Volume 95

The Space Between Markets and Hierarchies

The decision to pool production within a firm raises a fundamental tension for corporate law scholars. On the one hand, channeling activity into a centralized entity can economize on transaction costs by replacing the hassles of arms-length contracting with managerial discretion. Instead of attempting to write a complete contract to insulate against counterparty opportunism, firm managers retain the control necessary to make optimal decisions later—if and when a potential contingency arises. On the other hand, agency costs and production costs may be somewhat higher when business is conducted within a firm—because the activity is walled off from the relentless pricing pressure that comes with well-functioning markets. Recent work in the legal academy also shows how intra-firm activity can result in suboptimal capital structures for a given collection of assets. As the story goes, the precise location of a firm’s borders at any point in time will be the result of a mindful balancing between these competing effects.

Yet this account has always been somewhat misleading: there is space between markets and hierarchies. Business alliances, joint ventures, franchise agreements, and other structures offer firms a middle path between market exchange and unconditional firm control. Furthermore, the recent rise in business outsourcing transactions presents another intriguing context for studying hybrid organizational structures. Under many of these arrangements, assets (both physical and intangible) are legally owned by an offshore vendor, but the use of these assets is subject to partial control rights retained by the operational client.

This Article explores the growth of business outsourcing, how it works, and why two firms might logically enter into an outsourcing arrangement not only to cut production costs—but also to craft a sensible governance compromise. It also asks, more generally, whether increased diversity of organizational structures is starting to provide firms with a richer menu of strategies for sharing operational risk—in the same way that recent innovations in corporate finance and capital markets are dramatically altering ownership strategies on the right side of the balance sheet.

Invalid Forensic Science Testimony and Wrongful Convictions

This is the first study to explore the forensic science testimony by prosecution experts in the trials of innocent persons, all convicted of serious crimes, who were later exonerated by post-conviction DNA testing. Trial transcripts were sought for all 156 exonerees identified as having trial testimony by forensic analysts, of which 137 were located and reviewed. These trials most commonly included serological analysis and microscopic hair comparison, but some included bite mark, shoe print, soil, fiber, and fingerprint comparisons, and several included DNA testing. This study found that in the bulk of these trials of innocent defendants—82 cases or 60 percent—forensic analysts called by the prosecution provided invalid testimony at trial—that is, testimony with conclusions misstating empirical data or wholly unsupported by empirical data. This was not the testimony of a mere handful of analysts: this set of trials included invalid testimony by seventy-two forensic analysts called by the prosecution and employed by fifty-two laboratories, practices, or hospitals from twenty-five states. Unfortunately, the adversary system largely failed to police this invalid testimony. Defense counsel rarely cross-examined analysts concerning invalid testimony and rarely obtained experts of their own. In the few cases in which invalid forensic science was challenged, judges seldom provided relief. This evidence supports efforts to create scientific oversight mechanisms for reviewing forensic testimony and to develop clear scientific standards for report writing and testimony. The scientific community can promulgate standards to ensure the valid presentation of forensic science in criminal cases and thus the integrity and fairness of the criminal process.

The Constitutional Foundation for Fact Deference in National Security Cases

I have been running the University of Virginia National Security Law Institute each June since 1991 to train professors and government lawyers to teach and work in this emerging field of law. Professor Robert Chesney attended the 2004 Institute and has been a regular instructor in the program since then. I have encountered no young national security law scholar who in my view rivals his considerable talents. I was thus not surprised to find that he has contributed a very thoughtful and insightful article to the Virginia Law Review.

Professor Chesney is certainly correct that national security fact deference claims “implicate competing values of great magnitude,” and thus warrant careful attention. He categorizes such claims under four headings, the last of which are claims involving “the concern that the law vests decisionmaking authority in another institution.” My space is limited, so I will focus on that aspect of the issue.

©Virginia Law Review Association. All rights reserved.