Jim Chen's SSRN abstracts

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New: Flagging Prospect Theory, http://www.ssrn.com/abstract=2216916 (March 19, 2014)

The basic tenets of prospect theory, a bedrock principle of behavioral economics, can be illustrated by what Daniel Kahneman has called prospect theory’s "flag": an asymmetrical sigmoid curve whose inflection point occurs at the origin (thus reflecting human beings' adaptation level relative to their starting economic position), whose slope to the left of the origin is discernibly steeper than its slope to the right (thus reflecting loss aversion), and whose upper and lower asymptotes reflect diminishing sensitivity to losses as well as gains. This paper describes a surprisingly simple and supple method for parametrically modeling prospect theory with closed-form expressions and elementary functions. It accomplishes this task by transforming the cumulative distribution function of the log-logistic distribution. In plainer language, this paper "draws" the flag of prospect theory with the simplest available mathematical functions and the minimum amount of algebraic manipulation ...
REVISION: An Agricultural Law Jeremiad: The Harvest Is Past, the Summer Is Ended, and Seed Is Not Saved, http://www.ssrn.com/abstract=2387998 (March 18, 2014)

The saving of seed exerts a powerful rhetorical grip on American agricultural law and policy. Simply put, farmers want to save seed. Many farmers, and many of their advocates, believe that saving seed is essential to farming. But it is not. Farmers today often buy seed, just as they buy other agricultural inputs. That way lies the path of economic and technological progress. Seed-saving advocates protest that compelling farmers to buy seed every season effectively subjects them to a form of serfdom. So be it. Intellectual property law concerns the progress of science and the useful arts. Collateral economic and social damage, in the form of affronts to the agrarian ego, is of no valid legal concern. The harvest is past, the summer is ended, and seed is not saved.
REVISION: Measuring Market Risk Under Basel II, 2.5, and III: VaR, Stressed VaR, and Expected Shortfall, http://www.ssrn.com/abstract=2252463 (March 18, 2014)

Each of the most recent accords of the Basel Committee on Banking Regulation, known as Basel II, 2.5, and II, has embraced a different primary measure of market risk in global banking regulation: traditional value-at-risk (VaR), stressed VaR, and expected shortfall. After introducing the mathematics of VaR and expected shortfall, this note will evaluate how well the reforms embraced by Basel 2.5 and III - stressed VaR and expected shortfall - have addressed longstanding regulatory concerns with traditional VaR. Part I describes the calculation of VaR in its conventional form. For illustrative purposes, Part I will describe parametric VaR on a Gaussian distribution. Part II summarizes known weaknesses in VaR, from inherent model and estimation risk to VaR’s failure to perform under extreme economic stress and VaR’s failure to satisfy the theoretical constraints on “coherent” measurements of risk. Part III describes how to calculate expected shortfall as an extension of ...
New: Application of the Abnormally Dangerous Activities Doctrine to Environmental Cleanups, http://www.ssrn.com/abstract=2408725 (March 14, 2014)

The common law tort doctrine of strict liability for abnormally dangerous activities is emerging as a key element of the law of hazardous substance regulation, which has been dominated by CERCLA. The abnormally dangerous activities doctrine exhibits a formidable potential for expansion. Together with the related torts of nuisance and trespass, strict liability for abnormally dangerous activities have already begun to complement CERCLA's scheme for allocating the costs of cleaning hazardous waste sites. The revitalized application of the abnormally dangerous activities doctrine to environmental cleanups may affect insurance coverage.
New: Book Review: The Moral Tradition of American Constitutionalism: A Theological Interpretation, http://www.ssrn.com/abstract=2408700 (March 14, 2014)

Just as the Gospel reminds Christians that “the last shall be first,” the observation that “less is more” surely does not damn H. Jefferson Powell's constitutional scholarship with faint praise. In “The Moral Tradition of American Constitutionalism: A Theological Interpretation,” Powell launches an unapologetically Christian attack on America's long-standing civic faith in constitutional law. Powell's core message -- that there is no such thing as a Christian approach to constitutionalism -- heralds a radical and powerful new model for understanding the relationship between personal Christianity and public law.
New: Book Review, Nicholas Mercuro & Steven G. Medema, Economics and the Law: From Posner to Post-Modernism, http://www.ssrn.com/abstract=2408097 (March 13, 2014)

It is no longer credible to speak of a single “law and economics” movement. Rather, there are multiple schools of thought, each applying economic analysis of law in a distinct way and none commanding widespread acceptance. Chaos would seem the natural result of any attempt to marry economics, a value-laden discipline beset by critics who decry the immorality of the “dismal science,” with law, a profession as methodologically incoherent as it is intellectually promiscuous. A literature of staggering size and dazzling diversity thus confronts anyone who tries to survey law and economics “from Posner to post-modernism.” In Economics and the Law, Nicholas Mercuro and Steven G. Medema acknowledge the Herculean nature of their task by confining themselves to “a concise overview” of thisd field. Mercuro and Medema nevertheless promise more than they can deliver. With each blow at the many-headed Hydra that economic analysis of law has become, the authors leave marginally useful ...
REVISION: Bioprospect Theory, http://www.ssrn.com/abstract=2164848 (March 10, 2014)

Conventional wisdom treats biodiversity and biotechnology as rivalrous values. The global south is home to most of earth's vanishing species, while the global north holds the capital and technology needed to develop this natural wealth. The south argues that intellectual property laws enable the industrialized north to commit biopiracy. By contrast, the United States has characterized calls for profit-sharing as a threat to the global life sciences industry. Both sides magnify the dispute, on the apparent consensus that commercial exploitation of genetic resources holds the key to biodiversity conservation. Both sides of this debate misunderstand the relationship between biodiversity and biotechnology. Both sides have overstated the significance of bioprospecting. It is misleading to frame the issue as whether intellectual property can coexist with the international legal framework for preserving biodiversity. Any lawyer can reconfigure intellectual property to embrace all ...
REVISION: Self-Adjusting Weighted Averages in Standard Scoring, http://www.ssrn.com/abstract=2397637 (February 27, 2014)

Like many of their counterparts in university teaching, law professors routinely rely on all-or-nothing final examinations. But all-or-nothing final exams put enormous pressure on students, who often labor for months with no meaningful feedback on their mastery of the material. One alternative to the all-or-nothing final exam consists of administering some sort of initial graded assignment. Assigning a relatively modest weight to the initial assignment maintains the primacy of the comprehensive final exam. To further minimize the pressure that accompanies the initial assignment, I propose an algorithm for adjusting the weight of the grade on the initial assignment so that students who boost their performance by the time of the final exam will benefit from their improvement. By the same token, students who do well on the initial assignment may wish to “lock in” some of the benefit of that performance as a hedge against declining performance on the final exam. The method for ...
REVISION: Arbitration as an Article of Constitutional Faith, http://www.ssrn.com/abstract=2391075 (February 14, 2014)

Scarcely any legal question arises in the United States that is not resolved, sooner or later, through arbitration. If Alexis de Tocqueville could survey contemporary American legal culture, he would rub his eyes with amazement at the privatization of adjudication across a wide swath of issues previously committed to judicial resolution. From trade disputes posing serious questions of economic diplomacy to consumer contracts adhering to cell phones and credit cards, mandatory arbitration has displaced conventional adjudication. In the country that de Tocqueville characterized as driven by its dedication to constitutional lawmaking through litigation, arbitration has become a dominant form of dispute resolution with little if any direct doctrinal influence by federal constitutional law. This is the overriding theme of Peter B. Rutledge’s book, Arbitration and the Constitution (Cambridge, 2012).
REVISION: Coherence Versus Elicitability in Measures of Market Risk, http://www.ssrn.com/abstract=2385137 (February 14, 2014)

The Basel II and III accords prescribe distinct measures of market risk in the trading book of regulated financial institutions. Basel II has embraced value-at-risk (VaR) analysis, while Basel III has suggested that VaR be replaced by a different measure of risk, expected shortfall. These measures of risk suffer from mutually irreconcilable flaws. VaR fails to satisfy the conditions required of coherent measures of risk. Conversely, expected shortfall fails the mathematical requirements for elicitability. Mathematical limitations therefore force a choice between theoretically sound aggregation of risks and reliable backtesting of risk forecasts against historical observations. This research note is a condensed version of Measuring Market Risk Under Basel II, 2.5, and III: VaR, Stressed VaR, and Expected Shortfall, a full working paper posted at http://ssrn.com/abstract=2252463.
REVISION: Intellectual Property and Public Health – A White Paper, http://www.ssrn.com/abstract=2259089 (February 14, 2014)

On October 26, 2012, the University of Akron School of Law’s Center for Intellectual Property and Technology hosted its Sixth Annual IP Scholars Forum. In attendance were thirteen legal scholars with expertise and an interest in IP and public health who met to discuss problems and potential solutions at the intersection of these fields. This report summarizes this discussion by describing the problems raised, areas of agreement and disagreement between the participants, suggestions and solutions made by participants and the subsequent evaluations of these suggestions and solutions. Led by the moderator, participants at the Forum focused generally on three broad questions. First, are there alternatives to either the patent system or specific patent doctrines that can provide or help provide sufficient incentives for health-related innovation? Second, is health information being used proprietarily and if so, is this type of protection appropriate? Third, does IP conflict with other ...
New: Pinwheel of Fortune, http://www.ssrn.com/abstract=2389555 (February 3, 2014)

In principle, neither the global environment nor personal health should come down to gambling. In practice, however, both the law of global biodiversity protection and the constitutional debate on the Patient Protection and Affordable Care Act (PPACA) rest on astoundingly risk-seeking assumptions. Charged with conserving the global biospheric commons, the international community seems eager to place deep, out-of-the-money bets on bioprospecting of rare and endangered species for pharmaceutical gain. The truly desperate state of biodiversity and climate change law has apparently prompted some very rich countries (especially the United States) to behave as if these sources of truly irreparable environmental harm defy meaningful precautions. Within America’s own borders, the constitutional law of public health strikes a comparably risk-seeking pose. Although National Federation of Independent Business v. Sebelius upheld the PPACA as an exercise of the federal government's taxing ...
REVISION: Portfolio Theory as a Pattern of Timeless Moments, http://www.ssrn.com/abstract=2254244 (January 29, 2014)

Quantitative finance traces its roots to modern portfolio theory. Despite the deficiencies of modern portfolio theory, mean-variance optimization nevertheless continues to form the basis for contemporary finance. The term "postmodern portfolio theory" expresses many of the theoretical advances in financial learning since the original articulation of modern portfolio theory. Any complete overview of financial risk management must address all aspects of portfolio theory, from the beautiful symmetries of modern portfolio theory to the disturbing behavioral insights and the vastly expanded mathematical arsenal of the postmodern critique. This article surveys portfolio theory, from its modern origins through more sophisticated, "postmodern" incarnations, according to the first four moments of any statistical distribution: mean, variance, skewness, and excess kurtosis. Mastery of these quantitative tools and associated behavioral insights holds the key to the efficient frontier of risk ...
REVISION: Postmodern Disaster Theory, http://www.ssrn.com/abstract=2141591 (January 21, 2014)

Legal preparedness for disaster consists of implementing the optimal portfolio of rules for managing catastrophic risks. This article extends the simpler model of modern disaster theory, http://ssrn.com/abstract=1910669, into a more ambitious model of postmodern disaster theory. A complete account of disaster law and policy based on an extended analogy to quantitative finance must address all aspects of that discipline, from the beautiful symmetries of modern portfolio theory to the disturbing behavioral insights and the vastly expanded mathematical arsenal of the postmodern critique. Postmodern disaster theory represents a comprehensive account of catastrophic risk management. It organizes its postmodern agenda for legal management of risk and uncertainty according to higher statistical moments. Skewness has inspired alternative ways to measure risk-adjusted performance. To illustrate how the problem of fat tails and excess ...
New: Titanic Telecommunications, http://www.ssrn.com/abstract=2347349 (October 30, 2013)

Telecommunications law as we know it was born on January 1, 1984. On that day, the Modified Final Judgment (MFJ) in United States v. AT&T Co. simultaneously killed the largest corporation in the world and created a new telecommunications industry. As the Bell divestiture decree fades into history, the MFJ itself has collapsed. The Telecommunications Act of 1996 heralds a new, mercurial sort of competition. In this altered landscape, the battle will go to the swift and the strong, to the blessed and the enlightened, and most of all to the relentlessly resourceful. In this age of imperfect competition, place your bet with Hermes: speedster nonpareil, messenger of the gods, deity of science and commerce — and patron of travelers, rogues, vagabonds, and thieves.
New: The Last Picture Show (On the Twilight of Federal Mass Communications Regulation), http://www.ssrn.com/abstract=2344467 (October 25, 2013)

Federal communications law has collapsed like the walls of Jericho. The Telecommunications Act of 1996 heralds the fateful day on which structural regulation of mass media markets must stand or fold. After defining the economic phenomenon of mass communications, this article surveys the history of structural regulation of mass communications in the United States. It traces two distinct and contradictory philosophies expressed in mass communications law. One one hand, federal regulators have equated broadcast content with broadcaster identity. In accord with that belief, mass communications law has striven to protect the public interest in broadcasting through the regulation of market structure and industrial organization. Another jurisprudential tradition encourages mass communications law to rely presumptively on competition to achieve the same regulatory objectives. Regulators ignore the economics of a technologically driven industry at their peril. This article outlines ...
REVISION: Creamskimming and Competition, http://www.ssrn.com/abstract=1395554 (September 10, 2013)

The concept of “creamskimming” arises with regularity in the law of regulated industries. As a rhetorical weapon, the term “creamskimming” readily conjures images of the sort of putatively destructive competition that regulatory commissions are charged with patrolling. As a result, allegations of creamskimming have become a standard weapon in the legal arsenal of incumbent firms seeking to resist competitive entry. At an extreme, incumbent firms will characterize all forms of competit
REVISION: The Parable of the Seeds: Interpreting the Plant Variety Protection Act in Furtherance of Innovation, http://www.ssrn.com/abstract=784189 (September 10, 2013)

Among drivers of evolution, two forces tower above all others. One of them is food. The other is sex. The seed is both. Information embedded in seed is amenable to various forms of proprietary protection. In the abstract, the Plant Variety Protection Act (PVPA) provides an attractive alternative to utility patents on plants and to the protection of hybrid crops as trade secrets. In practice, the PVPA has failed to become the preeminent form of intellectual property in plants. This article explor
REVISION: There's No Such Thing as Biopiracy...And it's a Good Thing Too, http://www.ssrn.com/abstract=781824 (July 29, 2013)

Tales of northern exploitation of biological wealth and ethnobiological knowledge from the global south have become so frequent, so familiar, and so uniform that allegations of biopiracy now follow a predictable script. I come not to praise the biopiracy narrative, but to bury it. Most allegations of biopiracy are so thoroughly riddled with inconsistencies and outright lies that the entire genre, pending further clarification, must be consigned to the realm of rural legend. Despite its implausi
New: Force Majeure in Legal Scholarship, http://www.ssrn.com/abstract=2255155 (April 23, 2013)

Who's to blame when legal scholarship is bad? Not pedestrian, repetitive, uninspired, or poorly conceived-just bad. If those crazy Minnesotans at Constitutional Commentary are to be believed, the fault lies with us scholars, that we are overweening. The "manifestly reasonable strategy" of "taking... shocking position[s]" in the quest for tenure generates "Gresham's Law of Legal Scholarship." Warped as it is by rampant "Ph.D. envy," the market for legal scholarship values ''paradigmshak[ing]'" hy
New: Portraits of the Scholar as a Young Clerk, http://www.ssrn.com/abstract=2255153 (April 23, 2013)

Bob Hudec was an invaluable colleague, a kind man, and a generous friend. The experience of irrevocably losing a colleague is a new and unpleasant one for many of us at the University of Minnesota Law School. In my eleven years here, many faculty members have retired or moved to other law schools, but only Bob Hudec has passed away. When a colleague dies, especially one as treasured as Bob Hudec, there simply is no way to fill the resulting void.
New: Hope a Better Rate for Me, http://www.ssrn.com/abstract=2255140 (April 23, 2013)

Ratemaking, the dreariest legal expression of the dismal science, is sexy again. Once upon a time, judicially enforced constitutional restraints on the setting of public utility rates strengthened the intellectual backbone of the Lochner era. Contemporary interest in this doctrine stems from the imposition of "the duty to interconnect, to lease unbundled network elements, and to sell services for resale" on incumbent firms in the few remaining "market segments that have natural monopoly characte
New: Law as Industrial Policy: Economic Analysis of Law in a New Key, http://www.ssrn.com/abstract=2255150 (April 23, 2013)

If justice be the end of law, ask on. How we pose normative legal questions "limits and disposes the way in which any answer -right or wrong-may be given." Economic analysis of law has firmly established itself as a controversial but respected neorealist approach to legal criticism. Ever since the 1960 publication of Ronald Coase's pathblazing article, The Problem of Social Cost, conventional law-and-economics literature has evaluated legal rules according to a microeconomic criterion called "ef
New: Rational Basis Revue, http://www.ssrn.com/abstract=2255136 (April 23, 2013)

Constitutional Commentary is no stranger to legal analysis of music or to musings on legal analysis. "Seven years [have] disappear[ed] below [our] feet" since this journal last exercised its quasiconstitutional right to make bad parodies of copyrighted music. Those same seven years have lapsed since the Supreme Court lauded Creedence Clearwater Revival as "one of the greatest American rock and roll bands of all time." "Who'll stop the rain?" Ah, those seven years were an innocent time, when we
New: Brilliance Remembered, http://www.ssrn.com/abstract=2255133 (April 23, 2013)

Twenty years ago Daniel Farber cofounded Constitutional Commentary. Dan's essay on McCulloch v. Maryland, "Banking on National Power," concludes the twentieth volume of this journal. Among his many achievements in twenty-two years on the faculty of the University of Minnesota Law School, Dan helped secure Constitutional Commentary's place as one of America's preeminent law journals. As of 2004, Dan will be teaching full-time at the University of California at Berkeley. Once again, glitzy Califo
New: Book Review: Regulatory Education and its Reform, http://www.ssrn.com/abstract=2255128 (April 23, 2013)

Regulation and Deregulation: Cases and Materials, Jeffrey L. Harrison, Thomas D. Morgan & Paul R. Verkuil. St. Paul, Minn.: West Publishing Co., 1997. Pp. 567. $48.00. Ours is unquestionably an Age of Statutes. Yet the comprehensive study of statutes, the legal lifeblood of the regulatory state, is a relatively recent phenomenon. Law school courses in legislation have begun to bridge this gap. The substantive law underlying the most economically sophisticated statutes, however, continues to elu
New: Epiphytic Economics and the Politics of Place, http://www.ssrn.com/abstract=2255126 (April 23, 2013)

A specter is haunting academia, the specter of globalization. In Globalization and Its Losers, an essay published in the winter 2000 issue of the Minnesota Journal of Global Trade, I described legal and economic integration across borders as an epochal moment for a broad array of ecological, cultural, and economic interests. The summer 2000 issue of this journal published replies by two historians, an agricultural ethicist, and an advocate of regional self-reliance. At their mildest, my critics
New: Globalization and Its Losers, http://www.ssrn.com/abstract=2255123 (April 23, 2013)

Globalization marks the end of an epoch. Not merely an epoch in the colloquial sense, but an epoch in the geological sense. The spread of Homo sapiens around the earth has brought about mass extinctions and related ecological changes on a scale not seen since the Cretaceous period. In its evolutionary impact, comprehensive human colonization of the planet easily outclasses an ice age, or even twenty. The previous geological event of comparable magnitude ushered out the dinosaurs; the one befor
New: Preemption and Regulatory Efficiency in Federal Energy Statutes, http://www.ssrn.com/abstract=2255142 (April 23, 2013)

As local utility regulation enacted early this century proved inadequate to deal with complex concerns, Congress passed statutes formulating a national energy policy. Under the resulting programs of concurrent state and federal regulation, competing authorities sometimes clashed. In the context of federal statutes, the supremacy clause governs competing state and federal claims to authority. Under traditional doctrine, a federal statute may preempt state law in one of three ways. First, a stat
New: A Sober Second Look at Appellations of Origin: How the United States Will Crash France's Wine and Ch, http://www.ssrn.com/abstract=2255120 (April 23, 2013)

France regulates the production methods of certain fine foods and beverages through appellations of controlled origin, or appellations d'origine controlee (AOCS). The AOC system restricts the right to produce select wines and cheeses to a designated geographic region associated with those foods. Sparkling wine from Champagne and Roquefort cheese are but two celebrated examples. French law ensures localized control of AOCregulated products by requiring them to be processed in the same region wher
New: The Magnificent Seven: American Telephony's Deregulatory Shootout, http://www.ssrn.com/abstract=2255078 (April 23, 2013)

The Telecommunications Act of 1996 promised the world. It has would "promote competition and reduce regulation," "secure lower prices and bigher quality services... and encourage the rapid deployment of new telecommunications technologies." On its first occasion to review the Act's provisions on local and long-distance telephony, the Supreme Court spoke in far less glamorous terms. "[M]ost unfortunate," lamented the Justices, "for a piece of legislation that profoundly affects a crucial segment
New: The Mystery and the Mastery of the Judicial Power, http://www.ssrn.com/abstract=2255113 (April 23, 2013)

What do law clerks do at the Supreme Court? One day this question took me entirely by surprise. Not because of its substance: I have repeatedly answered this question ever since Justice Clarence Thomas invited me to serve as his clerk for October Term 1992. As with so much else in law, context had triumphed over content. While teaching my first-year legislation class at the University of Minnesota, I asked a student to resolve the apparent tension between Justice Antonin Scalia's willingness to
New: The Legal Process and Political Economy of Telecommunications Reform, http://www.ssrn.com/abstract=2255106 (April 23, 2013)

American telecommunications law as regulatory phoenix appears to smolder in repeating cycles of reform, only to rise again from its ashes. From the heyday of public utility law's regulatory compact, through "mid-life" phases oj crisis and reform, to the mix of triumph and letdown that is the Telecommunications Act of 1996, telecommunications law has passed through four distinct "ages." In each age, a dominant institution arose to address the perceived economic concerns of the day, only to run he
New: 'Duel' Diligence: Second Thoughts About the Supremes as Sultans of Swing, http://www.ssrn.com/abstract=2255104 (April 23, 2013)

We respond to Professor Lynn A. Baker's criticisms of our article, The Most Dangerous Justice: The Supreme Court at the Bar of Mathematics. Professor Baker fundamentally misunderstands our measure of Supreme Court voting power. Moreover, she erroneously presumes that the "median Justice" wields the bulk of the Court's power. Even if there were a median Justice, it is far from clear whether he would be the Most Dangerous Justice. We conclude with a clarification of the median voter theorem and it
New: The Second Coming of Smyth v. Ames, http://www.ssrn.com/abstract=2255074 (April 23, 2013)

The last time a book on regulatory policy caused this great a stir, "Bork" was a proper noun rather than an impertinent verb. Deregulatory Takings and the Regulatory Contract: The Competitive transformation of Network Industries in the United States, is almost surely the most controversial book of its kind in two decades. For the last three years, Gregory Sidak and Daniel F. Spulber have comprehensively reconceptualized public utility law as a branch of Takings Clause jurisprudence. Their aggre
New: The Pragmatic Ecologist: Environmental Protection as a Jurisdynamic Experience, http://www.ssrn.com/abstract=2255070 (April 22, 2013)

Among his many contributions to the field of environmental law, Professor Dan Farber is perhaps best known for his development of a systematically "pragmatic approach to environmental problems." Within the tool kit that Professor Farber has used to breach the "wall between economics and ethics," one technique merits especially close examination. Professor Farber has often stressed the centrality of "learning strategies" in an environmental enterprise marked not only by a "high degree of uncert
REVISION: Measuring Market Risk Under Basel II, 2.5, and III: VAR, Stressed VAR, and Expected Shortfall, http://www.ssrn.com/abstract=2252463 (April 17, 2013)

Each of the most recent accords of the Basel Committee on Banking Regulation, known as Basel II, 2.5, and II, has embraced a different primary measure of market risk in global banking regulation: traditional value-at-risk (VaR), stressed VaR, and expected shortfall. After introducing the mathematics of VaR and expected shortfall, this note will evaluate how well the reforms embraced by Basel 2.5 and III - stressed VaR and expected shortfall - have addressed longstanding regulatory concerns with


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