The single most conspicuous growth industry in Washington D.C. is regulation and the administrative structure it spawns. The number of programs in Washington that start big is relatively small. The dominant strategy in all cases is to identify some failure in the private sector and then to propose some well-tailored government program to combat it. At the stage of inception, everyone is sensitive to the risks of overreaching through regulation. But the mood shifts on implementation of the program. The key question is what attitude is brought to the two kinds of error that must be confronted by any system of social control: too much or too little. Within this new context, the risks of under inclusion are always high on the agenda. The risks of over inclusion tend to be neglected. To give but one example, the 1964 Civil Rights Act was sold as a statute that was intended to remove a particular form of irrationality in the market place by refusing to allow employers to make invidious distinctions on grounds of race, sex, and national origin. At the time everyone disclaimed any effort to impose prohibitions when employers did not resort to conscious differences in treatment. No one thought that employers could be held responsible for the background conditions in society at large that contributed to differential levels of preparation of, for example, black and white

Abstract: Cost-benefit analysis is analyzed using a model of agency delegation. In this model an agency observes the state of the world and issues a regulation, which the president may approve or reject. Cost-benefit analysis enables the president to observe the state of the world (in one version of the model), or is a signal that an agency may issue (in another version). The roles of the courts, Congress, and interest groups are also considered. It is argued that the introduction of cost-benefit analysis increases the amount of regulation, including the amount of regulation that fails cost-benefit analysis; that the president has no incentive to compel agencies to issue cost-benefit analysis, because agencies will do so when it is in the president’s interest, and otherwise will not do so; that presidents benefit from cost-benefit analysis even when they do not seek efficient policies; that agencies and their supporters ought to endorse cost-benefit analysis, not resist it; and that cost-benefit analysis reduces the influence of interest groups. Evidence for these claims is discussed. Finally, it is argued that courts should force agencies to conduct cost-benefit analyses in ordinary conditions, but that they should not force agencies to comply with them.

* We would like to thank Gary Gorton, Raphael de la Porta and an anonymous referee for useful comments. Kroszner would like to thank the Lynde and Harry Bradley Foundation for research

This paper extends the Domar and Musgrave results concerning the effect of an income tax on risk taking to the case where different tax rates apply to different types of assets. Although the results depend on exactly how the differential tax rates are imposed, as a general matter, an income tax with differential rates can be seen as a tax only on the risk-free rate of return and a fixed ex ante subsidy for purchasing the lower-taxed assets. There are implications for measuring deadweight loss from differential taxation and for spending resources on accurately measuring capital income.

The treaty creating the WTO replaced the GATT dispute resolution system, which contained no formal sanctions for breach of agreement as a practical matter, with a system that results in centrally authorized sanctions against recalcitrant violators of WTO trade agreements. We examine the important features of the new system, and argue that the institutionalization of a sanctioning mechanism was not motivated by a perceived need to increase the penalty for violations, but rather by a need to decrease the penalty. In particular, the GATT system relied on unilateral retaliation and reputation to police the bargain, and toward its end unilateral retaliation became excessive, interfering with opportunities for efficient breach. The WTO mechanism for arbitrating the magnitude of proposed sanctions is the major innovation under WTO law, and ensures that sanctions are not set too high.

Abstract: This survey of the law and economics of consumer finance discusses economic models of consumer lending, and evaluates the major consumer finance laws in light of them. We focus on usury laws, restrictions on creditor remedies such as the ban on expansive security interests, bankruptcy law, limitations on third-party defenses such as the holder in due course doctrine, information disclosure rules including the Truth in Lending Act, and anti-discrimination law. We also discuss the empirical literature.

The tariffs imposed by the United States on steel imports last year, and the pending challenges to them before the World Trade Organization (WTO), have brought a great deal of publicity to a subject that had already been a subject of considerable litigation within the WTO system—”safeguard measures. ” Such measures are taken pursuant to Article XIX of the General Agreement on Tariffs and Trade (GATT) (the GATT “escape clause”), which permits the imposition of temporary measures to protect industries that exhibit “serious injury ” or the threat of such injury due to “increased quantities ” of imports. During the Uruguay Round of GATT negotiations which led to the formation of the WTO, the obligations of Article XIX were refined and elaborated in the WTO Agreement on Safeguards. Article XIX and the Agreement on Safeguards raise many conceptual and interpretive issues. Such issues received little attention during the long history of GATT because safeguard measures were rarely challenged, in part because they fell into disuse. The advent of the WTO has revived the use of safeguard measures, however, and numerous disputes involving them have now been brought before the WTO resulting in a

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Abstract: This paper is a preliminary draft for eventual inclusion in the Handbook of Law and Economics, A. Mitchell Polinsky & Steven Shavell editors. It reviews and synthesizes the work of economists and law and economics scholars in the field of public international law. The bulk of that work has been in the area of international trade, but many of the ideas in the trade literature have implications for other subfields. Recent years have seen a significant increase in research on other topics as well. The paper begins with a general framework for thinking about the positive and normative economics of public international law, and then proceeds to a treatment of specific topics including customary law, strategic alliances and the laws of war, international trade, international investment, international antitrust, human rights law, conflicts of law, and the international commons (fisheries). 1.