Jim Chen's SSRN abstracts

Welcome to Jim Chen's SSRN abstracts. This is a human-friendly display of the RSS feed  for Mr. Chen's official SSRN page (http://ssrn.com/author=68651), reorganized by reverse chronological order rather than number of downloads. To receive updates as Mr. Chen posts new papers or updates old papers, please use the following form:

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REVISION: Αρκτούρος (Arcturus): Protecting Biodiversity Against the Effects of Climate Change Through the Endangered Species Act, http://www.ssrn.com/abstract=2436702 (October 5, 2014)

Climate change is driving the anthropocene extinction, the sixth great extinction spasm of the Phanerozoic Eon. Large-scale habitat destruction puts many plant and animal species at risk of extinction. This essay describes the use of the Endangered Species Act to protect biodiversity from the effects of climate change.
New: Measuring Gaps Between Hypothetical Investment Returns and Actual Investor Returns, http://www.ssrn.com/abstract=2500079 (September 23, 2014)

Actual investor returns from mutual funds lag behind hypothetical returns based on a fixed initial investment and reinvestment of all distributions. This gap arises from behaviorally driven errors in timing. The nonproprietary literature on this performance gap has emphasized the relationship of this gap to overall returns on stocks and mutual funds. This article seeks to address more directly the relationship of behaviorally driven gaps in investment returns to downside risk, upside gain, and overall volatility. Documenting the existence of this gap across the universe of publicly traded securities — not only in the aggregate, but also on a security-by-security basis — may provide a legal basis for requiring mutual fund and exchange-traded fund managers to compute and disclose that gap.
REVISION: Bioprospect Theory, http://www.ssrn.com/abstract=2164848 (September 3, 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: Correlation, Coverage, and Catastrophe: The Contours of Financial Preparedness for Disaster, http://www.ssrn.com/abstract=2468361 (August 21, 2014)

Laws regulating financial preparedness for catastrophe reveal the actuarial suppositions underlying disaster law and policy. This article explores three facets of catastrophic risk transfer. First, it explores how risk transfer emerges as the preeminent tool for managing risk. Measures sufficient for managing risks break down as the probability of loss plummets, but the magnitude of potential loss increases. Second, this article explores one alternative risk transfer mechanism by which insurance companies have sought to deepen their financial reserves in anticipation of correlated risks. Correlation among risks, the primary obstacle to functional insurance markets for catastrophic coverage, emerges in new form as the motivation for catastrophe bonds — and as these instruments’ leading pitfall. Finally, this article explores constraints on public intervention into disaster insurance. Along the dimensions of space, time, and human behavior, policies compensating individuals for ...
REVISION: Indexing Inflation: Why Methodology Matters in Econometrics and Macroeconomic Policymaking, http://www.ssrn.com/abstract=2474949 (August 18, 2014)

Because there is no perfect gauge of inflation, the macroeconomic enterprise of indexing inflation ultimately dissolves into a choice among imperfect methodologies. But that choice still matters. This article will highlight the practical significance of methodological choices made in the course of indexing inflation. It will focus on two different indexes of inflation in the United States: the Consumer Price Index (CPI) and the implicit price deflator of the gross domestic product (IPD). This article identifies a long-term gap in these competing indexes’ measurement of inflation. To explain why the CPI appears to overstate inflation, relative to the IPD, by roughly two-thirds of a percentage point each year, this article more fully describes the distinct methodologies underling the CPI and the IPD. Lawmakers should adopt the implicit price deflator of the GDP, or some other inflation index that shares its best methodological features, as the best practicable measure of real ...
REVISION: A Systematic Approach to Measures of Systemic Risk, http://www.ssrn.com/abstract=2460486 (July 12, 2014)

The failure of individual firms in the banking industry poses a unique threat to the entire economy. Emerging wisdom on systemic risk has identified two shortcomings in traditional regulatory approaches, all of which failed to anticipate the financial crisis of 2008-09. First, static measures of firm size, designed to identify institutions "too big to fail," fall short of detecting the contributions of correlation and interconnectedness to systemically significant bank failures. Second, traditional regulatory emphasis on capital adequacy has sought to guide the management of expected risks by individual banks under ordinary conditions, at the expense of anticipating the collective reaction of the banking industry to extreme stress. This anthology summarizes work toward a rigorous, systematic understanding of measures of systemic risk.
REVISION: Pinwheel of Fortune, http://www.ssrn.com/abstract=2389555 (July 2, 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: Intellectual Property and Public Health – A White Paper, http://www.ssrn.com/abstract=2259089 (June 19, 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: Sharpe-ly Leveraged: A Model of Human Capital Formation Under Debt Service Constraint, http://www.ssrn.com/abstract=2437290 (May 15, 2014)

Human capital, like any other form of wealth, lends itself to analysis through the tools of mathematical finance. No less than in other forms of enterprise, human capital formation involves risk. Returns on human capital and the risks inherent in its formation are affected by leverage. This is especially true in the United States, where a significant number of students finance higher education by borrowing. This article specifies a basic model of human capital formation that attempts to capture the essence of the risk-adjusted returns that students hope to realize when they pursue further education. This article adapts the Sharpe ratio of modern portfolio theory to measure the risk-adjusted benefit of education-enhanced earnings as the ratio of expected earnings to the volatility of those returns on human capital. It then adjusts both earnings and their dispersion to account for educational debt. On the debt service and earnings premium assumptions adopted by this article, ...
REVISION: An Agricultural Law Jeremiad: The Harvest Is Past, the Summer Is Ended, and Seed Is Not Saved, http://www.ssrn.com/abstract=2387998 (May 1, 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.
New: DeFunis, Defunct, http://www.ssrn.com/abstract=2255162 (April 25, 2014)

November 1998 marks the twenty-fifth anniversary of the Supreme Court's initial decision to accept a case presenting the question of race-conscious university admissions. This silver jubilee merits three cheers for DeFunis v. Odegaard -- and a moment of silence -- upon its passing. Call it three ovations and a funeral.
New: Minority Television Project, Inc. v. FCC, No. 13-1124, Brief for Amici Curiae Law Professors in Support of Petitioner, http://www.ssrn.com/abstract=2427933 (April 23, 2014)

This brief amicus curiae in support of petitioner Minority Television Project in Minority Television Project, Inc. v. FCC, 736 F.3d 1192 (9th Cir. 2013), petition filed, No. 13-1124 (March 17, 2014), urges the Supreme Court of the United States to overrule Red Lion Broadcasting Co. v. FCC, 395 U.S. 367 (1969). The brief presents three reasons why the Court should overrule Red Lion. First, overwhelming technological change compels reexamination of Red Lion. The proliferation of electronic media for distributing multichannel audio and video programming has undermined Red Lion’s scarcity rationale. Second, Red Lion has been so thoroughly discredited in all branches of government that further adherence to that precedent would undermine rather than promote respect for the Court’s decisionmaking process and for the rule of law. Finally, this case demonstrates how the continued isolation of broadcast media from First Amendment norms that govern all other media and conduits inflicts ...
REVISION: Measuring Market Risk Under the Basel Accords: VaR, Stressed VaR, and Expected Shortfall, http://www.ssrn.com/abstract=2252463 (April 23, 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: 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: 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: 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: 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 ...


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