Business Law Prof Blog

Learning from Women and Other Professions

I read with interest Victoria Pynchon's article from Forbes, Women's Negotiation "Problem" May Be Power, Not Gender.  Pynchon argues that despite that dramatic increase in the number of women attending business and law schools, the fields of business and law are still largely dominated by men.  I think that's largely true.  She explains what she calls the "Old Negotiation Normal": 

Because women came so late to the game of commerce, most broken business deals I litigated during my twenty-five year legal career were negotiated by businessmen, drafted by male lawyers, and breached by male managers and executives. The agreements were reached in competitive distributive bargaining sessions. They were drafted in adversarial settings. And too often they were breached because the party that squeezed the last dime out of his opponent got a little karmic payment in the courtroom.

The solution? Pynchon asks, "what if women's styles are the new normal and men's begin to be labeled uncooperative, disruptive, self-centered and privileged?"  I would add some modifiers to the proposed solution, and note that the styles referenced are traditionally viewed as male or female, but obviously aren't solely used by one gender or the other.  

Not all fields are dominated by men.  Public relations, for example, is a field that has a number of women in leadership positions.  I worked in public relations for two agencies before law school, and my bosses were female, my clients were female, and many of my co-workers were female. (And I worked in the video game industry.)  The management style was, I think, more collaborative than it was as compared to my life in law practice, but I can also say my PR experience was not any less competitive, deadline driven, or quality focused than my law practice.  

In fact, working in a PR agency was great experience for legal practice (as I tend to think many jobs are). My PR background also informs my teaching, both in terms of how I teach, and how I communicate about what life in practice can and should be. Of course, I needed my legal knowledge base to do my job as a lawyer, but I had already managed a million-dollar client budget, worked with clients who had the option to find someone new, worked with support staff and outside vendors, and understood the difficulty of balancing financial restraints of clients with the expectations of those clients.  

The main thing I learned was that I needed to train those who worked for me, not just finish client work. So, when my account executive drafted a press release or part of a PR plan, I needed to mark it up, and give it back so that he would know what I wanted (and the client wanted).  My inclination was to clean it up, fix it, and send it out.  What happens when you do that?  You tend to get the same quality of work every time, because you are accepting it. By training the people who worked for me, I could get the client a better product, in two ways: (1)  account executive hourly rates are lower than account supervisor rate and (2)  I could focus on account-supervisor-level work, and not account-executive-level work.  

I traditionally think of that as good client service, and delivering quality work product at appropriate value.  I suppose that style of working, and thinking about work, could be deemed "women's style." Either way, count me in. 

--JPF

Coates on Mergers and Acquisitions

John C. Coates, IV has posted Managing Disputes Through Contract: Evidence from M&A on SSRN with the following abstract:

An important set of contract terms manages potential disputes. In a detailed, hand-coded sample of mergers and acquisition (M&A) contracts from 2007 and 2008, dispute management provisions in correlate strongly with target ownership, state of incorporation, and industry, and with the experience of the parties’ law firms. For Delaware, there is good and bad news. Delaware dominates choice for forum, whereas outside of Delaware, publicly held targets’ states of incorporation are no more likely to be designated for forum than any other court. However, Delaware’s dominance is limited to deals for publicly held targets incorporated in Delaware, Delaware courts are chosen only 20% of the time in deals for private targets incorporated in Delaware, and they are never chosen for private targets incorporated elsewhere, or in asset purchases. A forum goes unspecified in deals involving less experienced law firms. Whole contract arbitration is limited to private targets, is absent only in the largest deals, and is more common in cross-border deals. More focused arbitration – covering price-adjustment clauses – is common even in the largest private target bids. Specific performance clauses – prominently featured in recent high-profile M&A litigation – are less common when inexperienced M&A lawyers involved. These findings suggest (a) Delaware courts’ strengths are unique in, but limited to, corporate law, even in the “corporate” context of M&A contracts; (b) the use of arbitration turns as much on the value of appeals, trust in courts, and value-at-risk as litigation costs; and (c) the quality of lawyering varies significantly, even on the most “legal” aspects of an M&A contract.

-- Eric C. Chaffee

Rauch on the Tea Party of No

I always find Jonathan Rauch an interesting read, and his most recent op-ed is no exception. (Full disclosure: Jonathan's sister is a former boss and current great friend of mine.) In his piece, Grand ol’ Palestinians: No-compromise Republicans taking a page from Mideast politics, he argues:

Republicans are well along toward importing what is arguably the world’s most dysfunctional political model: that of the Palestinians, the gang who can’t say yes.

The Palestinians, it has been said, never miss an opportunity to miss an opportunity. The GOP is on its way there.

To make his point, he lists his "hallmarks" of "political Palestinianism":

Tenet No. 1: You can never be pure enough. 

Tenet No. 2: Compromise is the enemy. 

Tenet No. 3: Negotiating and delivering are different things. 

Tenet No. 4: Think wishfully. 

I'm particularly persuaded that Tenet No. 2 has become too firmly entrenched.  Compromise is rarely the enemy, and a pragmatic approach to solving problems can go a long way.  In the environmental arena, Professor Joel Mintz has written, "[P]ragmatism has the potential to furnish a durable and useful set of intellectual tools for analyzing knotty environmental policy issues.”  This is true for national debt and other financial issues, too.  But being pragmatic requires a willingness to prioritize and compromise for the greater good. 

I recommend taking a look at Jonathan's article, and I hope some politicans will, too.  

--JPF

Rock Star, Pro Athlete, ... Blogger?

Over at The Race to the Bottom, Jay Brown reviews some of the benefits of blogging, including: (1) increased downloads of academic papers; (2) improved faculty reputation; and, (3) the ability to influence policy- and decision-makers.  He goes on to note:

Given these advantages, Kim Krawiec rightfully asks why more faculty do not blog.  There are any number of reasons.  The work load is one.  The lack of credit at law schools (despite the considerable potential for increased institutional notoriety) is another.  There is often some hesitancy about operating on the Internet which is still very much a Hobbesian state of nature, with both high and low quality side by side.  Comments can also provoke unsavory responses, sometimes requiring a thick skin.  But in fact one would assume that with the benefits, blogging would increase.  In fact, the data suggests otherwise. Individual law blogs continue to disappear.

SJP 

Troubling Numbers

Bloomberg recently reported on "The Slow Disappearance of the American Working Man":

The portion of men holding a job … fell to 63.5 percent in July … the lowest numbers [since] 1948…. Men who do have jobs are getting paid less. After accounting for inflation, median wages for men between 30 and 50 dropped 27 percent—to $33,000 a year— from 1969 to 2009 …. What is going on here? For one thing, women, who have made up a majority of college students for three decades and now account for 57 percent, are adapting better to a data-driven economy that values education and collaborative skills more than muscle…. The economic downturn exacerbated forces that have long been undermining men in the workplace …. Corporations have cut costs by moving manufacturing jobs, routine computer programming, and even simple legal work out of the country. The production jobs that remain are increasingly mechanized and demand higher skills. Technology and efforts to reduce the number of layers within corporations are leaving fewer middle-management jobs…. While unemployment is an ordeal for anyone, it still appears to be more traumatic for men. Men without jobs are more likely to commit crimes and go to prison. They are less likely to wed, more likely to divorce, and more likely to father a child out of wedlock.

SJP

In Law and Almost Everywhere Else, Reduced Regulation Is Not Deregulation

The Wall Street Journal recently ran an op-ed: Time to Deregulate the Practice of Law: Every other industry that has been deregulated, from trucking to telephones, has lowered prices without sacrificing quality.  An interesting premise, and there are certainly some valid points.  But it jumps out at me that there is an overall sense that all regulation is "bad." Plus, I see this as a fundamental overstatement of what "deregulation" is.  

Trucking and telephones are not unregulated; the industries are certainly much less regulated than they were, but that is different than being unregulated. Reducing regulations often will increase competition by increasing market participants, and that can be a good thing.  But this is true for every regulated industry.  

If we reduced regulations on doctors and surgeons, there would be more and cheaper option for their services, but it's not at all clear it would a make health care better. The WSJ article states that "the medical field created physician's assistants to deal with less serious cases, [and] the legal profession can delegate less serious tasks.  I agree. There is a difference between delegating diagnosis of a rash to a physician's assistant and delegating open-heart surgery. But physician's assistants still have a base level of education and expertise, in a way that unregulated lawyers would not, as I understand the proposal. Plus, it's not as though the era of physician's assistant has stemmed the tide of rising health care costs or dramatically increased access to medical care. 

If we really hate legislation, we could eliminate usury laws, which would increase access to captial.  We could remove speed limits, stop signs and stoplights, thus reducing regulations on the flow of traffic.  We could elimate child labor laws, increasing the available workforce. And we could eliminate the FDA and kitchen inspections, thus making food cheaper and more accessible.  All of these things have a downside, of course, but we could do it.  

Regualtions are often overblown, intrusive, and unnecessarily restrictive, and that is a problem.  And modifying and reducing some of the regualtions in my examples above may very well lead to a more efficient market and greater access to the relevant goods and services. But we need to keep in mind that there is often value in some regulation so that we can have some sense of safety and reliability, which also has value.  

I'm open to reducing some regulations on lawyers, and I agree that the market for legal services could be improved in a number of ways.  But "deregulation" is not the answer.  Rethinking and reducing regulation may well be. 

--JPF

Three Myths of Capitalism

Greg Mankiw has posted on his blog a short video by Jeff Miron, an economist at Harvard, addressing three myths of capitalism. The myths that Miron addresses are (1) the notion that being pro-capitalism is the same as being pro-business; (2) the claim that capitalism generates an “unfair” distribution of income; and (3) the claim that capitalism was responsible for the recent financial crisis.

It’s short and well worth watching.

-Steve Bradford

This is news?

From The Guardian: Ratings agencies suffer 'conflict of interest', says former Moody's boss

SJP

Crowdfunding and Federal Securities Law

My paper on crowdfunding and the federal securities laws is finally available on SSRN at this link. Here’s the abstract:

Crowdfunding—the use of the Internet to raise money through small contributions from a large number of investors—may cause a revolution in small-business financing. Through crowdfunding, smaller entrepreneurs, who traditionally have had great difficulty obtaining capital, have access to anyone in the world with a computer, Internet access, and spare cash to invest. Crowdfunding sites such as Kiva, Kickstarter, and IndieGoGo have proliferated and the amount of money raised through crowdfunding has grown to billions of dollars in just a few years.

Crowdfunding poses two issues under federal securities law. First, some, but not all, crowdfunding involves selling securities, triggering the registration requirements of the Securities Act of 1933. Registration is prohibitively expensive for the small offerings that crowdfunding facilitates, and none of the current exemptions from registration fit the crowdfunding model. Second, the web sites that facilitate crowdfunding may be treated as brokers or investment advisers under the ambiguous standards applied by the SEC.

I consider the costs and benefits of crowdfunding and propose an exemption that would free crowdfunding from the regulatory requirements, but not the antifraud provisions, of the federal securities laws. Securities offerings of $250,000 or less would be exempted if (1) each investor invests no more than $250 or $500 a year and (2) the offering is made on an Internet crowdfunding site that meets the exemption’s requirements. Exempted offerings would be required to include a funding target and could not close until that target was met. Until then, investors would be free to withdraw.

To qualify for the exemption, crowdfunding sites must (1) be open to the general public; (2) provide public communication portals for investors and potential investors; (3) require investors to fulfill a simple education requirement before participating; (4) prohibit certain conflicts of interest; (5) not offer investment advice or recommendations; and (6) notify the SEC that they are hosting crowdfunding offerings. Sites that meet these requirements would not be treated as brokers or investment advisers.

I would welcome any comments (or offers of publication) you might have.

-Steve Bradford

Gooses, Ganders, and the Many Facets of Monetary Policy

Bloomberg reports that the Fed gave $1.2 trillion in "secret loans" to the largest banks in the United States and around the world.  Bloomberg provides a cool liquidity chart here, that allows comparisons of the borrowers and their peak amounts borrowed.

I share frustration that, during the crisis, massive loans were available to the largest borrowers, while small businesses and individuals who posed reasonable credit risks were shut out of the loan market. And just because the Fed's massive loan program appears to have served its purpose without any significant harm to taxpayers, it doesn't mean that it was a risk-free endeavor.  Still, I'm of a mixed mind as to whether its a good idea to ensure the Fed can't make such loans.

Note the following, from an Allan Sloan article I posted earlier:

Adding to the current sense of foreboding, at least for me, is the fact that the Federal Reserve, which rode to the rescue last time, is legally constrained by provisions of Dodd-Frank legislation little recognized outside the world of regulators and financial techies. Back in 2007, the Fed could invent programs to bail out solvent but illiquid institutions. It could also turn investment banks like Goldman Sachs and Morgan Stanley (MS) into bank holding companies with access to unlimited Fed funding -- and even infuse cash into nonbank basket case AIG (AIG) directly and indirectly to forestall an uncontrolled collapse, which could have made the Lehman Brothers disaster look like a mere rounding error.

Sometimes, banks, businesses, and individuals are solvent, but not liquid, and access to credit is the only thing that can keep the banks, businesses, or individuals from going under.  We see this at the largest banks, as the Fed program seems to demonstrate, and we see it at the individual consumer level, where there is some indication that restricted access to expensive payday lending can have a negative impact on consumers. (Zinman, 2008) 

At a minimum, this is another instance where it is not clear to me whether the large government bailout (or bailout-like) program is the problem, though I remain skeptical of the bailout programs.  What is clear to me is that the implementation of the program for only the largest and most powerful among us again creates an inequity that warrants questioning.  As the Bloomberg report explains: "$1.2 trillion of public money [is] about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages."  

There is clearly some interest in shutting down the Fed's (and government's) ability to make large loans and expenditures.  Maybe that's right, but I happen to like the idea that the government can choose to help in the face of disasters, whether they are financial or natural disasters. (Note that I maintain my view that government does a terrible job of planning for and mitgating such diasasters, but that's a different matter.)  I just want government to make good choices and to recognize that's what's good for the very wealthy goose, may also be good for the very modest gander.

--JPF

The SEC's Destruction of Documents

I’m back from an extended vacation and ready to begin blogging again. (By the way, if you’re a backpacker and haven’t experienced Wyoming's Wind River range, it’s definitely worth it. Just avoid the killer hike known as Porcupine Pass.)

Regular readers of this blog know I’m not a big fan of the SEC, but I think the recent brouhaha about the SEC’s destruction of documents is overblown. For those of you who haven’t seen the stories, the allegation is that the SEC routinely destroyed documents related to preliminary inquiries that did not turn into formal investigations. You can read the stories here, here, and here.

As J. Robert Brown, Jr. explains, the problem is that a government agency may not destroy documents except pursuant to a disposition schedule approved by the National Archives and Record Administration. Since the NARA had not approved a disposition schedule for these documents, their destruction violated the law.

The SEC’s destruction of these documents was careless and stupid, and I agree with Steve Bainbridge’s claim that this is another instance of the SEC itself being unable to comply with the type of rules it expects those it regulates to follow.  But I see nothing venal in the SEC’s actions. The New York Times tries to tie it to the revolving door at the SEC and former staffers representing clients before the SEC. I think the suggestion that this document destruction facilitated the ability of SEC investigators to “do undetected favors for former colleagues and their clients by quashing investigations” is just silly.

-Steve Bradford

Allan Sloan on the S&P Downgrade

From Allan Sloan at Fortune comes: American Idiots: How Washington is destroying the economy.  This is an interesting review/rant, and some parts are especially compelling. It's worth the read.  Sloan explains:

Now, a few facts. The S&P downgrade is not -- as some hate-filled knuckleheads inside the Beltway and in the hinterlands keep repeating -- from fear that the U.S. is "broke" or lacks the financial ability to meet its obligations. S&P's primary worry is that the U.S. may not summon up the political will to pay its debts.

. . . .

The root of our current problem is that there are no grownups in positions of serious power in Washington. I've never felt this way before -- and I've written business stories for more than 40 years, and about national finances for more than 20. Look, I certainly don't worship Washington institutions. I called former Federal Reserve chairman Alan Greenspan the "Wizard of Oz" when he was known as the "Maestro." I've said for more than a decade that the Social Security trust fund had no economic value and would be useless when the system's cash flow turned negative -- which I also predicted. But despite being an irreverent professional skeptic, I never felt there was a total absence of adult supervision in our nation's capital. Now I do.

I fear he's right.  The question is, what are we going to do about it? 

--JPF

Smith on Corporate Governance

D. Gordon Smith has The Role of Shareholders in the Modern American Corporation posted on SSRN with the following abstract:

This chapter from the forthcoming Research Handbook on the Economics of Corporate Law (Claire Hill & Brett McDonnell, eds.) examines the role of shareholders in the modern American public corporation. The chapter starts with the Berle and Means (1932) problem of the separation of ownership and control, but notes that the rise of institutional investors has changed the situation. Shareholders have three main sets of rights through which they can protect themselves: the right to vote, to sell, and to sue. Each of these rights has evolved significantly in recent years. The chapter describes some of the changes and debates, and also briefly addresses the question of the proper beneficiaries of corporate decisions.

-- Eric C. Chaffee

Rock on Corporate Governance

Edward B. Rock has posted Shareholder Eugenics in the Public Corporation on SSRN with the following abstract:

In a world of active, empowered shareholders, the match between shareholders and public corporations can potentially affect firm value. This article examines the extent to which publicly held corporations can shape their shareholder base. Two sorts of approaches are available: direct/recruitment strategies; and shaping or socialization strategies. Direct/recruitment strategies through which “good” shareholders are attracted to the firm include: going public; targeted placement of shares; traditional investor relations; the exploitation of clientele effects; and de-recruitment. “Shaping” or “socialization” strategies in which shareholders of a “bad” or unknown type are transformed into shareholders of the “good” type include: choice of domicile; choice of stock exchange; the new “strategic” investor relations; and capital structure. For each type of strategy, I consider the extent to which corporate and securities law facilitates or interferes with the strategy, as well as the ways in which it controls abuse. In paying close attention to the relationship between shareholder base and firms, this article attempts to merge investor relations, very broadly construed, with corporate governance.

-- Eric C. Chaffee

A Brief Google-Motorola Reader

Unless you've been sleeping under a rock, you know Google recently agreed to buy Motorola for $12.5 billion (a price that apparenlty translates to a 63% premium).  You can read an overview of the deal here.

Steven Davidoff examines the large breakup fee here.  He notes that the large fee actually signals both investors and regulators that Google is very confident of antitrust approval--and will likely fight hard to ensure it gets it.

While Motorola likely appreciated the breakup fee, it's probably not as thrilled with the restrictions it now faces in conducting its business till the deal is done.  Davidoff also comments on that here.

The deal is ultimately about patents, and Bloomberg argues it serves to illuminate how much our current patent system is in need of reform.  Write the editors: The current system "rewards lawyers and investment bankers far more than inventors or consumers."

Finally, some are noting that the deal could ultimately prove to be a disaster for Google, noting the conflicts it creates between Google and a number of its partners, as well as the fact that "hardware manufacturing is a crappy, low-margin commodity business."  Google shares appear to be down over 10% since the announcement of the deal, compared to a roughly 6% decline for the S&P 500.

SJP

Poker and the Debt Crisis

Poker News reports:

Senate Majority Leader Harry Reid reportedly told the Las Vegas Review-Journal that Internet poker legislation "will get done." … The joint select committee on deficit reduction has been tasked with finding at least $1.5 trillion in debt savings over the next 10 years. Licensing and regulating Internet poker is a way the committee could identify billions of dollars with little effort.

Perhaps that will stop the exodus of poker pros.

SJP

Homer Simpson, Darryl Strawberry and Keating v. Motorola

A former student e-shared with me the news report about the Keating v. Motorola Mobility Holdings class-action suit, which claims that Motorola and its board violated fiduciary duties by entering into a merger agreement with Google.  (The case is John Keating v Motorola Mobility Holdings Inc., et al., Circuit Court of Cook County, No. 28854; the complaint is available via Westlaw.) 

The suit alleges:

The offered consideration does not compensate shareholders for the Company's intrinsic value and stand-alone alternatives going forward, not does it compensate shareholders for the Company's value as a strategic asset for Google.  

All in all, after a quick look at the complaint, these are my first thoughts: (1) Mr. Keating trusts his judgment over the board of directors, (2) Mr. Keating does not care for Carl Icahn, and (3) the case seems premature.  In addition to sending me the article, my former student asked, is there any likeihood this suit will succeed?  As I thought about my response, I remembered an old Simpsons episode, which leads to my Darryl Strawberry reference.  Simpsons fans will recall the episode when Darryl Strawberry and other Major League Players came in as ringers for the Springfield Nuclear Power Plant softball team's championship game. Homer Simpson played right field, and when Strawberry joined the team, this exchange followed:

Homer Simpson: You're Darryl Strawberry! 
Darryl Strawberry: Yes. 
Homer Simpson: You play right field. 
Darryl Strawberry: Yes. 
Homer Simpson: I play right field too. 
Darryl Strawberry: So? 
Homer Simpson: Well, are you better than me? 
Darryl Strawberry: Well, I've never met you, but... yes. 

As I took a glance at the complaint, my response followed something like this:

Former Student: Shareholders sued Motorola for agreeing to merge with Google.
Me: Yes. 
Former Student: The Motorola shareholders haven't had their vote yet, either, right? 
Me: Yes. 
Former Student: The complaint seems to allege a violation of Revlon duties, but those don't apply to all negotiated acquitions, right? 
Me: Correct. 
Former Student: So, is there any chance of success? 
Me: Well, I've haven't seen any of the evidence, and I don't know a lot of the specifics, but... no.

--JPF

Hillman and Weidner on Partnership Law

Robert W. Hillman and Donald J. Weidner have posted Partners Without Partners: The Legal Status of Single Person Partnerships on SSRN with the following asbtract:

Is it possible to have a partnership consisting of one person, a partner without a partner? The question will arise when all but one of the members leaves a partnership. The Revised Uniform Partnership Act (RUPA) attempts to give greater stability to partnerships by narrowing the circumstances under which dissolutions occur, but it also fails to address the fundamental and important question of whether a partnership may be continued by a sole surviving partner.

In this article, we explore the issues raised by a single person partnership. In particular, we address the central issue of whether the departure of the penultimate partner from a term partnership triggers a winding up of the business or whether the statutory buyout is called into play. We have structured much of the discussion as a dialog between the authors. This allows us both to focus on the precise issues under RUPA presented by a single person partnership and to probe the competing arguments on whether such a partnership may exist. Although we have differing views on whether a single person partnership is possible under RUPA, we conclude on common ground that the buyout is appropriate. We also unite in a call for statutory clarification.

-- Eric C. Chaffee

How long can the Supreme Court continue to avoid adopting a theory of the corporation?

While I have argued elsewhere (specifically, here and here) that the Supreme Court did in fact rely on a particular theory of the corporation to decide Citizens United, it failed to do so expressly and has been frustratingly inconsistent in doing so in the bulk of its cases dealing with corporations.  I am certainly not alone in seeing this as a problem (see Bainbridge on this point here), and we get more of the same from Daniel Greenwood in his latest piece, "FCC v. AT&T: The Idolatry of Corporations and Impersonal Privacy."  Writes Greenwood:

Our Constitution and our political debate often divide the world into two categories: state and citizen, public and private, collective and individual. Do the multinational publicly traded corporations belong on the individual, private side of this great liberal divide? … The Court’s opinion [in FCC v AT&T] is silent on this basic issue. Only a strong theory of corporate rights could lead a native English speaker to conclude, as the Third Circuit did, that a statute should be interpreted to mean the opposite of what its words ordinarily mean. The Supreme Court’s purely linguistic analysis, as arid as any Lochner-era formalist opinion, demonstrates its ability to use the dictionary, but fails to address the underlying legal issues. More disturbingly, it hides behind its formalism to avoid making even the slightest attempt to explain how this decision can be consistent with its many decisions that, like the Third Circuit opinion, invent corporate rights with no deference to plain meaning. Why is ordinary meaning important here, but irrelevant when corporations assert constitutional rights that the text grants only to human beings?

The entire piece is well worth a read.

SJP

Chen on Modern Disaster Theory

Jim Chen has posted Modern Disaster Theory: Evaluating Disaster Law as a Portfolio of Legal Rules, available on SSRN here.  The abstract is as follows:  

Disaster law consists of a portfolio of legal rules for dealing with catastrophic risks. This essay takes preliminary steps toward modeling that metaphor in quantitative terms made familiar through modern portfolio theory. Modern disaster theory, by analogy to the foundational model of corporate finance, treats disaster law as the best portfolio of legal rules. Optimal legal preparedness for disaster consists of identifying, adopting, and maintaining that portfolio of rules at the frontier of efficient governance.

Part I of this essay defines disaster and disaster law. In an effort to develop an analytically rigorous basis for modeling and evaluating disaster law, Part II expounds the principles of modern portfolio theory, a framework for assessing financial returns according to risk. Part III outlines the principles of modern disaster theory as the legal analogue of modern portfolio theory as a branch of finance. Part IV conducts an exercise in applied modern disaster theory. It evaluates legal tools for compensating disaster victims ex post and spreading catastrophic risk ex ante according to the terms of modern disaster theory’s catastrophic preparedness asset model. Part V concludes that modern disaster theory, through the use of sophisticated quantitative methods analogous to those used in financial analysis, promises to place disaster law and policy at the efficient frontier of legal preparedness.

This is an interesting read.  Dean Chen concedes that using modern portfolio theory has its flaws. He also notes that "behavioral biases in the perception of risk, by policymakers and by members of the public, severely distort legal responses to disasters."  There is no doubt that is true, and it's true with legal responses, and it's true in planning for disasters, as well. (For more on that, see, in a bit of shameless self-promotion, here.)  Still, he proceeds with his analysis, and concludes:

My survey of risk management techniques in disaster law — from private insurance to public subsidies, the involvement of government as ultimate reinsurer, and the promise of enhancing catastrophic preparedness through private capital markets — shows how disaster law represents a single, theoretically coherent exercise in societal risk management.

. . . . A diversified disaster law portfolio — namely the optimal mixture of policy instruments for reducing environmental hazard and human susceptibility and for enhancing social resilience and capacity — represents the efficient frontier of legal preparedness in times of disaster.

I'm working my way back through it more closely, but I found it a throught-provoking piece, and I recommend taking a look. 

--JPF