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Spier, Kathryn

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Spier

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Kathryn

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Spier, Kathryn
Author's Publications: search.filters.isAuthorOfPublication.a70fb730-2633-445c-9fce-27117a4e80ea

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Now showing 1 - 10 of 27
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    Divide and Conquer
    (Oxford University Press (OUP), 2010) Posner, Eric A.; Spier, Kathryn; Vermeule, Cornelius
    The maxim “divide and conquer” (divide et impera) is invoked frequently in law, history, and politics, but often in a loose or undertheorized way. We suggest that the maxim is a placeholder for a complex of ideas related by a family resemblance, but differing in their details, mechanisms and implications. We provide an analytic taxonomy of divide and conquer mechanisms in the settings of a Stag Hunt Game and an indefinitely-repeated Prisoners' Dilemma. A number of applications are considered, including labor law, bankruptcy, constitutional design and the separation of powers, imperialism and race relations, international law, litigation and settlement, and antitrust law. Conditions under which divide and conquer strategies reduce or enhance social welfare, and techniques that policy makers can use to combat divide and conquer tactics, are also discussed.
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    Strategic Judgment Proofing
    (RAND, 2008) Che, Yeon-Koo; Spier, Kathryn
    A liquidity-constrained entrepreneur raises capital to finance a business activity that may harm bystanders. The entrepreneur raises senior (secured) debt to shield assets from the tort victims in bankruptcy. For a fixed level of borrowing, senior debt creates better incentives for precaution taking than either junior debt or outside equity. The entrepreneur's level of borrowing is, however, socially excessive. Giving tort victims priority over senior debtholders in bankruptcy prevents overleveraging but leads to suboptimal incentives. Lender liability exacerbates the incentive problem even further. A limited seniority rule dominates these alternatives. Shareholder liability, mandatory liability insurance, and punitive damages are also discussed.
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    Shotgun Mechanisms for Common-Value Partnerships: The Unassigned-Offeror Problem
    (Elsevier BV, 2013) Landeo, Claudia M.; Spier, Kathryn
    Shotguns clauses are commonly included in the business agreements of partnerships and limited liability companies (LLCs), but the role of offeror typically remains unassigned. In a common-value, one-sided asymmetric information setting, unequal and inefficient outcomes occur with an unassigned offeror. Experimental results are aligned with our theory.
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    Do Tying, Bundling, and Other Purchase Restraints Increase Product Quality?
    (Elsevier, 2015) Spier, Kathryn; Dana, James
    Tying, bundling, minimum purchase requirements, loyalty discounts, exclusive dealing, and other purchase restraints can create stronger incentives for firms to invest in product quality. In our first example, the firm sells a durable experience good and a complementary non-durable good to a representative consumer. Tying shifts profits from the durable to the non-durable good, making profits more sensitive to the consumer's experience. In our second example, the firm sells a single experience good to consumers with heterogeneous demands. Minimum purchase requirements screen out the low-volume consumers who would otherwise free ride on the superior monitoring of the high-volume consumers. The examples illustrate that purchase restraints can increase both firm profits and consumer surplus by making firm profits more sensitive to consumer experience, either directly by giving the consumer more control over the stream of profits or indirectly by constraining consumers to monitor more intensively.
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    What Courses Should Law Students Take? Harvard’s Largest Employers Weigh In
    (2014-09-18) Coates, John; Fried, Jesse; Spier, Kathryn
    We report the results of an online survey, conducted on behalf of Harvard Law School, of 124 practicing attorneys at major law firms. The survey had two main objectives: (1) to assist students in selecting courses by providing them with data about the relative importance of courses; and (2) to provide faculty with information about how to improve the curriculum and best advise students. The most salient result is that students were strongly advised to study accounting and financial statement analysis, as well as corporate finance. These subject areas were viewed as particularly valuable, not only for corporate/transactional lawyers, but also for litigators. Intriguingly, non-traditional courses and skills, such as business strategy and teamwork, are seen as more important than many traditional courses and skills.
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    Should Consumers be Permitted to Waive Products Liability? Product Safety, Private Contracts, and Adverse Selection
    (Yale University Press, 2014) Choi, Albert; Spier, Kathryn
    A potentially dangerous product is supplied by a competitive market. The likelihood of a product-related accident depends on the unobservable precautions taken by the manufacturer and on the type of the consumer. Contracts include the price to be paid by the consumer ex ante and stipulated damages to be paid by the manufacturer ex post in the event of an accident. Although the stipulated damage payments are a potential solution to the moral hazard problem, firms have a private incentive to reduce the stipulated damages (and simultaneously lower the up front price) in order to attract the safer consumers who are less costly to serve. The competitive equilibrium - if an equilibrium exists at all - features suboptimally low stipulated damages and correspondingly suboptimal levels of product safety. Imposing tort liability on manufacturers for uncovered accident losses - and prohibiting private parties from waiving that liability - can improve social welfare.
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    Shotguns and Deadlocks
    (Harvard John M. Olin Center for Law, Economics, and Business, 2013) Landeo, Charles M.; Spier, Kathryn
    The process of resolving business deadlocks is time consuming and expensive, typically requiring the services of lawyers, financial experts and judges. Prolonged resolution processes, cost-inefficient administration of those processes, and inequitable outcomes impose high monetary and non-monetary costs on the parties themselves and on society as a whole. Asset valuation, which is required to complete the transfer of as-sets in a business divorce, can pose particular problems for closely-held businesses. In contrast to publicly-traded companies with active markets for equity ownership, closely-held companies may be very difficult for outsider investors and appraisers to evaluate. The economic value of closely-held businesses is often intertwined with the human capital of the founders, their relationships with business associates (including key suppliers and customers), and their tacit business knowledge. The true economic value of closely-held businesses may not be fully reflected in the official business documents and financial statements; instead, the best wisdom concerning the value of the business may lie in the minds of the business owners themselves. This article studies business deadlocks and their resolution. We advance a proposal to reform the way that courts resolve business dead-locks and value business assets. Specifically, we argue that Shotgun mechanisms, where the courts mandates one owner to name a single buy-sell price and compels the other owner to either buy or sell shares at the named price, should play a larger role in the judicial management of business divorce. Since the party proposing the offer may end up either buying or selling shares, the party has an incentive to identify and name a fair price. In addition, inefficient delays and administration cost associated with external appraisers and public auctions will be avoided. Our proposal is aligned with current statutory rules and case law. General partnerships and limited liability companies (LLCs), the most commonly chosen legal entities, are the focus of this study. We first explore the private design and implementation of Shotgun provisions. Important lessons and insights for the judicial resolution of business deadlock can be derived by studying deadlock clauses in private contracts. Although Shotgun provisions have the potential for achieving equitable, expedient, and cost-efficient outcomes, we show that these mechanisms can pose serious challenges in private contractual settings. Owners who find themselves at an informational or financial advantage have an incentive to behave opportunistically in private environments. Second, we evaluate the properties of Shotgun mechanisms in judicial settings. We argue that the risks of opportunistic behavior are less severe in the judicial context than they are in the private context. Since courts have the ability to design the Shotgun procedure ex-post rather than ex-ante, they are often in a better position to identify the presence and nature of the asymmetries and to tailor the mechanism accordingly. Despite their obvious potential benefits, courts in the United States seldom use Shotgun mechanisms to resolve business deadlocks. Finally, we provide experimental evidence regarding the ex-post judicial design of Shotgun mechanisms. Although our arguments are logically consistent and supported by current legal cases, field data on the use of these mechanisms is not available. We conduct a series of controlled laboratory experiments with human subjects to assess whether the court-mandated assignment of the role of the offeror to the better-informed owner will have the predicted effects. Our experimental design simulates a deadlocked business venture with two owners where only one of the two owners knew the true value of the business assets. Two different treatments are considered. In the first treatment, the better-informed owner is compelled to make buy-sell offer; in the second treatment, the less-informed owner is forced to make the buy-sell offer. Our experimental findings support our arguments: The likelihood of equitable outcomes is positively influenced by the assignment of the role of offeror to the better-informed owner. When obligated to make a buy-sell offer, the better-informed owner truthfully revealed his private information to the less-informed owner. To the best of our knowledge, ours is the first experimental study of mandatory Shotgun mechanisms where one party knows the value of the assets while the other does not. Our analysis demonstrates that the appropriate judicial use of Shotgun mechanisms as an asset valuation procedure will serve the interests of the business parties and, more generally, the interest of society as a whole.
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    Irreconcilable Differences: Judicial Resolution of Business Deadlock
    (University of Chicago Press, 2014) Landeo, Claudia M.; Spier, Kathryn
    This article studies the judicial resolution of business deadlock. Asset valuation, a necessary component of business divorce procedures, can pose serious problems in case of closely-held businesses such as general partnerships and limited liability companies (LLCs). Courts face the challenge of designing valuation mechanisms that will trigger the owners to truthfully reveal their private information. We theoretically and experimentally assess the ex post judicial design and properties of judicially-mandated Shotgun and Private Auction mechanisms. In the former mechanism, the court would require one owner to name a buy-sell price, and the other owner would be required to either buy or sell his or her shares at the named price. In the latter mechanism, the court would mandate both owners to simultaneously submit a price to buy the other owner's assets. Our experimental findings support our theory: The Shotgun mechanism with an informed offeror is superior to the Private Auction in terms of an equity criterion. In the Shotgun mechanism, the informed offeror has an incentive to truthfully reveal his private information and, as a result, an equitable outcome is more likely to be achieved. The analysis presented in this article provides an equity rationale for the judicial implementation of the Shotgun mechanism in business divorce cases, and demonstrates the empirical feasibility of our proposal.
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    Trial and Settlement: A Study of High-Low Agreements
    (University of Chicago Press, 2010) Prescott, JJ; Spier, Kathryn; Yoon, Albert
    This paper presents the first systematic theoretical and empirical study of high-low agreements in civil litigation. A high-low agreement is a private contract that, if signed by litigants before the conclusion of a trial, constrains any plaintiff recovery to a specified range. Whereas existing work describes litigation as a choice between trial and settlement, our examination of high-low agreements — an increasingly popular phenomenon in civil litigation — introduces partial or incomplete settlements. In our theoretical model, trial is both costly and risky. When litigants have divergent subjective beliefs and are mutually optimistic about their trial prospects, cases may fail to settle. In these cases, high-low agreements can be in litigants’ mutual interest because they limit the risk of outlier awards while still allowing an optimal degree of speculation. Using claims data from a national insurance company, we describe the features of these agreements and empirically investigate the factors that may influence whether litigants discuss or enter into them. Our empirical findings are consistent with the predictions of the theoretical model. We also explore extensions and alternative explanations for high-low agreements, including their use to mitigate excessive, offsetting trial expenditures and the role that negotiation costs might play. Other applications include the use of collars in mergers and acquisitions.
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    Exclusive Dealing and Market Foreclosure: Further Experimental Results
    (Mohr Siebeck, 2012) Landeo, Claudia M.; Spier, Kathryn
    This paper reports further experimental results on exclusive dealing contracts. We extend Landeo and Spier's (2009) work by studying Naked Exclusion in a strategic environment that involves a four-player, two-stage game. In addition to the roles of seller and buyers, our experimental environment includes the role of a potential entrant (a fourth passive player). Our findings are as follows. First, payoff endogeneity increases the likelihood of exclusion. Second, communication between the potential entrant and the buyers increases buyers' coordination on their preferred equilibrium (equilibrium with entry) and hence, reduces the likelihood of exclusion. Communication also induces more generous offers.