Over the past 40 years, an irrelevance proposition has been prevalent in law -and -economics scholarship: bargaining power should affect only price and not non-price terms of a contract. In contrast, practitioners and commentators in industry regularly invoke bargaining power to explain static and dynamic variance in non-price contract terms. This paper unpacks and analyzes the assumptions of the strong—and weak—versions of this bargaining power irrelevance proposition, to bridge the gap between theory and the real world. In the first half of the paper, we identify and discuss a variety of explanations for the effect of bargaining power on contract design, under conditions of information asymmetry and positive transaction costs. These include the effects of shifts in market supply and demand and the effect of bargaining through lawyers. In the second half of the paper, we present an in-depth examination of one set of explanations, concerning the impact of bargaining power and information asymmetry on non-price terms, when the value and cost of non-price terms vary across contracting parties. In the extreme cases in which one or the other party enjoys overwhelming bargaining power, the efforts of that party to capture a larger share of the surplus by screening or signaling may compromise the efficiency of the non-price terms. We show that this incentive disappears or is mitigated when bargaining power is more evenly shared between the parties: for example, when a monopolist faces the threat of competition, when the parties can renegotiate, or when they engage in bilateral bargaining with more even bargaining power. As a whole, the paper provides a theoretical basis for interpreting the intuition among market participants that the impact of bargaining power extends beyond price terms. Before concluding, we briefly suggest implications for legal policy, particularly the contract law doctrine of unconscionability.
Issue 8
Securing Sovereign State Standing
States can premise standing to sue as plaintiffs in federal court upon three main categories of interests—proprietary, sovereign, and quasi-sovereign interests. Proprietary and sovereign interests, this Note contends, are held independently by states qua states, whereas quasi-sovereign interests are derivative of citizens’ collective welfare concerns. This Note attempts to correct the pervasive confusion clouding the boundary between sovereign and quasi-sovereign interests, arguing that they are meaningfully distinct and should be treated differently.
This argument is especially important in the context of the jurisdictional bar instituted by the Supreme Court in Massachusetts v. Mellon, which prohibits states from pursuing “parens patriae” suits to shield their citizens from federal law. Parens patriae is a special type of representative standing through which states can vindicate generalized citizen interests. This Note argues that states act as parens patriae in the relevant context when they assert quasi-sovereign standing only—and thus not when they seek to defend their sovereign interests. The Mellon bar, therefore, should disallow only certain quasi-sovereign suits; it should be wholly inapplicable to sovereignty-vindicating claims.
Finally, a look at Virginia’s current attack on the constitutionality of recent federal healthcare reform, Virginia ex rel. Cuccinelli v. Sebelius, sharpens and contextualizes these issues. Virginia has asserted purely sovereign interests, but the federal government defendant has argued—incorrectly—that the Mellon bar should nevertheless apply.
This discussion is both timely, given the immediacy and prominence of the standing issues underlying the Virginia healthcare challenge, and significant, given its importance for fundamental and enduring issues of American federalism.
Reclaiming the Legal Fiction of Congressional Delegation
The framework for judicial review of agency statutory interpretations is based on a legal fiction – namely, that Congress intends to delegate interpretive authority to agencies. Critics argue that the fiction is false because Congress is unlikely to think about the delegation of interpretive authority at all, or in the way that the Court imagines. They also contend that the fiction is fraudulent because the Court does actually care about whether Congress intends to delegate interpretive authority in any particular instance, but applies a presumption triggered by statutory ambiguity or a particularized analysis involving factors unrelated to congressional delegation. In this Essay, I argue that critics have misjudged the fiction. First, there is direct evidence that Congress attends to the delegation of interpretive authority and is likely to view the delegation of regulatory authority as sufficient to convey a delegation of interpretive authority. Second, there is indirect evidence that the Court’s framework tracks how Congress decides to delegate. The Court is employing a fiction in the sense that it is not looking for actual legislative intent but is imputing legislative intent. But that fiction is no different in kind than the one that the Court employs in other contexts. By viewing the fiction of congressional delegation as worse than it is, critics have had license to disregard it in evaluating how to allocate interpretive authority between courts and agencies. My argument would bring that issue back to how Congress designs statutes.