legal justifications that might better explain the Court’s decision. Part III argues that even the best justifications offered for the Watts decision overlook the communicative effects of acquittals. Penal practices inevitably contribute to a social dialogue beyond the courtroom and the prison. This Comment argues that we should demand some coherence between social beliefs and sentencing decisions. Ultimately, Watts is problematic because it renders the acquittal verdict incoherent in a sentencing regime that many scholars and activists already find deeply unjust.


Compulsory Arbitration of Statutory Employment Disputes: Judicial Review Without Judicial Reformation

Monica J. Washington

This Note examines recent appellate cases and the policy rationale supporting increased judicial scrutiny of an arbitral decision. It contends that judicial review of an arbitral decision in a statutory employment dispute should be more rigorous than either statutory or common law currently permits. It further maintains that when broader judicial review proceeds within a clearly articulated framework, it may foster increased recourse to arbitration by ensuring an impartial forum for the vindication of statutory rights.

Assisted Reproduction and the Frustration of Genetic Affinity: Interest, Injury, and Damages

Fred Norton

The premise of this Note is that parents have an interest in having children with whom they share symbolically identifying traits, and that this interest is a significant motivation in the decision to use ART. Consequently, if fraud, negligence, or other breach of legal duty frustrates that interest, those parents suffer a cognizable injury–even when that breach of duty results in the birth of a healthy baby. Recognition of the injury, however, raises more questions than it resolves, not the least of which is the problem of damages: Assuming that parents in these cases have a cognizable claim, what would the remedy be? Since no court has confronted this question, this Note analogizes it to wrongful pregnancy caselaw, concluding that the balance of countervailing harms and benefits developed in those cases best redresses the contemplated injury.

When Speech Is Heard Around the World: Internet Content Regulation in the United States and Germany

John F. McGuire

The exponential growth of Internet use around the world has prompted many governments to implement regulation of undesirable online content. This Note examines attempts by the United States and Germany to regulate Internet content within their borders and analyzes the different and sometimes conflicting legal constraints that operate in both countries. Though western democracies with similar constitutional protection of free speech, the United States, with a focus on pornography, and Germany, with a focus on extremist political speech, disagree on what sorts of content should be regulated on the Internet. These divergent interests of two similar nations display the need for a decentralized system of regulation that is flexible enough to achieve domestic regulatory goals while avoiding rigid, governmentally dictated content control. This Note argues that a market-driven regulatory system combining an Internet ratings regime with screening software may provide the best method to achieve two goals: (1) internalization of domestic legal constraints in an Internet regulatory regime; and (2) preemption of more drastic legislative regulation that may be politically expedient in the United States, Germany, or elsewhere.