Tom W. Bell

Principles of Contracts for Governing Services

The state provides governance services within a specified territory, demanding payment in the form of taxes, regulations and compulsory service. Some citizens expressly consent to that bargain, as when the President of the United States swears to preserve, protect and defend the Constitution. With regard to many of its subjects, however, the state can claim no more than hypothetical consent, leaving its use of force only weakly justified. Governing services provided under contract, founded in express consent, enjoy a more justified relationship with their citizen-customers. Private institutions already provide the same legal services as the state, offering rules, dispute resolution and armed security, often on a large scale. The success of quasi-sovereign territories such as Hong Kong and China’s Special Economic Zones has encouraged some countries to consider outsourcing government services more comprehensively. Honduras, for instance, has passed legislation that could allow owners or long-term leaseholders to exercise largely independent authority over city-sized territories. The world may soon contain many such regions, called ‘charter’ or ‘free cities’, where an owner or master leaseholder provides governing services to tenants, subtenants, invitees and others by contract. What terms should we generally expect to see in contracts for governance services? Examples from history and theory suggest such features as respect for consent, protection of fundamental rights, independent adjudication, and freedom of exit. The specifics of contracts for governance services must respond to market demand, of course; we speak here not of rules but of guidelines. Field tests can tell us more about how best to serve citizen-consumers, offering millions of people the prospect of better government.

What Can Corporations Teach Governments About Democratic Equality

Democracies place great faith in the principle of one-person/one-vote. Business corporations and other private entities, in contrast, typically operate under the one-share/one-vote rule, allocating control in proportion to ownership. Why the difference? In times past, we might have cited the differing ends of public and private institutions. Whereas public democracies aim at promoting the general welfare of an entire political community, private entities aim at more specific goals, such as generating profits or managing a cooperative residence. As business entities have grown in size and in the range of services they provide, however, the distinction between public and private governance has grown blurry. Brooklyn’s Co-Op City, for instance, provides more than 50,000 shareholder-tenants with housing, utilities, stores, offices, schools, parks, security, and other services normally provided by a municipality. The largest homeowners association in the United States, Highlands Ranch, Colorado, provides over 30,000 homes and 90,000 residents with the functional equivalent of a whole town. Soon, entire “startup cities” may join residential cooperatives and homeowner associations in drawing their governing principles from private sources. How can private communities affirm the principles of democratic equality? By affording full protection to all rights holders, individuals and owners alike. The one-person/one-vote approach popular in political contexts works best at protecting the individual personal rights — freedoms of conscience, speech, and innumerable others — to which each of us has an equal claim. Corporate law’s one-share/one-vote rule works best at protecting the property rights of those who invest in a commonly owned community. This paper explains why a polity should offer both corrective and constructive democracy. Residents exercise corrective democracy in defense of their individual rights by submitting officials and laws to popular veto. Shareholders exercise constructive democracy in defense of their investments, choosing directors and managing polity governance. The result: a double democracy that combines the best features of public and private governance to give equal treatment to both the personal rights of individual residents and the property rights of shareholder owners. Respect for democratic equality demands nothing less.

The Center of the Law

This essay surveys the literature on Chapter 11. I start by discussing the objectives by which the performance of corporate reorganization rules is to be judged and then consider the fundamental problem of valuation that arises in corporate reorganization. I next turn to examine the performance of the prevailing bargaining-based approach to reorganization, both in terms of its effect on total reorganization value and in terms of its effect on the division of this value. Finally, I examine the two alternative approaches that have been put forward to the approach of existing rules -that of auctioning the reorganized companys asset (put forward by Baird (1986) and Jensen (1991) and that of using options to reorganize the companys ownership (put forward by Bebchuk (1988)). *William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance, Harvard Law School. I wish to thank the John M. Olin Center for Law, Economics, and Business at Harvard Law School and the National Science Foundation for their financial support.

Outgrowing Copyright: The Effect of Market Size on Copyright Policy

Does copyright protection offer the best means of stimulating the production of expressive works? Perhaps, at the moment, it does. If so, however, copyright protection will probably become inefficiently over-protective as the market for expressive works grows. With such growth, copyright holders will find it increasingly remunerative to focus on customers willing to pay a premium for particular expressive works. In a larger, more finely segmented market, copyright holders will find that their statutory rights generate larger monopoly rents. Yet copyright holders will suffer no corresponding increase in production or distribution costs; thanks to technological advances, we can expect those costs to continue to decline. The private benefits of copyright protection will rise. So, too, will its social costs. Holding all else equal, therefore, growth in the market for expressive works will make copyright policy inefficient. This paper explains that effect and discusses how policymakers should respond.

Limits on the Privity and Assignment of Legal Malpractice Claims

An assault on privity has swept through much of tort law in the United States, freeing plaintiffs to press charges of negligence against even those with whom they have never had contractual relations. With the exception of scattered pockets of resistance, this movement has revolutionized the field of legal malpractice. Following Californias lead, many state courts no longer consider lack of privity a bar to a party who has suffered the effects of an attorneys malpractice.1 At the same time, these courts have almost universally resisted another policy that would also free more parties to press legal malpractice claims: allowing the clients of negligent attorneys to assign their claims to third parties.2 Here, too, California courts lead the way. Courts have lowered the privity bar in order to open new routes to the litigation of legal malpractice claims. In particular, courts have relaxed privity requirements in order to advance three