Vol. 103 Issue 3

There is increasing pressure on federal agencies to justify regulatory actions with rigorous quantitative assessments.1 The past several decades have seen a marked increase in regulatory agencies’ use of a cost–benefit analysis framework to determine whether regulations should be issued. To perform these analyses, regulators attempt to convert the expected benefits and costs of a proposed regulation into dollar figures, and then assess whether the expected benefits justify the costs. The Obama Administration has sought to expand the use of cost–benefit analysis by applying the analytical method to regulations that have already been promulgated. This retrospective review process, often referred to as “regulatory lookback,” allows agencies to evaluate whether ex ante predictions of regulations’ impacts have proven accurate over time. Armed with empirical information about regulations’ effects, agencies can make course corrections, including taking ineffective or duplicative regulations off the books.

This Note argues that a regulatory agency’s initial economic analysis of whether to issue a regulation should explicitly incorporate the value of that agency’s authority to revisit the regulation in the future and, potentially, amend or repeal it. Because the approaches that regulatory agencies have traditionally used to predict regulations’ costs and benefits do not incorporate the value of the flexibility afforded by regulatory lookback, this Note advocates for an alternative approach to cost–benefit analysis known as real options valuation (ROV).

Regulatory cost–benefit analyses are complex and costly efforts, but the basic framework typically employed by regulatory agencies is simple: agencies estimate the expected annual benefits and costs of a regulation into the future, and then discount those benefits and costs to present value. This approach is equivalent to a common form of financial analysis called discounted cash flows. Although regulators seek to issue regulations where the benefits will exceed the costs, regulators are invariably acting under conditions of uncertainty. Like the rest of us, regulators can only guess at what the future holds. Even under ideal circumstances, regulators may be limited to predicting a distribution of likely costs and benefits. Although the expected benefits may exceed the expected costs of a proposed regulation, thus yielding a positive net present value (NPV), there is no assurance that the expected results will actually come to pass, on either side of the balance sheet.

Further complicating matters is that regulators often must respond to poorly understood threats, where further study is unlikely to resolve the uncertainty regulators face. In such instances, issuing a regulation and studying its actual effects may be the only way to resolve this regulatory uncertainty. Once a regulation is promulgated and takes effect, new information is generated, and regulators can attempt to make empirical measurements of the actual costs and benefits. Regulatory lookback provides a formal avenue for regulators to collect and act upon this new information. For example, an empirically beneficial regulation could be expanded, or an empirically harmful regulation could be altered or even taken off the books.

This dynamic puts regulators in a position that is analogous to that of an option holder: regulatory agencies have the opportunity, but not the obligation, to act in response to information that will be generated in the future. The capacity of regulators to respond to future circumstances creates option value—the value of the opportunity to expand, otherwise alter, or abandon an existing regulation. Critically, this optionality yields value in addition to the net benefits of the regulation itself. That is, the total value of a newly issued regulation includes both the net benefits of that regulation and the value of the option to act in the future. The question then becomes, how should agencies account, ex ante, for the flexibility provided by regulatory lookback, a form of ex post regulatory review?

Part I of this Note begins by briefly reviewing the controversial history of cost–benefit analysis and the increasing efforts to utilize cost–benefit principles retrospectively. The Note then describes the typical technique employed in conducting cost–benefit analysis and why regulatory lookback renders that approach inadequate.

Part II turns to options valuation, beginning with an overview of financial options and real options. The Note then discusses how real options are valued, and describes other legal or policy settings where real options analysis has been employed. Part II concludes with an explanation of why real options are better suited to regulatory cost–benefit analysis than traditional valuation techniques.

On a practical note, Part III is a case study of the Food and Drug Administration’s proposed Foreign Supplier Verification Program (FSVP). The Note first looks at how the Food and Drug Administration (FDA) assesses the worthiness of FSVP using traditional cost–benefits analysis based on the discounted cash flows method, and how regulatory lookback changes that analysis. Next, the Note employs a simplified model to demonstrate how the same proposed regulation would be valued using a real options-based technique that accounts for the FDA’s ability to react to the success or failure of the regulation. The two models yield dramatically different results, illustrating the significance of valuing the flexibility that regulatory lookback provides.

Part IV discusses the implications of adopting a real options approach to cost–benefit analysis, as well as limitations of both an options-based approach in general and of the specific analysis set forth in this Note.

Rule 68 of the Federal Rules of Civil Procedure was enacted to promote consensual settlement. Through a mandatory cost-shifting mechanism, the Rule incentivizes defendants to make offers to settle and plaintiffs to accept those offers. Over the last few decades, courts of appeals have begun to interpret the Rule in a way that goes beyond simply shifting costs. Instead, these courts have held that if a plaintiff refuses a Rule 68 offer that contains all of the monetary or injunctive relief that a plaintiff is seeking, her claim becomes moot. The courts will moot a plaintiff ’s claim even if the defendant’s offer disclaims liability. Mooting a claim because of an unaccepted Rule 68 offer is supported neither by the Rule’s text nor by the Supreme Court’s interpretation of the Rule. Although settlement is a laudable goal, it does not justify the labored reading of Rule 68 that deprives plaintiffs of their day in court.

For five decades, probate—the court-supervised administration of decedents’ estates—has been condemned as unnecessary, slow, expensive, and intrusive. This backlash has transformed succession in the United States, as probate avoidance has become a booming industry and contract-like devices such as life insurance, transfer-on-death accounts, and revocable trusts have become the primary engines of intergenerational wealth transmission. Despite this hunger to privatize the inheritance process, we know little about what happens in contemporary probate court. This Article improves our understanding of this issue by surveying every estate administration stemming from individuals who died in Alameda County, California in 2007. This original dataset of 668 cases challenges some of the most entrenched beliefs about probate. For one, although succession is widely seen as a tranquil process in which beneficiaries settle disputes amicably and pay a decedent’s debts voluntarily, both litigation and creditors’ claims are common. In addition, attorneys’ and personal representatives’ fees are far lower than assumed. The Article then uses these insights to critique the demand for probate avoidance, to contend that probate’s cautious approach to creditors should also govern nonprobate transfers, and to suggest reforms to the probate process.

The conventional wisdom is that the Supreme Court’s review of commercial speech restrictions has gradually become more stringent over time, edging further and further in the direction of strict scrutiny. What this narrative misses is that the Supreme Court’s review has become more rigorous over time only for a certain type of commercial speech regulation: laws that restrict nonmisleading, informational advertising. A majority of the Court sees this type of regulation as unwarranted—indeed offensive—governmental paternalism. However, a careful reading of the Court’s decisions suggests that it has been, and remains, far more willing to uphold regulations on commercial speech where the governmental purpose is not to keep information from consumers, but to protect consumers from manipulation.

The commercial speech doctrine is fundamentally based on the premise that advertising communicates information to consumers, allowing them to make more informed choices. However, many common advertising techniques do not rely on communicating information; instead, they use emotional and nonconscious marketing techniques to take advantage of consumers’ cognitive limitations and biases. This Article argues that such noninformational marketing practices are entitled to limited, if any, protection under the First Amendment, particularly when the products or activities being promoted are harmful to public health.

After reviewing the history of the commercial speech doctrine, this Article explores the connection between marketing and cognitive psychology and provides several examples of “manipulative marketing.” It concludes by analyzing possible doctrinal frameworks for the regulation of harmful and manipulative marketing practices.

“Landmines are among the most barbaric weapons of war, because they continue to kill and maim innocent people long after the war itself has ended.” Landmines have been the source of suffering for not only tens of thousands of soldiers, but also thousands of civilians worldwide. They continue to lie dormant in many countries, some hidden in nearby dirt or foliage, until triggered by an unsuspecting victim. In the past twenty years, Amended Protocol II to the Convention on Conventional Weapons and, even more so, the Ottawa Convention—also known as the Mine Ban Treaty—have led to a decrease in the number of mines lingering in nations’ soil and those used in recent conflicts. Although a handful of holdouts to the Ottawa Convention remain, those countries’ refusal to accede to the treaty does not necessarily prevent them from being bound by a number of legal principles it set out to establish. This Note will argue that, due to states’ conduct over the last fifteen to twenty years and their views toward the Ottawa Convention, customary international law has led to the emergence of five new rules severely constraining landmine transfer, development, and use.

Part I will explore the recent legal history of landmines, which consists of Amended Protocol II to the convention on Certain Conventional Weapons and the Ottawa Convention. Part II will discuss customary law, a principal source of international law, and theories regarding its development and applicability. Finally, Part III will dive into the intersection of customary international law, landmines, and how countries’ public statements, actions, and expressed opinions have led to the advancement of new customary laws. This Note concludes that the new laws—binding on all or nearly all nations—include a total ban on landmine transfer, a good faith obligation to work toward Ottawa Convention accession, a ban on the development and use of smart mines, and a prohibition or at least a stringent restriction on the use of persistent mines.

Chinese state capitalism has been treated as essentially synonymous with state-owned enterprises (SOEs). But drawing a stark distinction between SOEs and privately owned enterprises (POEs) misperceives the reality of China’s institutional environment and its impact on the formation and operation of large enterprises of all types. We challenge the “ownership bias” of prevailing analyses of Chinese firms by exploring the blurred boundary between SOEs and POEs in China. We argue that the Chinese state has less control over SOEs and more control over POEs than its ownership interest in the firms suggests. Our analysis indicates that Chinese state capitalism can be better explained by capture of the state than by ownership of enterprise. We explain the mechanisms of capture in China and argue that due to China’s institutional environment, large, successful firms—regardless of ownership—exhibit substantial similarities in areas commonly thought to distinguish SOEs from POEs: market dominance, receipt of state subsidies, proximity to state power, and execution of the state’s policy objectives. We explore the significant implications of this argument for theory, policy, and law.

Criminal law has developed to prohibit new and subtler forms of intrusion on the autonomy of others, including freedom of thought and decision. Examples include modern understandings of fraud, extortion, and bribery, which pivot on the concepts of deception, coercion, and improper influence. Sometimes core offenses develop to turn on similar concepts about autonomy, such as when reforms in the law of sexual assault make consent almost exclusively material. These projects can be laudable. But such progressive programs in substantive criminal law also raise difficult problems of culpability. Legal lines must be specified with reference to actors’ mental states relative to each other and with reference to conduct that is embedded within socially welcome activities. The result is that legal institutions struggle in borderline cases to locate sufficient fault to satisfy the demands of justification for punishment. This Article demonstrates this problem through exploration of the modern law of each of these example offenses—fraud, extortion, bribery, and sexual assault. To address the problem of borderline culpability, the Article turns to criminal law theory, finding a connection between culpability and the principle of notice in criminal law. Rather than its absence serving to exculpate, one can understand notice as serving to inculpate. To manage the problem of culpability in modern crime, the Article concludes, legal institutions should attend more explicitly—in both criminalization and adjudication—to the questions of whether the actor was aware of the normative wrongfulness of her conduct and, if not, whether punishment is justified on a negligence level of fault.