Archives For scholarship

In a response to my essay, The Trespass Fallacy in Patent Law, in which I explain why patent scholars like Michael Meurer, James Bessen, T.J. Chiang and others are committing the nirvana fallacy in their critiques of the patent system, my colleague, T.J. Chiang writes at PrawfsBlawg:

The Nirvana fallacy, at least as I understand it, is to compare an imperfect existing arrangement (such as the existing patent system) to a hypothetical idealized system. But the people comparing the patent system to real property—and I count myself among them—are not comparing it to an idealized fictional system, whether conceptualized as land boundaries or as estate boundaries. We are saying that, based on our everyday experiences, the real property system seems to work reasonably well because we don’t feel too uncertain about our real property rights and don’t get into too many disputes with our neighbors. This is admittedly a loose intuition, but it is not an idealization in the sense of using a fictional baseline. It is the same as saying that the patent system seems to work reasonably well because we see a lot of new technology in our everyday experience.

I would like to make two quick points in response to T.J.’s attempt at wiggling out from serving as one of the examples I identify in my essay as a patent scholar who uses trespass doctrine in a way that reflects the nirvana fallacy.

First, what T.J. describes as what he is doing — comparing an actual institutional system to a “loose intuition” about another institutional system — is exactly what Harold Demsetz identified as the nirvana fallacy (when he roughly coined the term in 1969).  When economists or legal scholars commit the nirvana fallacy, they always justify their idealized counterfactual standard by appeal to some intuition or gestalt sense of the world; in fact, Demsetz’s example of the nirvana fallacy is when economists have a loose intuition that regulation always works perfectly to fix market failures.  These economists do this for the simple reason that they’re social scientists, and so they have to make their critiques seem practical.

It’s like the infamous statement by Pauline Kael in 1972 (quoting from memory): “I can’t believe Nixon won, because I don’t know anyone who voted for him.” Similarly, what patent scholars like T.J. are doing is saying: “I can’t believe that trespass isn’t clear and efficient, because I don’t know anyone who has been involved in a trespass lawsuit or I don’t hear of any serious trespass lawsuits.”  Economists or legal scholars always have some anecdotal evidence — either personal experiences or merely an impressionistic intuition about other people — to offer as support for their counterfactual by which they’re evaluating (and criticizing) the actual facts of the world. The question is whether such an idealized counterfactual is a valid empirical metric or not; of course, it is not.  To do this is exactly what Demsetz criticized as the nirvana fallacy.

Ultimately, no social scientist or legal scholar ever commits the “nirvana fallacy” as T.J. has defined it in his blog posting, and this leads to my second point.  The best way to test T.J.’s definition is to ask: Does anyone know a single lawyer, legal scholar or economist who has committed the “nirvana fallacy” as defined by T.J.?  What economist or lawyer appeals to a completely imaginary “fictional baseline” as the standard for evaluating a real-world institution?

The answer to this question is obvious.  In fact, when I posited this exact question to T.J. in an exchange we had before he made his blog posting, he could not answer it.  The reason why he couldn’t answer it is because no one says in legal scholarship or in economic scholarship: “I have a completely made-up, imaginary ‘fictionalized’ world to which I’m going to compare to a real-world institution or legal doctrine.”  This is certainly is not the meaning of the nirvana fallacy, and I’m fairly sure Demsetz would be surprised to learn that he identified a fallacy that according to T.J. has never been committed by a single economist or legal scholar. Ever.

In sum, what T.J. describes in his blog posting — using a “loose intuition” of an institution an empirical standard for critiquing the operation of another institution — is the nirvana fallacy. Philosophers may posit completely imaginary and fictionalized baselines — it’s what they call “other worlds” — but that is not what social scientists and legal scholars do.  Demsetz was not talking about philosophers when he identified the nirvana fallacy.  Rather, he was talking about exactly what T.J. admits he does in his blog posting (and which he has done in his scholarship).

Thank you to Josh for inviting me to guest blog on Truth on the Market.  As my first blog posting, I thought TOTM readers would enjoy reading about my latest paper that I posted to SSRN, which has been getting some attention in the blogosphere (see here and here).  It’s a short, 17-page essay — see, it is possible that law professors can write short articles — called, The Trespass Fallacy in Patent Law.

This essay responds to the widely-heard cries today that the patent system is broken, as expressed in the popular press and by tech commentators, legal academics, lawyers, judges, congresspersons and just about everyone else.  The $1 billion verdict issued this past Friday against Samsung in Apple’s patent infringement lawsuit, hasn’t changed anything. (If anything, Judge Richard Posner finds the whole “smart phone war” to be Exhibit One in the indisputable case that the patent system is broken.)

Although there are many reasons why people think the patent system is systemically broken, one common refrain is that patents fail as property rights because patent infringement doctrine is not as clear, determinate and efficient as trespass doctrine is for real estate. Thus, the explicit standard that is invoked to justify why we must fix patent boundaries — or the patent system more generally — is that the patent system does not work as clearly and efficiently as fences and trespass doctrine do in real property. As Michael Meurer and James Bessen explicitly state in their book, Patent Failure: “An ideal patent system features rights that are defined as clearly as the fence around a piece of land.”

My essay explains that this is a fallacious argument, suffering both empirical and logical failings. Empirically, there are no formal studies of how trespass functions in litigation; thus, complaints about the patent system’s indeterminacy are based solely on an idealized theory of how trespass should function.  Often times, patent scholars, like my colleague, T.J. Chiang, just simply assert without any supporting evidence whatsoever that fences are “crystal clear” and thus there are “stable boundaries” for real estate; T.J. thus concludes that the patent system is working inefficiently and needs to be reformed (as captured in the very title of his article, Fixing Patent Boundaries). The variability in patent claim construction, asserts T.J. is tantamount to “the fence on your land . . . constantly moving in random directions. . . . Because patent claims are easily changed, they serve as poor boundaries, undermining the patent system for everyone.”

Other times, this idealized theory about trespass is given some credence by appeals to loose impressions or a gestalt of how trespass works, or there are appeals to anecdotes and personal stories about how well trespass functions in the real world. Bessen and Meurer do this in their book, Patent Failure, where they back up their claim that trespass is clear with a search they apparently did on Westlaw of innocent trespass cases in California in a 3-year period. Either way, assertions backed by intuitions or a few anecdotal cases cannot serve as an empirical standard by which one makes a systemic evaluation that we should shift to anther institutional arrangement because the current one is operating inefficiently. In short, the trespass standard represents the nirvana fallacy.

Even more important, anecdotal evidence and related studies suggest that trespass and other boundary disputes between landowners are neither as clear nor as determinate as patent scholars assume them to be (something I briefly summarize on in my essay and call for more empirical studies to be done).

Logically, the comparison of patent boundaries to trespass commits what philosophers would call a category mistake. It conflates the boundaries of an entire legal right (a patent), not with the boundaries of its conceptual counterpart (real estate), but rather with a single doctrine (trespass) that secures real estate only in a single dimension (geographic boundaries). As all 1Ls learn in their Property courses, real estate is not land. Accordingly, estate boundaries are defined along the dimensions of time, use and space, as represented in myriad doctrines like easements, nuisance, restrictive covenants, and future interests, among others. In fact, the overlapping possessory and use rights shared by owners of joint tenancies or by owners of possessory estates with overlapping future interests share many conceptual and doctrinal similarities to the overlapping rights that patent-owners may have over a single product in the marketplace (like a smart phone).  In short, the proper conceptual analog for patent boundaries is estate boundaries, not fences.

In sum, the trespass fallacy is driving an indeterminacy critique in patent law that is both empirically unverified and conceptually misleading, and check out my essay for much more evidence and more in-depth explanation of why this is the case.

My former student and recent George Mason Law graduate (and co-author, here) Angela Diveley has posted Clarifying State Action Immunity Under the Antitrust Laws: FTC v. Phoebe Putney Health System, Inc.  It is a look at the state action doctrine and the Supreme Court’s next chance to grapple with it in Phoebe Putney.  here is the abstract:

The tension between federalism and national competition policy has come to a head. The state action doctrine finds its basis in principles of federalism, permitting states to replace free competition with alternative regulatory regimes they believe better serve the public interest. Public restraints have a unique ability to undermine the regime of free competition that provides the basis of U.S.- and state-commerce policies. Nevertheless, preservation of federalism remains an important rationale for protecting such restraints. The doctrine has elusive contours, however, which have given rise to circuit splits and overbroad application that threatens to subvert the state action doctrine’s dual goals of federalism and competition. The recent Eleventh Circuit decision in FTC v. Phoebe Putney Health System, Inc. epitomizes the concerns associated with misapplication of state action immunity. The U.S. Supreme Court recently granted the FTC’s petition for certiorari and now has the opportunity to more clearly define the contours of the doctrine. In Phoebe Putney, the FTC has challenged a merger it claims is the product of a sham transaction, an allegation certain to test the boundaries of the state action doctrine and implicate the interpretation of a two-pronged test designed to determine whether consumer welfare-reducing conduct taken pursuant to purported state authorization is immune from antitrust challenge. The FTC’s petition for writ of certiorari raises two issues for review. First, it presents the question concerning the appropriate interpretation of foreseeability of anticompetitive conduct. Second, the FTC presents the question whether a passive supervisory role on the state’s part can be construed as state action or whether its approval of the merger was a sham. In this paper, I seek to explicate the areas in which the state action doctrine needs clarification and to predict how the Court will decide the case in light of precedent and the principles underlying the doctrine.

Go read the whole thing.

HT: Danny Sokol.

TOP 10 Papers for Journal of Antitrust: Antitrust Law & Policy eJournal June 4, 2012 to August 3, 2012.

Rank Downloads Paper Title
1 244 The Antitrust/Consumer Protection Paradox: Two Policies at War with Each Other 
Joshua D. Wright,
George Mason University – School of Law, Faculty,
Date posted to database: May 31, 2012
Last Revised: May 31, 2012
2 237 Cartels, Corporate Compliance and What Practitioners Really Think About Enforcement 
D. Daniel Sokol,
University of Florida – Levin College of Law,
Date posted to database: June 7, 2012
Last Revised: July 16, 2012
3 175 The Implications of Behavioral Antitrust 
Maurice E. Stucke,
University of Tennessee College of Law,
Date posted to database: July 17, 2012
Last Revised: July 17, 2012
4 167 The Oral Hearing in Competition Proceedings Before the European Commission 
Wouter P. J. WilsWouter P. J. Wils,
European Commission, University of London – School of Law,
Date posted to database: May 3, 2012
Last Revised: June 18, 2012
5 141 Citizen Petitions: An Empirical Study 
Michael A. CarrierDaryl Wander,
Rutgers University School of Law – Camden, Unaffiliated Authors – affiliation not provided to SSRN,
Date posted to database: June 4, 2012
Last Revised: June 4, 2012
6 138 The Role of the Hearing Officer in Competition Proceedings Before the European Commission 
Wouter P. J. WilsWouter P. J. Wils,
European Commission, University of London – School of Law,
Date posted to database: May 3, 2012
Last Revised: May 7, 2012
7 90 Google, in the Aftermath of Microsoft and Intel: The Right Approach to Antitrust Enforcement in Innovative High Tech Platform Markets? 
Fernando Diez,
University of Antonio de Nebrija,
Date posted to database: June 12, 2012
Last Revised: June 26, 2012
8 140 Dynamic Analysis and the Limits of Antitrust Institutions 
Douglas H. GinsburgJoshua D. Wright,
U.S. Court of Appeals for the District of Columbia, George Mason University – School of Law, Faculty,
Date posted to database: June 14, 2012
Last Revised: June 17, 2012
9 114 Optimal Antitrust Remedies: A Synthesis 
William H. Page,
University of Florida – Fredric G. Levin College of Law,
Date posted to database: May 17, 2012
Last Revised: July 29, 2012
10 111 An Economic Analysis of the AT&T-T-Mobile USA Wireless Merger 
Stanley M. BesenStephen KletterSerge MoresiSteven C. Salopjohn woodbury,
Charles River Associates (CRA), Charles River Associates (CRA), Charles River Associates (CRA), Georgetown University Law Center, Charles River Associates (CRA),
Date posted to database: April 25, 2012
Last Revised: April 25, 2012

TOTM friend Stephen Bainbridge is editing a new book on insider trading.  He kindly invited me to contribute a chapter, which I’ve now posted to SSRN (download here).  In the chapter, I consider whether a disclosure-based approach might be the best way to regulate insider trading.

As law and economics scholars have long recognized, informed stock trading may create both harms and benefits to society With respect to harms, defenders of insider trading restrictions have maintained that informed stock trading is “unfair” to uninformed traders and causes social welfare losses by (1) encouraging deliberate mismanagement or disclosure delays aimed at generating trading profits; (2) infringing corporations’ informational property rights, thereby discouraging the production of valuable information; and (3) reducing trading efficiency by increasing the “bid-ask” spread demanded by stock specialists, who systematically lose on trades with insiders.

Proponents of insider trading liberalization have downplayed these harms.  With respect to the fairness argument, they contend that insider trading cannot be “unfair” to investors who know in advance that it might occur and nonetheless choose to trade.  And the purported efficiency losses occasioned by insider trading, liberalization proponents say, are overblown.  There is little actual evidence that insider trading reduces liquidity by discouraging individuals from investing in the stock market, and it might actually increase such liquidity by providing benefits to investors in equities.  With respect to the claim that insider trading creates incentives for delayed disclosures and value-reducing management decisions, advocates of deregulation claim that such mismanagement is unlikely for several reasons.  First, managers face reputational constraints that will discourage such misbehavior.  In addition, managers, who generally work in teams, cannot engage in value-destroying mismanagement without persuading their colleagues to go along with the strategy, which implies that any particular employee’s ability to engage in mismanagement will be constrained by her colleagues’ attempts to maximize firm value or to gain personally by exposing proposed mismanagement.  With respect to the property rights concern, deregulation proponents contend that, even if material nonpublic information is worthy of property protection, the property right need not be a non-transferable interest granted to the corporation; efficiency considerations may call for the right to be transferable and/or initially allocated to a different party (e.g., to insiders).  Finally, legalization proponents observe that there is little empirical evidence to support the concern that insider trading increases bid-ask spreads.

Turning to their affirmative case, proponents of insider trading legalization (beginning with Geoff’s dad, Henry Manne) have primarily emphasized two potential benefits of the practice.  First, they observe that insider trading increases stock market efficiency (i.e., the degree to which stock prices reflect true value), which in turn facilitates efficient resource allocation among capital providers and enhances managerial decision-making by reducing agency costs resulting from overvalued equity.  In addition, the right to engage in insider trading may constitute an efficient form of managerial compensation.

Not surprisingly, proponents of insider trading restrictions have taken issue with both of these purported benefits. With respect to the argument that insider trading leads to more efficient securities prices, ban proponents retort that trading by insiders conveys information only to the extent it is revealed, and even then the message it conveys is “noisy” or ambiguous, given that insiders may trade for a variety of reasons, many of which are unrelated to their possession of inside information.  Defenders of restrictions further maintain that insider trading is an inefficient, clumsy, and possibly perverse compensation mechanism.

The one thing that is clear in all this is that insider trading is a “mixed bag”  Sometimes such trading threatens to harm social welfare, as in SEC v. Texas Gulf Sulphur, where informed trading threatened to prevent a corporation from usurping a valuable opportunity.  But sometimes such trading creates net social benefits, as in Dirks v. SEC, where the trading revealed massive corporate fraud.

As regular TOTM readers will know, optimal regulation of “mixed bag” business practices (which are all over the place in the antitrust world) requires consideration of the costs of underdeterring “bad” conduct and of overdeterring “good” conduct.  Collectively, these constitute a rule’s “error costs.”  Policy makers should also consider the cost of administering the rule at issue; as they increase the complexity of the rule to reduce error costs, they may unwittingly drive up “decision costs” for adjudicators and business planners.  The goal of the policy maker addressing a mixed bag practice, then, should be to craft a rule that minimizes the sum of error and decision costs.

Adjudged under that criterion, the currently prevailing “fraud-based” rules on insider trading fail.  They are difficult to administer, and they occasion significant error cost by deterring many instances of socially desirable insider trading.  The more restrictive “equality of information-based” approach apparently favored by regulators fares even worse.  A contractarian, laissez-faire approach favored by many law and economics scholars would represent an improvement over the status quo, but that approach, too, may be suboptimal, for it does nothing to bolster the benefits or reduce the harms associated with insider trading.

My new book chapter proposes a disclosure-based approach that would help reduce the sum of error and decision costs resulting from insider trading and its regulation.  Under the proposed approach, authorized informed trading would be permitted as long as the trader first disclosed to a centralized, searchable database her insider status, the fact that she was trading on the basis of material, nonpublic in­formation, and the nature of her trade.  Such an approach would (1) enhance the market efficiency benefits of insider trading by facilitating “trade decod­ing,” while (2) reducing potential costs stemming from deliberate misman­agement, disclosure delays, and infringement of informational property rights.  By “accentuating the positive” and “eliminating the negative” conse­quences of informed trading, the proposed approach would perform better than the legal status quo and the leading proposed regulatory alternatives at minimizing the sum of error and decision costs resulting from insider trading restrictions.

Please download the paper and send me any thoughts.

An interesting new joint venture between Oxford University Press, Ariel Ezrachi, and Bill Kovacic (GW).  Sounds like a fantastic idea and with top notch management and might be of interest to many of our readers.

The Journal of Antitrust Enforcement 

Call for Papers – The Journal of Antitrust Enforcement (OUP) Oxford University Press is delighted to announce the launch of a new competition law journal dedicated to antitrust enforcement. The Journal of Antitrust Enforcement forms a joint collaboration between OUP, the Oxford University Centre for Competition Law and Policy and the George Washington University Competition Law Center.

The Journal of Antitrust Enforcement will provide a platform for cutting edge scholarship relating to public and private competition law enforcement, both at the international and domestic levels.

The journal covers a wide range of enforcement related topics, including: public and private competition law enforcement, cooperation between competition agencies, the promotion of worldwide competition law enforcement, optimal design of enforcement policies, performance measurement, empirical analysis of enforcement policies, combination of functions in the mandate of the competition agency, competition agency governance, procedural fairness, competition enforcement and human rights, the role of the judiciary in competition enforcement, leniency, cartel prosecution, effective merger enforcement and the regulation of sectors.

Submission of papers: Original articles that advance the field are published following a peer and editorial review process. The editors welcome submission of papers on all subjects related to antitrust enforcement. Papers should range from 8,000 to 15,000 words (including footnotes) and should be prefaced by an abstract of less than 200 words.

General inquiries may be directed to the editors: Ariel Ezrachi at the Oxford CCLP or William Kovacic at George Washington University. Submission, by email, should be directed to the Managing Editor, Hugh Hollman.

Further information about the journal may be found online: http://www.oxfordjournals.org/our_journals/antitrust/

I am the co-editor of the Supreme Court Economic Review, a peer-review publication that is one of the country’s top-rated law and economics journals, along with my colleagues Todd Zywicki and Ilya Somin.  SCER, along with its publisher, the University of Chicago Press, have put together a new submissions website.  If you have a relevant submission, please submit at the website for our review.

I’ve posted to SSRN an article written for the Antitrust Law Journal symposium on the Neo-Chicago School of Antitrust.  The article is entitled “Abandoning Chicago’s Antitrust Obsession: The Case for Evidence-Based Antitrust,” and focuses upon what I believe to be a central obstacle to the continued evolution of sensible antitrust rules in the courts and agencies: the dramatic proliferation of economic theories which could be used to explain antitrust-relevant business conduct. That proliferation has given rise to a need for a commitment to develop sensible criteria for selecting among these theories; a commitment not present in modern antitrust institutions.  I refer to this as the “model selection problem,” describe how reliance upon shorthand labels and descriptions of the various “Chicago Schools” have distracted from the development of solutions to this problem, and raise a number of promising approaches to embedding a more serious commitment to empirical testing within modern antitrust.

Here is the abstract.

The antitrust community retains something of an inconsistent attitude towards evidence-based antitrust.  Commentators, judges, and scholars remain supportive of evidence-based antitrust, even vocally so; nevertheless, antitrust scholarship and policy discourse continues to press forward advocating the use of one theory over another as applied in a specific case, or one school over another with respect to the class of models that should inform the structure of antitrust’s rules and presumptions, without tethering those questions to an empirical benchmark.  This is a fundamental challenge facing modern antitrust institutions, one that I call the “model selection problem.”  The three goals of this article are to describe the model selection problem, to demonstrate that the intense focus upon so-called schools within the antitrust community has exacerbated the problem, and to offer a modest proposal to help solve the model selection problem.  This proposal has two major components: abandonment of terms like “Chicago School,” “Neo-Chicago School,” and “Post-Chicago School,” and replacement of those terms with a commitment to testing economic theories with economic knowledge and empirical data to support those theories with the best predictive power.  I call this approach “evidence-based antitrust.”  I conclude by discussing several promising approaches to embedding an appreciation for empirical testing more deeply within antitrust institutions.

I would refer interested readers to the work of my colleagues Tim Muris and Bruce Kobayashi (also prepared for the Antitrust L.J. symposium) Chicago, Post-Chicago, and Beyond: Time to Let Go of the 20th Century, which also focuses upon similar themes.

Below is a graph illustrating the number of citations to selected antitrust publications in federal courts from 2003 – 2011.  The full study is available on the Antitrust Source website and updates previous data collected by Jonathan Baker on behalf of the Antitrust Law Journal Editorial Board. 

The data and study – including a list of articles and opinions in which they are cited – are available at the Antitrust Source (under Supplementary Materials) and Antitrust Law Journal.

Disclosure: I am a member of the Antitrust Law Journal Editorial Board and the Editorial Advisory Board for Competition Policy International’s Antitrust Chronicle.  Special thanks to my research assistant Stephanie Greco for her work on this.

An interesting looking empirical piece from David Yermack (NYU), Tailspotting: How Disclosure, Stock Prices and Volatility Change When CEOs Fly to Their Vacation Homes.  I haven’t read it closely yet.  Here’s the abstract:

This paper shows close connections between CEOs’ vacation schedules and corporate news disclosures. Identify vacations by merging corporate jet flight histories with real estate records of CEOs’ property owned near leisure destinations. Companies disclose favorable news just before CEOs leave for vacation and delay subsequent announcements until CEOs return, releasing news at an unusually high rate on the CEO’s first day back. When CEOs are away, companies announce less news than usual and stock prices exhibit sharply lower volatility. Volatility increases immediately when CEOs return to work. CEOs spend fewer days out of the office when their ownership is high and when the weather at their vacation homes is cold or rainy.

HT: Salop.

Congratulations to my friend, colleague, and occasional TOTM contributor Steve Salop (Georgetown Law) on winning Global Competition Review’s Academic Excellence Award this year.  From the announcement:

Around 1,500 Global Competition Review (GCR) readers cast their votes, honoring outstanding individuals in such areas as competition law and economics around the world. GCR is the world’s leading antitrust and competition law journal and news service. The Academic Excellence Award recognizes a highly regarded academic and was presented to Professor Salop at GCR’s 2nd Annual Charity Awards Dinner in Washington, DC. In addition to being a senior consultant to CRA, Dr. Salop is a professor of economics and law at the Georgetown University Law Center in Washington, DC, where he teaches antitrust law and economics and economic reasoning for lawyers.

Congratulations Steve.

Forbes interviews my colleague and office neighbor David Schleicher on his new and very interesting paper, City Unplanning.  This paper continues Schleicher’s interesting line of research on the law and economics of cities with a creative and powerful analysis of the political economy of zoning in big cites.

Here’s a brief snippet from the start of the interview:

For starters, how about a brief rundown of your story of why housing in major cities is so expensive.

Generations of scholars assumed that, while exclusive suburbs use zoning rules to limit development to keep people out and to increase the average value of housing, big cities don’t do that kind of thing because they are run by “growth machines” or ever more powerful coalitions of developers and the politicians who love them.

But in fact for most of the Twentieth Century, when urban housing prices went up, people starting building housing and prices went down. But, at some point, this broke down.

In a number of big cities, new housing starts seem uncorrelated or only weakly correlated with housing prices and the result of increasing demand while holding supply steady is that price went up fast. The average cost of a Manhattan apartment is now over $1.4 million and the average monthly rent is over $3,300.

The only explanation is that zoning rules stop supply from increasing in the face of rising demand. (In case you are wondering, this not a bubble phenomenon—this happened in many cities before the housing bubble, and the behavior of housing markets during and after the crisis is completely consistent with a story about big city housing supply constraints.)  And it’s not like real estate developers suddenly became political weaklings. What gives?

The key to my story is that urban legislatures don’t have competitive local parties—we don’t see big city legislatures divided between Republicans and Democrats, each trying to create a localized brand for competence on local issues. Instead, most local legislatures are either non-partisan or dominated by one party.

As a result, there is no one with the power and incentives to strike deals between legislators in order to promote things that are good for people across the city. And there is no one to decide the order in which issues are decides, which matters when legislative preferences “cycle,” or there are majorities that prefer a to b, b to c, and c to a.

The result of the lack of competitive local parties is that procedural rules matter a lot—they set the voting order, which can determine the outcome.

Part II of the interview is available here.  The abstract is here:

Generations of scholarship on the political economy of zoning have tried to explain a world in which tony suburbs run by effective homeowner lobbies use zoning to keep out development, but big cities allow relatively untrammeled growth because of the political influence of developers. Further, this literature has assumed that, while zoning restrictions can cause “micro-misallocations” inside a metropolitan region, they cannot increase housing prices throughout a region because some of the many local governments in a region will allow development. But these theories have been overtaken by events. Over the past few decades, land use restrictions have driven up housing prices in the nation’s richest and most productive regions, resulting in massive changes in where in America people live and reducing the growth rate of the economy. Further, as demand to live in them has increased, many of the nation’s biggest cities have become responsible for substantial limits on development. Although developers are, in fact, among the most important players in city politics, we have not seen enough growth in the housing supply in many cities to keep prices from skyrocketing.

This paper seeks to explain these changes with a story about big city land use that places the legal regime governing land use decisions at its center. Using the tools of positive political theory, I argue that, in the absence of strong local political parties, land use law sets the voting order in local legislatures, determining policy from potentially cycling preferences. Specifically, these laws create a peculiar procedure, a form of seriatim decision-making in which the intense preferences of local residents opposed to re-zonings are privileged against more weakly-held citywide preferences for an increased housing supply. Without a party leadership to organize deals and whip votes, legislatures cannot easily make deals for generally-beneficial legislation stick. Legislators, who may have preferences for building everywhere to not building anywhere, but stronger preferences for stopping construction in their districts, “defect” as a matter of course and building is restricted everywhere. Further, the seriatim nature of local land use procedure results in a large number of “downzonings,” or reductions in the ability of landowners to build “as of right”, as big developers do not have an incentive to fight these changes. The cost of moving amendments through the land use process means that small developers cannot overcome the burdens imposed by downzonings, thus limiting incremental growth in the housing stock.

Finally, the paper argues that, as land use procedure is the problem, procedural reform may provide a solution. Land use and international trade have similarly situated interest groups. Trade policy was radically changed, from a highly protectionist regime to a largely free trade one, by the introduction of procedural reforms like the Reciprocal Trade Agreements Act, adjustment assistance, and “safeguards” measures. The paper proposes changes to land use procedures that mimic these reforms. These changes would structure voting order and deal-making in local legislatures in a way that would create support for increases in the urban housing supply.