Frank H. Easterbrook

Is Corporate Bankruptcy Efficient

Abstract Auctions allocate resources to their highest-valued uses. Yet bankruptcy does not use auctions. Instead judges determine a value and parcel out interests on the assumption that this valuation is correct. Errors inevitable in this process lead many persons to conclude that bankruptcy is inefficient. This essay argues that the conclusion does not follow. The costs of error in valuation may be less than the cost of conducting an auction. Legal rules endure because they are efficient or because they transfer wealth. Transfers are an implausible explanation of the current bankruptcy regime, leaving efficiency as the prevailing explanation.

Predatory Strategies and Counterstrategies

There is a highly competitive market for predatory pricing theories. Scholars have produced a blizzard of rules defining unlawful predatory practices.1 Some of the rules depend on the relationship between price and cost,2 some on the relationship between price and time, s some on the relationship between quantity sold and time.4 One approach eschews rules altogether and suggests that courts examine the totality of the circumstances. 5 The propo-

Monopoly, Manipulation, and the Regulation of Futures Markets

In the textbook model of competition all buyers and sellers are tiny compared with the market as a whole. These people trade fungible commodities in an ongoing auction. Every sellers product is the same as every others. All participants in the market are sophisticated. Every buyer continues to purchase so long as the price is less than the value he places on the commodity; every seller continues to sell so long as the price is greater than the marginal cost of production. New buyers and sellers can jump in at an instants notice, and if they find the going rough they can jump out again. No one can take advantage of a trading partner because someone else will offer the prospective victim a better deal. Information about bids and offers spreads instantly to all participants and would-be entrants. Every beneficial trade takes place. The trading leads to an outcome that is best for each buyer, each seller, and society as a whole. Of course textbook economies occur only in textbooks. It is commonplace to lament the fact that traders are not microscopic compared with the market, traders are gullible, entry and exit

Close Corporations and Agency Costs

The economic analysis of publicly held corporations has exploded in recent years. Yet there has been little attention to the more common corporate form of organization, the closely held corporation.2 This is not because one analysis will cover both. There is a fundamental difference between closely and publicly held corporations. Risk bearing and management are separated in publicly held but not in closely held corporations. The presence or absence of this separation of functions determines the governance mechanisms that have evolved in the two types of firms.3

Ways of Criticizing the Court

Critics have attacked Supreme Court decisions not only for their substance, but also for their structure and inconsistency. Professor Easterbrook responds to these critics by arguing, first, that the increasing caseload of the judiciary, coupled with the techniques of Supreme Court case selection, makes more fractured decisions inevitable. Second, Professor Easterbrook applies Arrows Theorem to show that it is impossible for critics to demand consistent decisions from the Supreme Court without requiring it to sacrifice its essential institutional nature.

Plea Bargaining as Compromise

Dean Scott and Professor Stuntz provide an impressive defense of plea bargaining based on autonomy and efficiency-the best defense in the literature.1 They add proposals for reform along contractual lines. The editors must have thought that Professor Schulhofer and I would supply contrasting points of view in reply, as if law reviews should aspire to the format of television commentary. Our reactions must be a disappointment, for we agree on everything that Scott and Stuntz themselves view as novel about their article.

The Economic Structure of Corporate Law

The corporate contract limited liability voting the fiduciary principle the business judgment rule, and the derivative suit corporate control transactions the appraisal remedy tender offers the incorporation debate and state antitakeover statutes close corporations trading on inside information mandatory disclosure optimal damages.

Agreement among the Justices: An Empirical Note

People complain that the Supreme Court is becoming increasingly fractured. Both the popular and the scholarly commentary repeats the theme that there are more and more, longer and longer, separate opinions. Some say this is attributable to a failure of the Justices to consult and compromise. Others say it is caused by a failure of leadership. Still others maintain that the Court has embarked on a course of deciding political and ethical rather than legal issues, and that because there are no right answers to these questions, the Justices are doomed to endless bickering. The critics are united on only two propositions: that the amount of disagreement is increasing, and that this reflects poorly on the Court. The critics are wrong on both counts. Disagreement is not necessarily a bad thing. It may be healthy or even necessary if the Court is to fulfill its assigned function. And it turns out that disagreement has not burgeoned. I present in this article a measure of agreement that attempts to capture what is important about separate and dissenting opinions-whether the Justices who do not join the majority disagree with the Courts rationale. Measured by this standard, rather than by cruder measures of the number of separate opinions, the level of disagreement has been remarkably stable for the last

Due Process in Selective Service Appeals

The appeal board is the final authority within the Selective Service System.1 Like the local board, it is required to examine all the evidence presented by the registrant and to place him in the lowest of the nineteen classifications presently prescribed by regulation. 2 Only those classified 1-A (available for military service), I-A-O (conscientious objector available for noncombatant service), or 1-0 (conscientious objector available for civilian service) may be drafted. The Selective Service registrant reaches the appeal board upon his official protest of unfavorable classification by the local board.3 The critical importance of fairness at that level is mandated by the procedural context in which the appeal takes place. First, the appeal board is required by regulations to undertake a de novo review-an entirely new consideration of the registrants classification. 4 Therefore, the validity of the appeal boards decision, and not the actions of the local board, will be the subject of any judicial review that follows.5 Second,