Abstract

Administrative law judges’ (ALJs’) relative lack of formal independence has engendered worries that they give agencies a home-court advantage. We examine the 2010 Dodd-Frank Act, which allowed the Securities and Exchange Commission (SEC) to move cases into its administrative court. The problem with this policy experiment is that the SEC retains the discretion to bring cases in federal court, so it is impossible to identify which cases the policy treats. We propose a difference-in-differences design, using natural-language-processing methods to create control and treatment groups. We construct propensity scores using random-forest methods. After binning cases into likely or not likely to be affected by the courts’ expansion, the difference-in-differences estimation indicates that the expansion made defendants 30 percentage points more likely to settle and 36 percentage points more likely to receive a nonmonetary penalty. There is a 24-percentage-point reduction in the likelihood of a monetary penalty.

Abstract

The value of lawyers to their clients is notoriously difficult to estimate due to endogeneity. We utilize modifications to the collateral source (CS) rule that require reducing trial awards by the amount of payments from first-party insurance as an instrument for hiring a lawyer. The problem with our instrument is that modifications to the CS rule have a direct effect on recovery, and hence violate the exogeneity requirement for a valid instrument. We develop a new identification and estimation method that uses CS rule changes as an invalid instrument and bounds the impact of lawyers. We find that the upper and lower bounds of our estimated impact are lower than estimates that do not correct for endogeneity. Our estimates of the impact of lawyers on total payment are uniformly negative. The upper bound of the effect of hiring a lawyer on total payment received is -$26,000 after fees in our preferred specification, which suggests that even in the most optimistic scenario lawyers appear to reduce total recovery.

Summary

Free lunches are hard to turn down for a city staring into the fiscal abyss. As it faces dwindling revenues and the increased demand for public services that usually accompanies a recession, Philadelphia, like most other U.S. cities, is looking for new ways to make a buck. However, with unemployment above 10 percent and a fear of providing even more excuses for businesses and more-affluent residents to flee for the suburbs, the city is not inclined to hike income and property taxes.

Spurred by this bleak outlook, Mayor Michael Nutter, like politicians in New York, California, and a host of other places, has hit upon an ingenious idea. Given that, among its other problems, Philadelphia is wrestling with a growing obesity epidemic, why not kill two birds with one stone and tax sodas? While taxing cheesesteaks or Tastykakes might lead to protests up and down Broad Street, a few additional cents’ tax on each soda sold in the city holds the prospect of expanding the budget while trimming waistlines.

This double-dividend argument has been used before by public finance scholars in other contexts, from fossil fuels to alcohol. While almost all taxes are problematic because, in the process of raising revenues, they discourage a desirable activity, taxing “bad” activities supposedly generates cash flow while discouraging the underlying activity.

Barring some sort of last extension Medicare, Medicaid and SCHIP Extension Act (MMSEA) of 2007 will require all property casualty insurers to report all settlements, awards and judgments that involve a Medicare beneficiary to the Centers for Medicare and Medicaid Services. Essentially the MMSEA turns subrogation rules on their head by requiring the defendant to notify a third-party if the plaintiff might owe them money. Under subrogation rules a third-party insurer with an interest in a case, think a health insurer who wants to be reimbursed by a defendant for the injuries caused to the insurer’s beneficiary, would have to join the case which of course would require finding out about the case in the first place.

Read the full piece here. 

Today’s Wall Street Journal has an article tailor made for anyone wishing to defend free-markets from overreaching regulation. The story details the legal battle between the monks of St. Joseph Abbey in Louisiana with the Louisiana state funeral regulatory board.  As is typical with such boards, the Louisiana version is dominated by the industry. Of course this is just what Stigler would have predicted 40 years ago in his classic article on regulatory capture.  Two things struck me about the story however.  First is how the “captured” funeral board doesn’t even make a pretext of some sort of health or safety motivation for its actions.  In what might be the most honest statement ever made by a cartel member to a newspaper one of the monks’ competitors states…

Read the full piece here.