In a perfect world, the outcome of litigation would be entirely independent of the choice of foru... more In a perfect world, the outcome of litigation would be entirely independent of the choice of forum, and the outcome would be the same, no matter where the suits were brought. In the world as it exists, with a variety of legal regimes, jurisdictions that overlap, and interests that might conflict, the choice of forum can sometimes be a matter of life and death (Ghei and Parisi 2004). 1 The fact that the choice of forum can be outcome-determinative is intuitively troubling, particularly in that this offers an opportunity for forum shopping, with all the accompanying possibilities of efficiencies. However, this can also offer an opportunity for forum selection, which might enhance efficiency, as will be discussed later. A variety of theoretical approaches have been suggested to correct this perceived problem, and, in reality, a complex jurisprudence exists to deal with issues when more than one sovereign's law might possibly apply to the litigation at hand. While in many situations this might be a matter of two or more sovereign nations, the United States is peculiar in its federal structure, in that the various states retain considerable sovereignty. Consequently, conflicts law has emerged from the common law, and has evolved over time, to correct some of the more significant problems of moral hazard (Shavell 1979), with the additional bound imposed by constitutional restrictions on personal jurisdiction (McDougall, Felix and Whitten 2004). 2. A Brief History The conflict of laws developed on the Continent in Europe, and in England, under the influence of concepts of international law, which consequently 376 1 Among other examples, Ghei and Parisi (2004) discuss the widely publicized case of the "Beltway Snipers" from 2002. John Allen Muhammed and John Lee Malvo were alleged to have committed murders in the state of Maryland, the District of Columbia, and the Commonwealth of Virginia. They were eventually tried in Virginia, where the death penalty was a possibility for Muhammed, as an adult. He was executed in 2009. At the time Muhammed and Malvo were charged, Maryland had a moratorium on the death penalty, a factor that played into the decision to choose Virginia as the forum, though Maryland had, arguably, at least as strong an interest in prosecuting the case, in view of the fact that several of the murders took place within its boundaries.
The development of. .. rules will. .. involve a continuous interaction between the rules of law a... more The development of. .. rules will. .. involve a continuous interaction between the rules of law and expectations: while new rules will be laid down to protect existing expectations, every new rule will also tend to create new expectation. As some of the prevailing expectations will always conflict with each other, the judge will constantly have to decide which is to be treated as legitimate and in doing so will provide the basis for new expectations.. . .[T]he judge will never be able to foresee all the consequences of the rule he lays down, and will often fail in his endeavor to reduce the sources of conflicts of expectations. .. . [I]t is only by their effects on [the] order of actions, effects that will be discovered only by trial and error, that the adequacy or inadequacy of the rules can be judged. 3
European Journal of Law and Economics, Sep 1, 2004
Economics defines investment as the choice of incurring a present cost in the expectation of futu... more Economics defines investment as the choice of incurring a present cost in the expectation of future benefits (Dixit & Pindyck, 1994). Viewed from this perspective, legal systems can be regarded as making investment decisions when incurring present lawmaking costs that will generate benefits over time. Like most other investment decisions, lawmaking investments share, in varying degrees, three important attributes: (1) First, the initial lawmaking costs are at least partially sunk: i.e., lawmaking costs cannot be recovered if the enacted rule proves to be ineffective or undesirable at a later time. In this sense, lawmaking investments are partially or completely irreversible. (2) Second, there is often uncertainty over the future benefits of the legislation. Chosen rules may prove ineffective or changes in the social or economic circumstances may render them obsolete over time. Given such uncertainty, some estimation of the probabilities of alternative outcomes may be necessary. (3) Third, like in any investment decision, timing is an issue for lawmakers to determine when intervention is appropriate. Given uncertainty about future returns, investment can be postponed to acquire more information. Likewise, legal intervention or revision of current rules can be postponed. But delays in such investment decisions often come at a cost, given the forgone benefits of the investment in the immediate future. According to our hypothesis, these three characteristics interact to determine the optimal decisions of legal planners. Building upon investment theory under uncertainty and recent contributions in option-pricing theory, this paper focuses on the optimal timing of legal intervention, illustrating the interaction among the above factors in identifying the optimal patterns of lawmaking. The presence of sunk costs in lawmaking and the ability to delay legal intervention change the fundamental rule for optimal lawmaking. One implication of a non-zero, positive value to the option of waiting is that the change in legal rules will in fact be slower than would be predicted under a net present value rule. The hypothesis of this paper is that legal systems have utilized, and continue to utilize, alternative sources of law that unconsciously adhere to these economic principles, maximizing the option value of a lawmaking investment. Despite their fundamental relevance for policy purposes, the economic principles that should govern the timing of legal intervention in the presence of uncertainty remain poorly understood. The law and economics literature on the issue of optimal lawmaking still fails to draw the necessary conclusions from the findings of modern investment theory, ignoring two important characteristics of most lawmaking investments. First, they are largely irreversible (i.e., sunk). Second, the
In the current period of devaluation pessimism, devaluation is often seen as an instrument to acc... more In the current period of devaluation pessimism, devaluation is often seen as an instrument to accommodate inflation instead of one to change the real exchange rate and support external balance. The authors argue that such pessimism has in some cases gone too far. The real exchange rate is an endogenous variable, and whether devaluation can change the real exchange rate depends on other factors. But devaluation is not always evil, say the authors, and in some cases it can improve macroeconomic performance. It is most effective if it corrects an initial situation where the currency is clearly overvalued. In low-inflation countries, devaluation is less likely to destabilize prices because there is less indexing. The authors examine the effect of maxi-devaluation in low-inflation countries on the real exchange rate, inflation, and growth. They use a sample of 33 maxi-devaluations (20 percent or larger) in economies that had low inflation before the devaluation and where the exchange rat...
The more than 30 million chronic pain patients use opioid pain medication safely when prescribed.... more The more than 30 million chronic pain patients use opioid pain medication safely when prescribed. The vast majority of overdose deaths are caused by street drugs, particularly illicit fentanyl analogs. Restrictions on prescription pain medications, therefore will do little to curb overdose deaths, while imposing great harm to pain patients. A misplaced policy focus on restricting prescriptions leaves both pain patients and people with substance use disorder worse off..
The development of. .. rules will. .. involve a continuous interaction between the rules of law a... more The development of. .. rules will. .. involve a continuous interaction between the rules of law and expectations: while new rules will be laid down to protect existing expectations, every new rule will also tend to create new expectation. As some of the prevailing expectations will always conflict with each other, the judge will constantly have to decide which is to be treated as legitimate and in doing so will provide the basis for new expectations.. . .[T]he judge will never be able to foresee all the consequences of the rule he lays down, and will often fail in his endeavor to reduce the sources of conflicts of expectations. .. . [I]t is only by their effects on [the] order of actions, effects that will be discovered only by trial and error, that the adequacy or inadequacy of the rules can be judged. 3
Routledge Siena Studies in Political Economy, 2007
The process of implementing new laws in an environment of social change shares many characteristi... more The process of implementing new laws in an environment of social change shares many characteristics with the process of making investment decisions under uncertainty. In any society that is not totally static, the law maker faces uncertainty about its evolution. Thus, the lawmaker cannot know with certainty what the appropriate law will be in the future, and therefore cannot know with certainty what the future stream of benefits from the law will be. In addition, implementing a new law necessitates the outlay of resources in formulating and enforcing the law, just as investment in a new project does. The costs of implementing a new law are largely sunk, and irreversible. That is, the costs of implementing the law cannot be recovered if the law turns out to be inappropriate in any way. Thus, the lawmaker faces a decision akin to an irreversible investment under uncertainty. Timing of the investment is therefore a critical issue for irreversible investments. When the lawmaker chooses to invest in the new law, he gives up the option to wait to implement the law at some future time. This option is the opportunity cost of investing today. At the same time, there is a cost in delaying the implementation of new laws, due to the decreasing effectiveness of the old laws in the changing social environment. That is, there is an "opportunity benefit" in investing today. In determining the optimal timing of adoption of new laws, the value of the option of waiting must be taken into account. We present a formal model drawn from the investment literature to demonstrate the value of waiting, and discuss its implications in the context of two real world legislative problems, environmental laws and privacy regulation. In both cases, there might be a cost in delaying investment in new laws, in that the damage to the environment or privacy could be irreversible. On the other hand, the benefits of the laws are hard to estimate. In addition, compliance costs might be very large, and the value of waiting correspondingly important in the decision to invest in lawmaking.
Dual exchange rates and black markets forforeign excbange are common in developing countries, and... more Dual exchange rates and black markets forforeign excbange are common in developing countries, and a body of evidence is beginning to emerge on the effects that such parallel foreign exchange systems have on macroeconomic performance. This article presents a simple typology of parallel systems, discusses their emergence, and looks at why countries prefer these arrangements to the main alternatives. The article examines the ability of parallel markets to insulate international reserves and domestic prices from shocks to the balance of payments. Drawing on the findings from eight detailed case studies, the authors discuss the determination of the parallel premium in the short and long terms, the relationship between the premium and illegal transactions, and the fiscal effects of parallel rates. They compare the experiences of countries that have attempted to unify their foreign exchange markets and discuss the implications for policy alternatives.
In a perfect world, the outcome of litigation would be entirely independent of the choice of foru... more In a perfect world, the outcome of litigation would be entirely independent of the choice of forum, and the outcome would be the same, no matter where the suits were brought. In the world as it exists, with a variety of legal regimes, jurisdictions that overlap, and interests that might conflict, the choice of forum can sometimes be a matter of life and death (Ghei and Parisi 2004). 1 The fact that the choice of forum can be outcome-determinative is intuitively troubling, particularly in that this offers an opportunity for forum shopping, with all the accompanying possibilities of efficiencies. However, this can also offer an opportunity for forum selection, which might enhance efficiency, as will be discussed later. A variety of theoretical approaches have been suggested to correct this perceived problem, and, in reality, a complex jurisprudence exists to deal with issues when more than one sovereign's law might possibly apply to the litigation at hand. While in many situations this might be a matter of two or more sovereign nations, the United States is peculiar in its federal structure, in that the various states retain considerable sovereignty. Consequently, conflicts law has emerged from the common law, and has evolved over time, to correct some of the more significant problems of moral hazard (Shavell 1979), with the additional bound imposed by constitutional restrictions on personal jurisdiction (McDougall, Felix and Whitten 2004). 2. A Brief History The conflict of laws developed on the Continent in Europe, and in England, under the influence of concepts of international law, which consequently 376 1 Among other examples, Ghei and Parisi (2004) discuss the widely publicized case of the "Beltway Snipers" from 2002. John Allen Muhammed and John Lee Malvo were alleged to have committed murders in the state of Maryland, the District of Columbia, and the Commonwealth of Virginia. They were eventually tried in Virginia, where the death penalty was a possibility for Muhammed, as an adult. He was executed in 2009. At the time Muhammed and Malvo were charged, Maryland had a moratorium on the death penalty, a factor that played into the decision to choose Virginia as the forum, though Maryland had, arguably, at least as strong an interest in prosecuting the case, in view of the fact that several of the murders took place within its boundaries.
The development of. .. rules will. .. involve a continuous interaction between the rules of law a... more The development of. .. rules will. .. involve a continuous interaction between the rules of law and expectations: while new rules will be laid down to protect existing expectations, every new rule will also tend to create new expectation. As some of the prevailing expectations will always conflict with each other, the judge will constantly have to decide which is to be treated as legitimate and in doing so will provide the basis for new expectations.. . .[T]he judge will never be able to foresee all the consequences of the rule he lays down, and will often fail in his endeavor to reduce the sources of conflicts of expectations. .. . [I]t is only by their effects on [the] order of actions, effects that will be discovered only by trial and error, that the adequacy or inadequacy of the rules can be judged. 3
European Journal of Law and Economics, Sep 1, 2004
Economics defines investment as the choice of incurring a present cost in the expectation of futu... more Economics defines investment as the choice of incurring a present cost in the expectation of future benefits (Dixit & Pindyck, 1994). Viewed from this perspective, legal systems can be regarded as making investment decisions when incurring present lawmaking costs that will generate benefits over time. Like most other investment decisions, lawmaking investments share, in varying degrees, three important attributes: (1) First, the initial lawmaking costs are at least partially sunk: i.e., lawmaking costs cannot be recovered if the enacted rule proves to be ineffective or undesirable at a later time. In this sense, lawmaking investments are partially or completely irreversible. (2) Second, there is often uncertainty over the future benefits of the legislation. Chosen rules may prove ineffective or changes in the social or economic circumstances may render them obsolete over time. Given such uncertainty, some estimation of the probabilities of alternative outcomes may be necessary. (3) Third, like in any investment decision, timing is an issue for lawmakers to determine when intervention is appropriate. Given uncertainty about future returns, investment can be postponed to acquire more information. Likewise, legal intervention or revision of current rules can be postponed. But delays in such investment decisions often come at a cost, given the forgone benefits of the investment in the immediate future. According to our hypothesis, these three characteristics interact to determine the optimal decisions of legal planners. Building upon investment theory under uncertainty and recent contributions in option-pricing theory, this paper focuses on the optimal timing of legal intervention, illustrating the interaction among the above factors in identifying the optimal patterns of lawmaking. The presence of sunk costs in lawmaking and the ability to delay legal intervention change the fundamental rule for optimal lawmaking. One implication of a non-zero, positive value to the option of waiting is that the change in legal rules will in fact be slower than would be predicted under a net present value rule. The hypothesis of this paper is that legal systems have utilized, and continue to utilize, alternative sources of law that unconsciously adhere to these economic principles, maximizing the option value of a lawmaking investment. Despite their fundamental relevance for policy purposes, the economic principles that should govern the timing of legal intervention in the presence of uncertainty remain poorly understood. The law and economics literature on the issue of optimal lawmaking still fails to draw the necessary conclusions from the findings of modern investment theory, ignoring two important characteristics of most lawmaking investments. First, they are largely irreversible (i.e., sunk). Second, the
In the current period of devaluation pessimism, devaluation is often seen as an instrument to acc... more In the current period of devaluation pessimism, devaluation is often seen as an instrument to accommodate inflation instead of one to change the real exchange rate and support external balance. The authors argue that such pessimism has in some cases gone too far. The real exchange rate is an endogenous variable, and whether devaluation can change the real exchange rate depends on other factors. But devaluation is not always evil, say the authors, and in some cases it can improve macroeconomic performance. It is most effective if it corrects an initial situation where the currency is clearly overvalued. In low-inflation countries, devaluation is less likely to destabilize prices because there is less indexing. The authors examine the effect of maxi-devaluation in low-inflation countries on the real exchange rate, inflation, and growth. They use a sample of 33 maxi-devaluations (20 percent or larger) in economies that had low inflation before the devaluation and where the exchange rat...
The more than 30 million chronic pain patients use opioid pain medication safely when prescribed.... more The more than 30 million chronic pain patients use opioid pain medication safely when prescribed. The vast majority of overdose deaths are caused by street drugs, particularly illicit fentanyl analogs. Restrictions on prescription pain medications, therefore will do little to curb overdose deaths, while imposing great harm to pain patients. A misplaced policy focus on restricting prescriptions leaves both pain patients and people with substance use disorder worse off..
The development of. .. rules will. .. involve a continuous interaction between the rules of law a... more The development of. .. rules will. .. involve a continuous interaction between the rules of law and expectations: while new rules will be laid down to protect existing expectations, every new rule will also tend to create new expectation. As some of the prevailing expectations will always conflict with each other, the judge will constantly have to decide which is to be treated as legitimate and in doing so will provide the basis for new expectations.. . .[T]he judge will never be able to foresee all the consequences of the rule he lays down, and will often fail in his endeavor to reduce the sources of conflicts of expectations. .. . [I]t is only by their effects on [the] order of actions, effects that will be discovered only by trial and error, that the adequacy or inadequacy of the rules can be judged. 3
Routledge Siena Studies in Political Economy, 2007
The process of implementing new laws in an environment of social change shares many characteristi... more The process of implementing new laws in an environment of social change shares many characteristics with the process of making investment decisions under uncertainty. In any society that is not totally static, the law maker faces uncertainty about its evolution. Thus, the lawmaker cannot know with certainty what the appropriate law will be in the future, and therefore cannot know with certainty what the future stream of benefits from the law will be. In addition, implementing a new law necessitates the outlay of resources in formulating and enforcing the law, just as investment in a new project does. The costs of implementing a new law are largely sunk, and irreversible. That is, the costs of implementing the law cannot be recovered if the law turns out to be inappropriate in any way. Thus, the lawmaker faces a decision akin to an irreversible investment under uncertainty. Timing of the investment is therefore a critical issue for irreversible investments. When the lawmaker chooses to invest in the new law, he gives up the option to wait to implement the law at some future time. This option is the opportunity cost of investing today. At the same time, there is a cost in delaying the implementation of new laws, due to the decreasing effectiveness of the old laws in the changing social environment. That is, there is an "opportunity benefit" in investing today. In determining the optimal timing of adoption of new laws, the value of the option of waiting must be taken into account. We present a formal model drawn from the investment literature to demonstrate the value of waiting, and discuss its implications in the context of two real world legislative problems, environmental laws and privacy regulation. In both cases, there might be a cost in delaying investment in new laws, in that the damage to the environment or privacy could be irreversible. On the other hand, the benefits of the laws are hard to estimate. In addition, compliance costs might be very large, and the value of waiting correspondingly important in the decision to invest in lawmaking.
Dual exchange rates and black markets forforeign excbange are common in developing countries, and... more Dual exchange rates and black markets forforeign excbange are common in developing countries, and a body of evidence is beginning to emerge on the effects that such parallel foreign exchange systems have on macroeconomic performance. This article presents a simple typology of parallel systems, discusses their emergence, and looks at why countries prefer these arrangements to the main alternatives. The article examines the ability of parallel markets to insulate international reserves and domestic prices from shocks to the balance of payments. Drawing on the findings from eight detailed case studies, the authors discuss the determination of the parallel premium in the short and long terms, the relationship between the premium and illegal transactions, and the fiscal effects of parallel rates. They compare the experiences of countries that have attempted to unify their foreign exchange markets and discuss the implications for policy alternatives.
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Papers by Nita Ghei