Commentators on insider trading are divided into two camps, one in favor of regulation, the other in favor of deregulation.  The pleadings for the two positions are manifold but not irreconcilable.  We show that important gains to social welfare come with insider trading on negative information (sales), whereas losses often result from the use of positive information (purchases).  Thus, we look at a regulation that allows insiders to use negative but not positive non-public information.  Because positive information will be disclosed much sooner that negative information, the marginal incentive (and marginal gain to social welfare, respectively) of insider trading as a disclosure mechanism is greater for sales than for purchases.  Likewise, stock bubbles generally occur in terms of overvaluations, not undervaluations, emphasizing the importance of insider trading on negative information as a deterrent.  The case law on insider trading has long since recognized the distinction between the two types of information, a fact that commentators have either neglected or criticized.  A reinterpretation allows us to reconcile presumed contractions of the case law.  Our analysis also explains empirical data suggesting that insider trading involves more selling than buying, while enforcement actions focus on purchasing activity.

DePaul Law Review, Vol. 56, 2007

In the preamble to its most recent (January 2006) prescription drug labeling rule, the FDA made clear its belief that "FDA approval of labeling under the act . . . preempts conflicting or contrary State law." The latest rule (effective July 2007) handed down by the Consumer Product Safety Commission (CPSC) includes a sweeping preamble statement that the new federal standard preempts "inconsistent state standards and requirements, whether in the form of positive enactments or court created requirements." And, if NHTSA has its way, its new safety standard for roofs on sport-utility vehicles will include language immunizing auto manufacturers from state tort lawsuits over defective roofs if their autos meet federal safety standards. Dubbed "silent tort reform," these preemption preambles may be only the beginning, the tip of the iceberg, a harbinger of a future where federal agency regulations come armed with directives to displace competing or conflicting state regulations or common law as a matter of course. With the issuance of these recent controversial preambles, federal agencies have thrust themselves into the preemption spotlight. In the "tale of three agencies" that follows, I explore the recent agency action against the backdrop of the dynamics and organization of the various regulatory regimes in question, comparing and contrasting the CPSC, the FDA, and NHTSA. Critical to my analysis is the interplay between private rights of action and federal regulatory schemes. Courts appear to grant agencies fairly expansive discretion to interpret (or declare) the preemptive scope of the regulations they promulgate, but when it comes to inferring private rights of action under those same regulations, their hands are tied by judicial tether. As Justice Scalia colorfully responded in the latter context: "Agencies may play the sorcerer's apprentice but not the sorcerer himself." Why can an agency play the role of the sorcerer in the context of preemption, but must remain a lowly apprentice with respect to implied rights of action? This ostensible asymmetry reveals that any threat to the "rule of law" presented by the federal agencies' preemption preambles rises or falls depending upon either the continuing existence of private rights of action (either express or implied) at the federal or state level, or, alternatively, the provision of a remedial framework as part of the federal comprehensive scheme. In this way, the necessity of private rights of action varies inversely with the comprehensiveness of the federal regulatory scheme.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=900020

This Article proposes a new approach to analyzing state compliance with international obligations, positing that increased interaction among the world's regulators has reinforced norms within cross-border regulatory networks, influencing the actions of senior regulators who are network members and, in turn, affecting levels of state compliance.

Network norms help define what state actions constitute signals and the meanings of those signals. Certain actions, such as implementing a substantive network standard, may be considered a concrete expression of an abstract network norm. States that fail to implement that standard risk failing to send the right signal, potentially incurring significant network sanctions. Actual compliance, however, may reflect a balance between network norms and competing domestic interests, so that states may fail to comply fully with standards they have implemented. Lower levels of compliance, nevertheless, may be permissible so long as they are consistent with network expectations. If this theory is accurate, then traditional concepts of compliance may not apply internationally; rather, what constitutes compliance may vary across networks and over time, based on differences in networks and norms.

The Basel Accord of 1988 and Japan's experience are presented as illustrations. For Japan, implementing the Accord was important in order to signal its cooperation to other regulators, even though actual compliance was lower, reflecting competing domestic interests. Network norms may have modified members' expectations of what levels of compliance were acceptable; and so, even in the face of weak compliance, Japan's implementation may have credibly signaled its support of network cooperation.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=777684

This paper, which will appear as a chapter in the forthcoming Handbook of Law and Economics (A.M. Polinsky & S. Shavell, eds.), surveys major issues arising in the economic analysis of contract law. It begins with an introductory discussion of scope and methodology, and then addresses four topic areas that correspond to the major doctrinal divisions of the law of contracts. These areas include freedom of contract (i.e., the scope of private power to create binding obligations), formation of contracts (both the procedural mechanics of exchange, and rules that govern pre-contractual behavior), contract interpretation (what consequences follow when agreements are ambiguous or incomplete), and enforcement of contractual obligations. For each of these sections, we address the economic analysis of particular legal rules and institutions, and, where relevant, connections between legal arrangements and associated topics in microeconomic theory, including welfare economics and the theory of contracts.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=921620

Hoffman v. Red Owl Stores is one of the storied cases in modern contract law. The conventional wisdom is that Hoffman represents the emergence of a new legal rule imposing promissory estoppel liability for representations made during preliminary negotiations. Yet a review of contemporary case law shows that, in fact, courts require some form of agreement before they will grant recovery for early reliance. Hoffman's main legacy, therefore, has been as a trap for the unwary lawyer (and unhappy client) who unsuccessfully seek recovery for reliance on preliminary negotiations. This article asks how the court in Hoffman was able to find liability where other courts have not. A careful examination of the trial record shows that the conventional understanding of the facts in Hoffman is simply wrong. The true facts show that the breakdown in the negotiations between Hoffman and Red Owl officials was a product of a misunderstanding as to the nature of his financial contribution to the enterprise, a misunderstanding as attributable to Hoffman's carelessness as to any representations made by Red Owl's agents. The article then uses a large sample of decided cases to recover the law in action that governs precontractual liability. This sample highlights the emergence of a new default rule that imposes liability for a failure to bargain in good faith following a binding preliminary commitment. This new legal duty has been largely unexplored in the casebooks or the secondary literature, in part because of the misplaced attention paid to the unfortunate controversy between Mr. Hoffman and Red Owl Stores.