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In Coase's Footsteps
Douglas G. Baird
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CHICAGO
JOHN M. OLIN LAW & ECONOMICS WORKING PAPER NO. 175
(2D SERIES)
In Coase’s Footsteps
Douglas G. Baird
THE LAW SCHOOL
THE UNIVERSITY OF CHICAGO
January 2003
This paper can be downloaded without charge at:
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and at the Social Science Research Network Electronic Paper Collection:
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1
In Coase’s Footsteps
Douglas G. Baird
∗
Abstract
This paper revisits two examples of vertical integration in the early automobile industry: GM and
Fisher Body on the one hand and Ford Motor and Keim Mills on the other. The paper shows that asset-specific investment and the fear of hold-up played at best a negligible role. What mattered in the
case of GM and Fisher Body was close coordination of assembly operations. In the case of Ford Motor and Keim Mills, vertical integration was an important step (but only one of many) that Henry
Ford took to ensure that his production team remained intact.
In the case of GM and Fisher Body, GM’s decision to coordinate the assembly of Chevrolet
components, including car bodies, at multiple locations proved crucial. Shipping complete car bodies and storing them at each Chevrolet assembly plant was expensive and unwieldy. Instead, Fisher
Body shipped sheets of stamped metal to assembly plants built at GM’s expense adjacent to each
new Chevrolet assembly plant. At these plants, Fisher Body coordinated the welding of the sheets
into car bodies with Chevrolet’s production team. The close coordination of these plant level operations made the activities of Fisher and Chevrolet indistinguishable from most activity that takes
place inside a conventional firm. These production efficiencies made vertical integration sensible,
but the date of formal legal integration came late and was not itself of great moment.
The success of the Model T depended crucially on Henry Ford’s ability to keep his production
team together. Many team members worked initially for Keim Mills, and Keim became a subsidiary
of Ford. But, as in the case of GM and Fisher Body, the formal legal event marking vertical integration of Ford and Keim did not coincide with the important economic events. The members of the
Keim Mills team designed the Model T well before vertical integration, and their later contributions
came only when they moved from Buffalo to Detroit, something that was independent of and took
place after vertical integration. The value of the Model T depended crucially on the members of the
team Henry Ford put together, but relatively little on whether, as a legal matter, the Ford Motor
Company employed them.
Retracing famous journeys is a time-honored and worthy tradition. Great explorers necessarily leave some terrain unsurveyed when they visit new territory for the first time. As we mark the
Law School’s centennial, there is one journey especially worthy of our attention. When he was a
20-year-old undergraduate, Ronald Coase spent the better part of a year visiting the great indus1
trial plants in the United States. Out of this research emerged The Nature of the Firm, The Prob2
lem of Social Cost, and much of modern law and economics. Coase solved many mysteries that
∗
Harry A. Bigelow Distinguished Service Professor, University of Chicago. I thank Richard Brooks, R.H. Coase, Keith Gill,
Mark Haywood, Michael Hilgers, and the staff at the Museum of Science and Industry for their help. The ideas in this paper grow out
of my long, fruitful, and continuing collaboration with my colleague Robert Rasmussen, to whom I am, as always, most indebted. For
its support of this and many other projects, I am grateful to the John M. Olin Foundation.
1
R. H. Coase, The Nature of the Firm, 4 Economica 386 (1937).
2
R. H. Coase, The Problem of Social Cost, 3 J L & Econ 1 (1960).
year, but, happily for the rest of us, not all of them. One of the most intriguing arises out of the
relationship between General Motors and Fisher Body, one of its principal suppliers.
Coase was primarily interested in what drove managers to produce something inside a firm
rather than acquire it in the marketplace. GM’s acquisition of Fisher Body was therefore a subject
3
of particular interest to him. Fisher Body began as an independent firm that supplied GM with all
of its closed car bodies. In 1926, GM acquired Fisher and thereafter produced all of its car bodies
internally, along with the two other major components of their cars (the chassis and drive train),
4
both of which it made largely in house. Hence, while interviewing GM executives in 1932,
Coase naturally asked about the firm’s acquisition of Fisher Body. They told him that the need to
build body plants next to GM’s assembly plants drove the decision. The conversation, however,
5
seems to have stopped here. Coase did not learn why they wanted body plants next to assembly
plants or why doing this required the vertical integration of the two firms. As it happened, other
bits of evidence led him to a new understanding of the nature of the firm, and this line of inquiry
was left untouched.
In this paper, I return to Coase’s brief conversations with these GM executives. I attempt to
discover why they answered Coase’s question the way they did, and what they might have said
had they been pressed further. My reasons are two-fold. First, economists in recent years have
come to use the merger of GM and Fisher Body as the paradigmatic example of vertical integra6
tion. Reexamining what the managers thought they were doing has something to offer to this ongoing debate. Second, the inquiry itself casts some light on what gives firms value as going concerns. Understanding going-concern value, the value that assets have if kept together inside an
existing firm (and hence what will be lost if a firm is shut down), is central to my own work in the
7
law of corporate reorganizations. Only to the extent that going-concern value exists can we justify a legal regime designed to preserve firms as going concerns.
3
See R. H. Coase, The Nature of the Firm: Origin, Meaning, Influence, in Oliver E. Williamson and Sidney G. Winter, eds, The
Nature of the Firm: Origins, Evolution, and Development 45 (Oxford 1993) (quoting from a letter Coase wrote in 1932).
4
Coase has returned to the question of GM’s acquisition of Fisher Body, and his most recent account sets out the basic facts.
See Ronald H. Coase, The Acquisition of Fisher Body by General Motors, 43 J L & Econ 15, 21–27 (2000).
5
See Coase, The Nature of the Firm: Origin at 43 (cited in note 3) (“I wish I could now repeat what I was told by General Motors officials about their reasons for acquiring Fisher Body. . . . My recollection is that I was told that the main reason for the acquisition was to make sure that the body plants were located near General Motors assembly plants.”).
6
See Robert F. Freeland, Creating Holdup Through Vertical Integration: Fisher Body Revisited, 43 J L & Econ 33, 34 (2000)
(describing GM’s acquisition of the Fisher Body as an example of Vertical Integration). This literature begins with Benjamin Klein,
Robert G. Crawford, and Armen A. Alchian, Vertical Integration, Appropriable Rents, and the Competitive Contracting Process, 21 J L
& Econ 297, 307–10 (1978).
7
See Douglas G. Baird and Robert K. Rasmussen, The End of Bankruptcy, 53 Stan L Rev XX (2003).
2
I.
By 1910, the automobile had taken the shape it was to have for many decades. It consisted of
three principal components. First, there was the chassis, a rigid frame on which was attached the
front wheels and steering mechanism. The second major component was the drive train. It consisted of the engine, transmission, and a drive shaft connected by a differential gear to the rear
wheels. The third component, the car body, was mounted on the chassis. In the early part of the
century, the car body could be anything from an upholstered seat anchored on wooden floorboards to a closed body made of sheet metal. GM acquired different types of bodies from different sources. Closed bodies, which Fisher supplied to GM, were the most substantial and the most
expensive. Each body consisted of welded pieces of stamped sheet metal that enclosed the passenger space and made the car suitable for travel in all seasons and weather.
8
In 1919, only about 10 percent of cars had closed bodies. By 1927, 85 percent had them.
Hence, over the course of a few years, Fisher became the supplier of a major component on the
vast majority of cars that GM made. As closed bodies became more common, General Motor’s
relationship with the Fisher brothers became closer. In 1919, GM acquired 60 percent of Fisher’s
equity and entered into long-term contracts with the Fisher brothers, and established a voting trust
giving each a voice in the affairs of the firm. In 1926, Fisher Body was dissolved and became
folded into GM.
9
The increasing importance of closed bodies alone does not explain why GM acquired Fisher.
In many industries, a manufacturer turns to a third party to produce an expensive component. The
power plant of the modern jetliner accounts for a large part of its value, and aircraft makers rely
10
11
on others for engines. Airbus acquires its components from many sources. GM, however, relied
on Fisher to a greater extent than aircraft manufacturers rely on their suppliers. Aircraft manufactures have multiple vendors of crucial parts such as engines and build relatively few planes
slowly. Moreover, the most capital intensive components (such as engines) can be used in the aircraft of more than one manufacturer. By contrast, GM relied on Fisher exclusively for a continuous flow of goods, and the parts Fisher made for GM could not be sold to anyone else. In short, as
long as Fisher remained independent, each was exposing itself to a risk of hold-up by the other. If
8
See Alfred P. Sloan, Jr., My Years with General Motors 152 (Doubleday 1963) (describing the increase in percentage of sales
of closed body cars).
9
See Coase, 43 J L & Econ at 22, 25 (cited in note 4).
10
See http://www.aia-aerospace.org/stats/facts_figures/ff_00_01/Ff00p086.pdf,
http://www.aia-aerospace.org/stats/facts_figures/ff_00_01/Ff00p087.pdf (visited on October 8, 2002) (providing a table of the “Percent of Civil Turbojet Engine Market by Manufacturer and Aircraft Model”).
11
For a discussion of the many firms that build Airbus’s A320, see Tim Laming and Robert Henson, Airbus A320 at 32-37
(PUB 2000).
3
Fisher closed or merely threatened to close its doors, GM would be forced to close its production
lines down as well, at least for a time. Similarly, GM could threaten to seek other vendors once
Fisher invested in dies and other machinery that could be used only for GM cars. The ability of
each to hold the other hostage seems to make vertical integration desirable once car bodies became so important to its operations.
12
Coase quickly saw that this explanation could not withstand close scrutiny. GM as well as
other firms in the automobile industry routinely relied on outside vendors for critical parts. One
could not assert that a hold-up potential led to GM’s acquisition of Fisher unless one explained
why it did not create the same problem for the other critical vendors as well. The unsoundness of
the hold-up explanation became manifest to Coase when he visited A.O. Smith. It had one of the
most heavily automated plants in the United States. Filled with expensive and highly specialized
machinery, A.O. Smith supplied GM with car frames. If GM could solve the potential hold-up
problems that A.O. Smith presented without bringing it inside the firm, GM should have been
13
able to solve them with Fisher. Moreover, Coase found that ways of solving the hold-up problem
14
existed apart from vertical integration. GM, for example, could retain ownership of the dies that
Fisher used to stamp sheet metal. Fisher did not have to make a capital investment only to have
GM turn to another supplier, and GM’s ownership of the dies would allow it to retrieve them in
the event that Fisher try to take advantage of it. Rejecting hold-up as the explanation for vertical
integration, Coase had to look elsewhere.
The explanation that Coase ultimately developed for vertical integration began with the idea
that transaction costs, rather than advantage-taking or private information, drove the organization
of production. To present his argument in The Nature of the Firm, however, he did not draw on
the example of GM and Fisher. Nor did Coase unpack the explanation that GM executives offered—that they wanted Fisher body plants to be next to GM assembly plants. In other words, he
did not squarely confront the question of what made Fisher different from A.O. Smith. Why did
the executives at GM acquire Fisher and build its own car bodies, but never acquired A.O. Smith
or build its own automobile frames? This is the question that Coase did not pursue and that I revisit here. The answer begins with the strategy GM’s leader, Alfred Sloan, put in place when he
took the helm of GM in the early 1920s.
12
This explanation was the justification for the merger put forward by Klein, Crawford, and Alchian, 21 J L & Econ at 309–310
(cited in note 6).
13
See Coase, The Nature of the Firm: Origin at 18 (cited in note 3).
14
See id at 45 (quoting from a letter written in 1932).
4
Sloan was convinced that crucial to GM’s success was expanding the market share of Chev15
rolet, its lowest priced car. Ford held over half the domestic automobile market and, among lowprice cars, dominated both the Chevrolet and all other rivals. No one could compete with the
Model Ts in either durability or in price. Sloan believed that competing effectively against the
Model T was crucial to GM’s long-term success. GM developed a new Chevrolet, the K Model. It
featured a longer body, increased legroom, an improved clutch, and a superior rear-axle housing.
16
The K Model met with only modest success initially. The price gap between it and the Model T
was still too large. The Model T continued to enjoy 70 percent of the low-priced car market. To be
successful, GM had to find a way both to improve the quality of the K Model and produce it more
cheaply.
17
Central to bringing this about was replacing the person in charge of production in the Chev18
rolet division with “the best production man in the United States,” a man named William Knudsen. Knudsen was empowered to make dramatic changes at Chevrolet, and he did exactly this.
Knudsen divided the production of automobiles into two largely separate operations. First there
was the manufacturing of the basic components, such as the engine, the transmission, the wheels,
and so forth. Second, there was the question of assembling the component parts. Knudsen was
19
convinced that efficient production required a dramatically different approach to each.
Knudsen insisted that each individual component, such as engines and transmissions, be
manufactured in only one location. Motors were to be made in Flint. So too the axles had to be
made in one place (Detroit); the transmissions as well (Toledo). Chevrolet had long used outside
vendors and acquired parts from other divisions of GM (including radiators, steering wheels, and
ball bearings). Knudsen did not object to continuing relationships with outside vendors, provided
20
that they redesign components along the lines he demanded. The car had performance criteria
that it needed to meet. In particular, it had to outperform the Model T. Hence, the parts had to be
at least as good as those on the Model T. One could not use cheap steel merely because it was
cheap, especially not where the Model T used vanadium steel alloys.
Knudsen was content, at least initially, to leave Fisher’s manufacturing operations untouched. The principal change Knudsen brought about in GM’s relationship with Fisher grew out
15
See Sloan, My Years with General Motors at 152 (cited in note 8).
See id at 153–54.
17
The story set out here can be found in David A. Hounshell, From the American System to Mass Production 1800–1932: The
Development of Manufacturing Technology in the United States 263–301 (Johns Hopkins 1984).
18
See Robert Lacey, Ford: The Men and the Machine 274 (Little, Brown 1986) (quoting Henry Ford).
19
Knudsen’s work at GM is described in Hounshell, American System at 263–301 (cited in note 17). For Knudsen’s own account, see William S. Knudsen, “For Economical Transportation”: How the Chevrolet Motor Company Applies Its Own Slogan to
Production, Industrial Management, August 1927, at 65–68.
20
See Knudsen, “For Economical Transportation” at 68 (cited in note 17).
16
5
of his approach to assembly of automobile components, not the manufacture of individual com21
ponents. Automobile components are easy to ship in bulk, while finished cars are not. Moreover,
while economies of scale exist in manufacturing automobile components such as engines and
frames, there are relatively fewer in assembling cars, once a model is produced in sufficient volume and the method for assembling the car has been refined and documented. Assembly plants
consist of large open factory floors with conveyers and pulleys that bring the pieces to the correct
22
place. They were not expensive to build or replicate. Moreover, as long as the delivery of components was properly coordinated, the assembly of the cars required little in the way of skilled
labor. The basic philosophy of mass production is the manufacture of component parts to high
tolerances. If this was done properly, the assembly of the car itself required no special expertise.
23
Assembly of automobiles did not depend upon expert fitters who assembled the parts to shape
24
them so that they worked together. “In mass production, there are no fitters.” The costs associated with building assembly plants and the costs of hiring and supervising the largely unskilled
workforce were lower than the cost of transporting finished cars across long distances.
Capturing these savings at Chevrolet, however, required Knudsen to change GM’s relationship with Fisher. Fisher could continue to stamp the different pieces of sheet metal at its own factories. These stamped parts, like other auto components, could be shipped at low cost. But assembling the pieces into the automobile body was a different matter. Like a finished car, a completed
car body is expensive to ship and more subject to dents and other damage en route. Moreover,
storing an inventory of assembled car bodies was a nontrivial problem. Stamped pieces of sheet
metal can be stacked; welded car bodies cannot be. Every eyewitness to these assembly plants
marveled not at the physical plant itself, but rather the level of organization needed to ensure the
steady flow of more than a million pounds of material each day that kept the assembly line in op25
eration.
Knudsen insisted that Fisher adopt the same practices for assembling car bodies as he instituted for the different components of the chassis and drive train. Fisher could stamp the sheet
21
Again, after Knudsen himself, Hounshell provides the best account of the transformation of Chevrolet during the 1920s. See
Hounshell, American System at 266 (cited in note 17) (describing Chevrolet under Knudsen in the 1920’s).
22
See James M. Rubenstein, Making and Selling Cars: Innovation and Change in the U.S. Automotive Industry 23 (Johns Hopkins 2001) (noting that, at Ford, the moving assembly line reduced the amount of labor it took to build a Model T in half over the
course of a single year without having to make hardly any capital investment at all). The failure to understand the dramatic difference
between the capital costs (including human capital) of manufacturing of components on the one hand and their assembly on the other
is the primary failing of those who have studied GM’s acquisition of Fisher.
23
The parts of the Model T were engineered and milled to such fine tolerances that the motor itself was not run until the car
was completely assembled. There were not even test drives to ensure the car worked. See Fred H. Colvin, Building an Automobile
Every 40 Seconds, American Machinist, at 761; Hounshell, American System at 234 (cited in note 17) (discussing the Ford plant’s
assembly workers).
24
See Henry Ford, Mass Production, in 30 Encyclopedia Britannica 821, 822 (1926).
25
See Colvin, Building an Automobile Every 40 Seconds at 759 (cited in note 23).
6
metal anywhere, but the bodies themselves had to be welded together at a factory adjacent to the
auto assembly plant. The two plants were to be connected with a system of dollies and conveyers.
The cost of making this change was modest. The cost of shifting the location in Fisher’s car body
26
assembly plants required a capital investment of about $5 million. This is a trivial sum compared with Chevrolet’s annual operating expenses of half a billion dollars.
27
Body assembly
plants, like auto assembly plants, require little more than open factory space and a conveyor sys28
tem. There is almost no asset specialization. Moreover, it was easy enough for GM to pay for
29
building the facility and then lease the space to Fisher. In short, with Knudsen’s arrival at Chevrolet what changed was not asset-specific investment by Fisher in Chevrolet, but rather the way
Fisher conducted its day-to-day operations.
Knudsen brought to Chevrolet a production strategy that resulted in a world in which a large
part of Fisher’s operations were physically joined with Chevrolet’s. Controls had to be put in
place to ensure that each day the proper number of engines, transmissions, and frames were delivered to the assembly plant. At the same time, a corresponding assortment of stamped sheet
metal (as dictated by Knudsen) had to arrive at the adjacent Fisher assembly plant. At the same
time the components for the chassis and the drive train were brought together at the Chevrolet
plant, the pieces of sheet model forming the body of the relevant model had to be rolled on a
dolly from the Fisher plant and deposited at the appointed place in the Chevrolet assembly line.
Completely central to Knudsen’s view of production was the idea of central planning and
engineering. The center directed each of the managers as to how many cars to make each month
and ensured that the necessary components were shipped. Changes or alterations were cleared
through the center. One central authority decided how many of which model would be made at
each Fisher/Chevrolet assembly location each month. At each location, Fisher and Chevrolet had
to coordinate minute-by-minute operations. A stranger visiting any site would likely not see any
separation between Fisher’s operations and Chevrolet’s. In short, Knudsen’s decisions about how
to produce the Chevrolet required seamlessly integrating Fisher’s body assembly operation with
its own auto assembly operation.
Knudsen’s scheme did not require the creation of a single entity as a legal matter. It is possible to imagine that Fisher and GM could have continued to coordinate through contract even if
the acquisition had not taken place. In the 19th Century, for example, it was common for factory
26
See Coase, 43 J L & Econ at 29 (cited in note 4).
See Sloan, My Years with General Motors at 154–55 (cited in note 8) (noting that 481,000 Chevrolets were sold in 1925 with
a list price of the basic model (the touring car) at $510).
28
See Rubenstein, Making and Selling Cars at 23 (cited in note 22).
29
See Coase, 43 J L & Econ at 29 (cited in note 4).
27
7
30
owners to hire independent jobbers who supplied the labor force. An assembly line with two
separate owners is like a railroad between two cities with half the track being owned by one firm
and half by another. Such things have precedent. (The Central Pacific and the Union Pacific being
31
the most obvious example. ) All the issues of coordination can (and indeed for some period of
time were) solved through contract. Nevertheless, one suspects that once the two operations be32
came so closely integrated, GM’s complete acquisition of Fisher was the logical next step.
From the perspective of an economist interested in how goods are produced and the extent to
which operations take place in the market or through command and control inside the firm, the
integration of Fisher and Chevrolet took place before acquisition. GM’s acquisition of Fisher
Body in 1926 was not the main event. Indeed, the acquisition may have had almost no effect on
the way in which Chevrolet interacted with Fisher at the plant level. Many of the decisions, such
as the way in which the managers of any two assembly operations coordinated their work, was
unaffected.
II.
We can return then to the puzzle that Coase left unanswered: How was Fisher different from
A.O. Smith? The answer is straightforward: Completed car bodies (which Fisher supplied) were
expensive to ship and hard to store, but automobile frames (which A.O. Smith supplied) can be
shipped and stored easily. Efficient manufacture requires coordination of the assembly of the
body with the rest of the car. The assembly of the frame requires no such coordination. The reasons for bringing Fisher within GM’s orbit had nothing to do with asset-specificity and everything to do with minimizing production costs. Even when one retraces old journeys many decades
later the basic landscape does not change.
GM, and more specifically Chevrolet, reorganized its production in the 1920s with a view to
capturing the same efficiencies as Ford. Doing this required a dramatic increase in the level of
cooperation between GM and Fisher, to the extent of building factories next to one another and
ensuring production in each were seamlessly coordinated. Indeed, relocating Fisher’s assembly
30
The use of jobbers seems to have declined only when increasing economies of scale also required greater control over each
detail of the assembly process. See Hounshell, American System at 120 (cited in note 17) (discussing outside contracting of manufacturing products).
31
For an account of the political forces that allowed these two firms to run the first transcontinental railroad, see David H. Bain,
Empire Express: Building The First Transcontinental Railroad 104–18 (Viking 1999) (describing the creation of the transcontinental
railroad).
32
Sloan himself thought of the merger in exactly this way. See Sloan, My Years with General Motors at 162 (“There were operating economies to be gained by co-ordinating body and chassis assemblies, and with the closed body becoming dominant in the industry, it seems sensible to bring the body operation entirely under the General Motors roof.”).
8
operation made Fisher more integrated with Chevrolet than suppliers inside GM itself, even before the merger in 1926. Chevrolet’s source of radiators provides a good illustration.
In 1925, Chevrolet used radiators from Harrison, a wholly-owned division of GM. As a matter of legal form, interactions with Harrison were inside a single legal entity, while those with
Fisher were not. Chevrolet could have acquired its radiators as easily from a third-party vendor as
from Harrison. Moreover, it could readily switch from Harrison to another source of supply at
little cost or acquire its radiators from multiple sources. Nothing in the way Chevrolet organized
its production required close cooperation from Harrison. Neither Knudsen nor anyone else at
Chevrolet had the control over Harrison’s operations that remotely resembled the control they had
over Fisher’s. The control rights Chevrolet acquired by both contract and its long-term relationship made Fisher’s assembly operations much more a part of the Chevrolet “firm” than Harrison
ever was even before vertical integration occurred.
III.
The distinction between an activity in a firm and activity outside one is a useful one. But
drawing a line between the two is often hard. Moreover, drawing this line by identifying the different legal entities engaged in a particular economic activity is often misleading. Vertical integration may bring no change at all in the way two entities interact with each other. The firm-market
boundary can be unaffected. The question of how economic activity is organized is separate from
the question of which legal entities own which assets. Vertical integration in the case of GM and
Fisher had only a modest effect on the way in which Fisher actually built its car bodies. Another
merger in the early history of the Ford Motor Company points to the same conclusion.
In 1903, Henry Ford was a failure. He formed the Detroit Motor Company in 1901 and ran it
into the ground. He then founded the Henry Ford Company and was thrown out when he proved
incapable of bringing his car designs into production. He started the Ford Motor Company, his
third company, on a shoestring. He had little money of his own and, given his track record, little
33
ability to raise it from anyone else. He started with only $28,000 and had only $223 left before
34
selling his first car. Nevertheless, by 1909 Ford was rich and poised to become rich beyond
35
dreams of avarice. What did Ford do between 1903 and 1909 and to acquire so much wealth?
And, crucial for our purposes, how much of this value was embedded in the Ford Motor Company?
33
See Horace Lucien Arnold and Fay Leone Faurote, Ford Methods and the Ford Shops 14 (Engineering Magazine 1919).
See Lacey, Ford: The Men and the Machine at 74 (cited in note 18) (discussing Ford’s early finances).
35
See Lacey, Ford: The Men and the Machine at 94, 147–48 (cited in note 18) (discussing Ford’s rise and success).
34
9
Henry Ford had three qualities that separated him from the hundreds of others who formed
car companies at the start of the 20th Century. First, Ford was a great designer of cars. In the first
years of the century, no one else designed cars so well. Whatever other failings he had (and there
were many) no one doubted his ability to design cars. The car he designed at the Henry Ford
Company (his second company) was among the best of its time. The car the company ultimately
36
produced (renamed Cadillac) was successful in large measure because Ford was its designer.
But Ford’s greatest car design was the Model T. Before the Model T, cars were still wagons
with engines attached. The Model T consisted of a single rigid metal frame, to which the drive
train was affixed in only three places. The car was at once light, flexible, and durable. Ford used
exotic alloys to reduce the weight of the car further still. The engine, transmission, and magneto
were enclosed within a single housing that protected them from the elements. Every part of the
37
car was designed to be assembled, and operated, and maintained easily. Many cars of the time
were much more expensive, but, putting “extras” such as lavish appointments to one side, it was
38
the finest car ever made. It was the first modern automobile, a durable, efficient machine that
took people on rugged dirt roads wherever they wanted to go.
Ford’s second extraordinary quality was his willingness to bet big. Before the Model T, the
Ford Motor Company’s cars had been successful and had made Ford a millionaire. At the start,
the company farmed out all of its manufacturing operations. Ford oversaw a small assembly operation. He spent $384 on parts for each car, but only $20 on the labor needed to assemble each
39
car ), and he could have comfortably remained on that course. Instead, he took all the money he
had made to date and risked everything on the Model T. He gambled that he could take this car,
produce it for much less than anyone thought possible, and persuade millions to buy it. At a time
when most thought cars were merely playthings for the rich, Ford believed that a car could be
built that was so useful that ordinary people would give up the greater part of a year’s salary to
own one.
The Model T was a huge success, and the patent protection Ford won for some crucial ele40
ments of Model T design made it hard for others to follow his lead. Hence, Ford had several
years to enjoy the benefit of designing the Model T and betting that it would find commercial ac36
See Arthur Pound, The Turning Wheel: The Story of General Motors Through Twenty-Five Years 1908–1933 102–03 (Doubleday 1934).
37
For a comprehensive account of the Model T, its components, and how to repair and replace them, see Victor W. Pagé, Model
T Ford Car (Henley rev ed 1925).
38
See Lacey, Ford: The Men and the Machine at 95 (cited in note 19) (describing Ford’s Model T).
39
See id at 73 (discussing the Model T’s production costs).
40
There were eight patents covering the Model T. The most important was the U.S. Patent No 1,012,620, which covered the
way in which the drive train was connected to the chassis. For a discussion, see Arnold and Faurote, Ford Methods and the Ford Shops
at 20–21 (cited in note 23).
10
ceptance. But Ford’s willingness to bet big and his design do not explain how Ford came to
dominate the automobile industry between 1912 and 1925. The Model T was a revolutionary car
in 1908, but it was essentially unchanged in 1912. Nothing prevented others from producing a car
much like the Model T. The patents did not foreclose other low-cost designs. Nor did Ford possess any secret manufacturing techniques. Ford allowed anyone to visit his plant and see exactly
41
how he produced the car. Anyone who wanted to could design a car like the Model T and copy
Ford’s production methods. Nor did manufacture of such a car require investments of capital that
were out of reach of the many others in the industry in 1913. Indeed, at this point, Ford’s entire
capital investment in his physical plant and equipment was less than $10 million, at a time when
42
his annual operating expenses were $74 million and his revenues were more than $89 million.
What prevented others from competing with Ford after they saw the Model T and the success it enjoyed? Why did it take 15 years before someone like Knudsen came along to reorganize
the production of the K Model Chevrolet and produce a competitive alternative to the Model T?
Ford’s gifts as a designer and his willingness to gamble do not explain this part of the story. Ford
enlisted others to help him in designing the Model T. One of the revolutionary features of the
Model T (encasing the drive train) was not his or his employees’, but rather a team of engineers at
43
a sheet metal stamping firm in Buffalo called Keim Mills. Ford himself had little expertise in
sheet metal stamping. Moreover, at this period, the presses used to stamp sheet metal and the dies
needed to fabricate any given part were hard to replicate. Ford had greater reason to ensure that
he had control over the assets dedicated to the production of the Model T than those at Chevrolet
15 years later.
But the value Ford derived from Keim Mills stemmed only in small part on the specialized
assets. More important was the help he enjoyed from the engineers who worked there. Ford’s
success between 1909 and 1925 came from the team of engineers who surrounded him. They devised thousands of ways to produce the Model T more efficiently, more cheaply, and in greater
volume. Most of the production innovations Ford’s team put in place came from organizing the
flow of production. The Ford team took each step and each part and figured out how to rearrange
41
See Ford Factory Facts 5 (Ford 1915) (“The Ford Motor Company is pleased to extend to all visitors the privilege of an inspection of its plant.”). The American Machinist carried a series of articles on Ford’s manufacturing techniques in 1913. See, for example, Colvin, Building an Automobile Every 40 Seconds at 757 (cited in note 23) . Another series that appeared in the Engineering
Magazine in 1915 was later published as a book. See Arnold and Faurote, Ford Methods and the Ford Shops (cited in note 23).
42
See id at 25 ($3.575 million on buildings, tanks, and fixtures through February 1914 and $2.8 million on equipment); id at 13
(revenues of $89.1 million in 1913); id at 1 (profits of $15 million per year).
43
See Lacey, Ford: The Men and the Machine at 94–95 (cited in note 18) (describing the stamping process and the Keim mills).
11
44
the work and redesign the component to make it better and cheaper. The moving assembly line
45
(put in place in 1913, fully five years after the Model T entered production ) was the most striking innovation, but it was only one of many.
Ford became rich in large part because his team worked unusually well together, and they
created efficiencies in mass production that had never been seen before, both by refining old production techniques and putting in place new ones. Ford’s design gifts, his vision, and his patents
gave him a head start over potential rivals. The team ensured that he kept his lead. Month by
month they found small improvements in the car and especially its method of manufacture.
Imagine an entrepreneur who set out to build a car comparable to Ford’s Model T. With a
modest amount of capital and good design skills and a competent production team, he could reverse engineer the car, design around the patents, and imitate Ford’s production practices. Within
six months or a year’s time, he might bring to market a car that was as good as the one Ford produced the year before. But it would be too late. He would discover that he was competing against
a slightly better Model T the price of which had fallen by 10 percent. To be more precise, the
Model T (Touring) had a factory price of $600 in 1913, $550 in 1914, $490 in 1915, $440 in
1916, and $360 in 1917.46 The Ford Motor Company, as a collection of physical assets, was not
worth much. As long as Ford had his engineering drawings, the necessary gauges, his patents, and
his team, little else mattered. His factory could burn to the ground, all but a handful of employee
could quit, and the value of what Ford owned would be remarkably unaffected.
The Ford Motor Company owned the Model T design and the information needed to build it.
But the corporation did not own the team. Indeed, among the most important members of the
47
team worked for Keim Mills and not for Ford at all. For a period of time, the contracts and relationship between Ford Motor and Keim Mills, and between Keim Mills and its engineers were
satisfactory. Ultimately, Ford acquired Keim Mills and it became a wholly-owned subsidiary of
Ford. But the major event (and the one that had the greatest consequences for the long-term success of Ford) came after Ford acquired Keim Mills.
The unskilled workers who ran the stamping presses at Keim Mills thought that they had the
ability to hold-up Ford. They were sadly mistaken. When they went on strike, Ford promptly shut
the entire firm down. Just as a contract could have been written that vested title in the stamping
44
The idea that the Model T never changed is an illusion. A practiced eye can tell the date of manufacture of any particular
Model T within a few years at a glance. With only a little more study, one can narrow it down to a few months. See Bruce W.
McCalley, Model T Ford: The Car that Changed the World 11 (Krause 1994).
45
See id at 11 (first Model Ts manufactured in 1908); Rubenstein, Making and Selling Cars at 23 (cited in note 22) (describing
the first moving production line in 1913).
46
See McCalley, Model T Ford: The Car that Changed the World at 141, 171, 193, 195, 231 (cited in note 44).
47
See Hounshell, American System at 234 (cited in note 17) (describing the Keim team).
12
presses in Ford, Keim’s status as a wholly-owned subsidiary gave him the same power. Ford immediately dissolved Keim Mills and moved all the stamping presses to Detroit. More importantly,
he was able to persuade the senior team at Keim Mills to move to Detroit as well. Here what mattered was not whether Keim Mills was independent or wholly-owned, but whether Henry Ford’s
powers of persuasion were sufficient to keep his team together. The value of an enterprise resides
48
in large measure in the team that runs it. The most important contributions of the Keim Mills
team came from their skill in organizing automobile production, not from their expertise with respect to stamping metal parts or any other specialized skill. It was, for example, one of them that
created the incentive compensation system that allowed Henry Ford to boast that he paid his
workers $5 a day.
49
The value of a team, however, is independent of the legal entity that employs them. Ford became rich because he was able to assemble a great team and keep it together. It is not surprising
that ultimately the team became Ford employees, just as it is not surprising that GM ultimately
acquired Fisher. But again the formal legal event did not coincide with the events that mattered.
The members of the Keim Mills team designed the Model T well before vertical integration, and
their later contributions came only when they moved from Buffalo to Detroit, an event that took
place after vertical integration and that did not depend on it.
IV.
The production of the Model T Ford and the K Model Chevrolet are two important events in
the early history of the automobile industry. They were both great success stories in which Keim
Mills and Fisher Body played crucial roles. They also present two instances in which an upstream
supplier ultimately became a wholly-owned subsidiary of its principal buyer. In the case of GM,
efficient production required command and control over a large part of Fisher Body’s operations.
The assembly of car bodies from individual pieces of sheet metal requires little in the way of specialized assets or capital, but the control the automobile assembler has over the operation in mass
production ensures that the two operations are part of the same firm in the economic sense. In the
case of Ford, vertical integration is one part of a story connected with acquisition of human capital. Vertical integration helped Ford keep the Keim Mills team, but the team existed before vertical integration, and its full value came after vertical integration only when the team moved to De48
For an account of this episode, see Lacey, Ford: The Men and the Machine at 106 (cited in note 18). It may be no accident
that Ford Motor lost its primacy as the Keim Mills team deserted Henry Ford. Its members included William Knudsen, the production
man Ford himself thought the best in the business. See note 18.
49
Faced with extraordinary employee turnover, one of the Keim Mills team (John Lee) instituted a new wage structure. He
maintained a base pay of $2.34, but a worker could earn $5 a day if they worked for 6 months and qualified in other respects. See
Lacey, Ford: The Men and the Machine at 117–18 (cited in note 18) (describing Ford’s employee pay rates).
13
troit. That vertical integration as a legal matter occurred in each case is unsurprising, but logically
distinct from the events that brought assets inside the “firm” in the economic sense.
The formal event that marks vertical integration as a legal matter corresponds only imperfectly with whether activity takes place inside or outside the firm. As costs of doing business in
the market and in the firm fall, however, we should expect the stakes involved in locating production inside or outside a firm should fall as well. As we retrace Coase and then ask about the implications of his work in the issues we confront today, we might well conclude that the boundary
between firms and markets will become increasingly permeable. For economists, the lesson is
straightforward. They should resist, to a much greater extent than they have, the temptation to
turn to the law to identify the firm.
For lawyers, the lesson is more subtle and the challenge harder. As we regulate economic activity, we must resist the idea that the locus of economic activity rests with a discrete legal entity.
A lawmaker charged with ensuring that those who assembled Chevrolets complied with applicable law had to ensure that the rules worked equally well when the same configuration of assets
was run by two legal entities as by one. Thinking about legal regulation of economic activity has
too readily assumed that one can solve problems by imposing legal duties on firms. In a world in
which the boundaries of the firm become less clear and the identity of those who control the firm
becomes more fluid, regulations that focus on the conduct of specific firms is at best incomplete
and often misguided. We are likely to encounter even greater problems in regulating behavior. No
longer are the entities providing the goods or services long-lived, atomistic firms with a readily
identifiable governance structure. When we want to use legal rules to advance some broader social goal inconsistent with the interests of those who own the enterprise, we shall be increasingly
less able to do it by imposing obligations and duties on firms and those who invest in them. To
the extent that it is still possible in a global economy, effective legal rules will increasingly focus
on regulating economic activity, rather than on regulating distinct legal entities.
Raders with comments should address them to:
Douglas G. Baird
University of Chicago Law School
1111 East 60th Street
Chicago, IL 60637
[email protected]
14
Chicago Working Papers in Law and Economics
(Second Series)
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William M. Landes, Copyright Protection of Letters, Diaries and Other Unpublished Works: An Economic Approach (July 1991)
Richard A. Epstein, The Path to The T. J. Hooper: The Theory and History of Custom in the Law of Tort (August 1991)
Cass R. Sunstein, On Property and Constitutionalism (September 1991)
Richard A. Posner, Blackmail, Privacy, and Freedom of Contract (February 1992)
Randal C. Picker, Security Interests, Misbehavior, and Common Pools (February
1992)
Tomas J. Philipson & Richard A. Posner, Optimal Regulation of AIDS (April 1992)
Douglas G. Baird, Revisiting Auctions in Chapter 11 (April 1992)
William M. Landes, Sequential versus Unitary Trials: An Economic Analysis (July
1992)
William M. Landes & Richard A. Posner, The Influence of Economics on Law: A
Quantitative Study (August 1992)
Alan O. Sykes, The Welfare Economics of Immigration Law: A Theoretical Survey
With An Analysis of U.S. Policy (September 1992)
Douglas G. Baird, 1992 Katz Lecture: Reconstructing Contracts (November 1992)
Gary S. Becker, The Economic Way of Looking at Life (January 1993)
J. Mark Ramseyer, Credibly Committing to Efficiency Wages: Cotton Spinning
Cartels in Imperial Japan (March 1993)
Cass R. Sunstein, Endogenous Preferences, Environmental Law (April 1993)
Richard A. Posner, What Do Judges and Justices Maximize? (The Same Thing
Everyone Else Does) (April 1993)
Lucian Arye Bebchuk and Randal C. Picker, Bankruptcy Rules, Managerial Entrenchment, and Firm-Specific Human Capital (August 1993)
J. Mark Ramseyer, Explicit Reasons for Implicit Contracts: The Legal Logic to the
Japanese Main Bank System (August 1993)
William M. Landes and Richard A. Posner, The Economics of Anticipatory Adjudication (September 1993)
Kenneth W. Dam, The Economic Underpinnings of Patent Law (September 1993)
Alan O. Sykes, An Introduction to Regression Analysis (October 1993)
Richard A. Epstein, The Ubiquity of the Benefit Principle (March 1994)
Randal C. Picker, An Introduction to Game Theory and the Law (June 1994)
William M. Landes, Counterclaims: An Economic Analysis (June 1994)
J. Mark Ramseyer, The Market for Children: Evidence from Early Modern Japan
(August 1994)
Robert H. Gertner and Geoffrey P. Miller, Settlement Escrows (August 1994)
Kenneth W. Dam, Some Economic Considerations in the Intellectual Property
Protection of Software (August 1994)
Cass R. Sunstein, Rules and Rulelessness, (October 1994)
David Friedman, More Justice for Less Money: A Step Beyond Cimino (December
1994)
Daniel Shaviro, Budget Deficits and the Intergenerational Distribution of Lifetime
Consumption (January 1995)
Douglas G. Baird, The Law and Economics of Contract Damages (February 1995)
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Daniel Kessler, Thomas Meites, and Geoffrey P. Miller, Explaining Deviations
from the Fifty Percent Rule: A Multimodal Approach to the Selection of Cases for
Litigation (March 1995)
Geoffrey P. Miller, Das Kapital: Solvency Regulation of the American Business
Enterprise (April 1995)
Richard Craswell, Freedom of Contract (August 1995)
J. Mark Ramseyer, Public Choice (November 1995)
Kenneth W. Dam, Intellectual Property in an Age of Software and Biotechnology
(November 1995)
Cass R. Sunstein, Social Norms and Social Roles (January 1996)
J. Mark Ramseyer and Eric B. Rasmusen, Judicial Independence in Civil Law Regimes: Econometrics from Japan (January 1996)
Richard A. Epstein, Transaction Costs and Property Rights: Or Do Good Fences
Make Good Neighbors? (March 1996)
Cass R. Sunstein, The Cost-Benefit State (May 1996)
William M. Landes and Richard A. Posner, The Economics of Legal Disputes
Over the Ownership of Works of Art and Other Collectibles (July 1996)
John R. Lott, Jr. and David B. Mustard, Crime, Deterrence, and Right-to-Carry
Concealed Handguns (August 1996)
Cass R. Sunstein, Health-Health Tradeoffs (September 1996)
G. Baird, The Hidden Virtues of Chapter 11: An Overview of the Law and Economics of Financially Distressed Firms (March 1997)
Richard A. Posner, Community, Wealth, and Equality (March 1997)
William M. Landes, The Art of Law and Economics: An Autobiographical Essay
(March 1997)
Cass R. Sunstein, Behavioral Analysis of Law (April 1997)
John R. Lott, Jr. and Kermit Daniel, Term Limits and Electoral Competitiveness:
Evidence from California=s State Legislative Races (May 1997)
Randal C. Picker, Simple Games in a Complex World: A Generative Approach to
the Adoption of Norms (June 1997)
Richard A. Epstein, Contracts Small and Contracts Large: Contract Law through
the Lens of Laissez-Faire (August 1997)
Cass R. Sunstein, Daniel Kahneman, and David Schkade, Assessing Punitive
Damages (with Notes on Cognition and Valuation in Law) (December 1997)
William M. Landes, Lawrence Lessig, and Michael E. Solimine, Judicial Influence:
A Citation Analysis of Federal Courts of Appeals Judges (January 1998)
John R. Lott, Jr., A Simple Explanation for Why Campaign Expenditures are Increasing: The Government is Getting Bigger (February 1998)
Richard A. Posner, Values and Consequences: An Introduction to Economic
Analysis of Law (March 1998)
Denise DiPasquale and Edward L. Glaeser, Incentives and Social Capital: Are
Homeowners Better Citizens? (April 1998)
Christine Jolls, Cass R. Sunstein, and Richard Thaler, A Behavioral Approach to
Law and Economics (May 1998)
John R. Lott, Jr., Does a Helping Hand Put Others At Risk?: Affirmative Action,
Police Departments, and Crime (May 1998)
Cass R. Sunstein and Edna Ullmann-Margalit, Second-Order Decisions (June
1998)
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Jonathan M. Karpoff and John R. Lott, Jr., Punitive Damages: Their Determinants,
Effects on Firm Value, and the Impact of Supreme Court and Congressional Attempts to Limit Awards (July 1998)
Kenneth W. Dam, Self-Help in the Digital Jungle (August 1998)
John R. Lott, Jr., How Dramatically Did Women=s Suffrage Change the Size and
Scope of Government? (September 1998)
Kevin A. Kordana and Eric A. Posner, A Positive Theory of Chapter 11 (October
1998)
David A. Weisbach, Line Drawing, Doctrine, and Efficiency in the Tax Law (November 1998)
Jack L. Goldsmith and Eric A. Posner, A Theory of Customary International Law
(November 1998)
John R. Lott, Jr., Public Schooling, Indoctrination, and Totalitarianism (December
1998)
Cass R. Sunstein, Private Broadcasters and the Public Interest: Notes Toward A
AThird Way@ (January 1999)
Richard A. Posner, An Economic Approach to the Law of Evidence (February
1999)
Yannis Bakos, Erik Brynjolfsson, Douglas Lichtman, Shared Information Goods
(February 1999)
Kenneth W. Dam, Intellectual Property and the Academic Enterprise (February
1999)
Gertrud M. Fremling and Richard A. Posner, Status Signaling and the Law, with
Particular Application to Sexual Harassment (March 1999)
Cass R. Sunstein, Must Formalism Be Defended Empirically? (March 1999)
Jonathan M. Karpoff, John R. Lott, Jr., and Graeme Rankine, Environmental Violations, Legal Penalties, and Reputation Costs (March 1999)
Matthew D. Adler and Eric A. Posner, Rethinking Cost-Benefit Analysis (April
1999)
John R. Lott, Jr. and William M. Landes, Multiple Victim Public Shooting, Bombings, and Right-to-Carry Concealed Handgun Laws: Contrasting Private and
Public Law Enforcement (April 1999)
Lisa Bernstein, The Questionable Empirical Basis of Article 2=s Incorporation
Strategy: A Preliminary Study (May 1999)
Richard A. Epstein, Deconstructing Privacy: and Putting It Back Together Again
(May 1999)
William M. Landes, Winning the Art Lottery: The Economic Returns to the Ganz
Collection (May 1999)
Cass R. Sunstein, David Schkade, and Daniel Kahneman, Do People Want Optimal Deterrence? (June 1999)
Tomas J. Philipson and Richard A. Posner, The Long-Run Growth in Obesity as a
Function of Technological Change (June 1999)
David A. Weisbach, Ironing Out the Flat Tax (August 1999)
Eric A. Posner, A Theory of Contract Law under Conditions of Radical Judicial
Error (August 1999)
David Schkade, Cass R. Sunstein, and Daniel Kahneman, Are Juries Less Erratic
than Individuals? Deliberation, Polarization, and Punitive Damages (September
1999)
Cass R. Sunstein, Nondelegation Canons (September 1999)
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Richard A. Posner, The Theory and Practice of Citations Analysis, with Special
Reference to Law and Economics (September 1999)
Randal C. Picker, Regulating Network Industries: A Look at Intel (October 1999)
Cass R. Sunstein, Cognition and Cost-Benefit Analysis (October 1999)
Douglas G. Baird and Edward R. Morrison, Optimal Timing and Legal Decisionmaking: The Case of the Liquidation Decision in Bankruptcy (October 1999)
Gertrud M. Fremling and Richard A. Posner, Market Signaling of Personal Characteristics (November 1999)
Matthew D. Adler and Eric A. Posner, Implementing Cost-Benefit Analysis When
Preferences Are Distorted (November 1999)
Richard A. Posner, Orwell versus Huxley: Economics, Technology, Privacy, and
Satire (November 1999)
David A. Weisbach, Should the Tax Law Require Current Accrual of Interest on
Derivative Financial Instruments? (December 1999)
Cass R. Sunstein, The Law of Group Polarization (December 1999)
Eric A. Posner, Agency Models in Law and Economics (January 2000)
Karen Eggleston, Eric A. Posner, and Richard Zeckhauser, Simplicity and Complexity in Contracts (January 2000)
Douglas G. Baird and Robert K. Rasmussen, Boyd=s Legacy and Blackstone=s
Ghost (February 2000)
David Schkade, Cass R. Sunstein, Daniel Kahneman, Deliberating about Dollars:
The Severity Shift (February 2000)
Richard A. Posner and Eric B. Rasmusen, Creating and Enforcing Norms, with
Special Reference to Sanctions (March 2000)
Douglas Lichtman, Property Rights in Emerging Platform Technologies (April
2000)
Cass R. Sunstein and Edna Ullmann-Margalit, Solidarity in Consumption (May
2000)
David A. Weisbach, An Economic Analysis of Anti-Tax Avoidance Laws (May
2000, revised May 2002)
Cass R. Sunstein, Human Behavior and the Law of Work (June 2000)
William M. Landes and Richard A. Posner, Harmless Error (June 2000)
Robert H. Frank and Cass R. Sunstein, Cost-Benefit Analysis and Relative Position (August 2000)
Eric A. Posner, Law and the Emotions (September 2000)
Cass R. Sunstein, Cost-Benefit Default Principles (October 2000)
Jack Goldsmith and Alan Sykes, The Dormant Commerce Clause and the Internet (November 2000)
Richard A. Posner, Antitrust in the New Economy (November 2000)
Douglas Lichtman, Scott Baker, and Kate Kraus, Strategic Disclosure in the Patent
System (November 2000)
Jack L. Goldsmith and Eric A. Posner, Moral and Legal Rhetoric in International
Relations: A Rational Choice Perspective (November 2000)
William Meadow and Cass R. Sunstein, Statistics, Not Experts (December 2000)
Saul Levmore, Conjunction and Aggregation (December 2000)
Saul Levmore, Puzzling Stock Options and Compensation Norms (December
2000)
Richard A. Epstein and Alan O. Sykes, The Assault on Managed Care: Vicarious
Liability, Class Actions and the Patient=s Bill of Rights (December 2000)
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113.
William M. Landes, Copyright, Borrowed Images and Appropriation Art: An
Economic Approach (December 2000)
114.
Cass R. Sunstein, Switching the Default Rule (January 2001)
115.
George G. Triantis, Financial Contract Design in the World of Venture Capital
(January 2001)
116.
Jack Goldsmith, Statutory Foreign Affairs Preemption (February 2001)
117.
Richard Hynes and Eric A. Posner, The Law and Economics of Consumer Finance
(February 2001)
118.
Cass R. Sunstein, Academic Fads and Fashions (with Special Reference to Law)
(March 2001)
119.
Eric A. Posner, Controlling Agencies with Cost-Benefit Analysis: A Positive Political Theory Perspective (April 2001)
120.
Douglas G. Baird, Does Bogart Still Get Scale? Rights of Publicity in the Digital
Age (April 2001)
121.
Douglas G. Baird and Robert K. Rasmussen, Control Rights, Priority Rights and
the Conceptual Foundations of Corporate Reorganization (April 2001)
122.
David A. Weisbach, Ten Truths about Tax Shelters (May 2001)
123.
William M. Landes, What Has the Visual Arts Rights Act of 1990 Accomplished?
(May 2001)
124.
Cass R. Sunstein, Social and Economic Rights? Lessons from South Africa (May
2001)
125.
Christopher Avery, Christine Jolls, Richard A. Posner, and Alvin E. Roth, The
Market for Federal Judicial Law Clerks (June 2001)
126.
Douglas G. Baird and Edward R. Morrison, Bankruptcy Decision Making (June
2001)
127.
Cass R. Sunstein, Regulating Risks after ATA (June 2001)
128.
Cass R. Sunstein, The Laws of Fear (June 2001)
129.
Richard A. Epstein, In and Out of Public Solution: The Hidden Perils of Property
Transfer (July 2001)
130.
Randal C. Picker, Pursuing a Remedy in Microsoft: The Declining Need for Centralized Coordination in a Networked World (July 2001)
131.
Cass R. Sunstein, Daniel Kahneman, David Schkade, and Ilana Ritov, Predictably
Incoherent Judgments (July 2001)
132.
Eric A. Posner, Courts Should Not Enforce Government Contracts (August 2001)
133.
Lisa Bernstein, Private Commercial Law in the Cotton Industry: Creating Cooperation through Rules, Norms, and Institutions (August 2001)
134.
Richard A. Epstein, The Allocation of the Commons:Parking and Stopping on the
Commons (August 2001)
135.
Cass R. Sunstein, The Arithmetic of Arsenic (September 2001)
136.
Eric A. Posner, Richard Hynes, and Anup Malani, The Political Economy of Property Exemption Laws (September 2001)
137.
Eric A. Posner and George G. Triantis, Covenants Not to Compete from an Incomplete Contracts Perspective (September 2001)
138.
Cass R. Sunstein, Probability Neglect: Emptions, Worst Cases, and Law (November 2001)
139.
Randall S. Kroszner and Philip E. Strahan, Throwing Good Money after Bad?
Board Connections and Conflicts in Bank Lending (December 2001)
140.
Alan O. Sykes, TRIPs, Pharmaceuticals, Developing Countries, and the Doha ASolution@ (February 2002)
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166.
167.
168.
Edna Ullmann-Margalit and Cass R. Sunstein, Inequality and Indignation (February 2002)
Daniel N. Shaviro and David A. Weisbach, The Fifth Circuit Gets It Wrong in
Compaq v. Commissioner (February 2002) (Published in Tax Notes, January 28, 2002)
Warren F. Schwartz and Alan O. Sykes, The Economic Structure of Renegotiation
and Dispute Resolution in the WTO/GATT System (March 2002, Journal of Legal
Studies 2002)
Richard A. Epstein, HIPAA on Privacy: Its Unintended and Intended Consequences (March 2002, forthcoming Cato Journal, summer 2002)
David A. Weisbach, Thinking Ouside the Little Boxes (March 2002, Texas Law Review)
Eric A. Posner, Economic Analysis of Contract Law after Three Decades: Success
or Failure (March 2002)
Randal C. Picker, Copyright as Entry Policy: The Case of Digital Distribution
(April 2002, The Antitrust Bulletin)
David A. Weisbach, Taxes and Torts in the Redistribution of Income (April 2002,
Coase Lecture February 2002)
Cass R. Sunstein, Beyond the Precautionary Principle (April 2002)
Robert W. Hahn and Cass R. Sunstein, A New Executive Order for Improving
Federal Regulation? Deeper and Wider Cost-Benefit Analysis (April 2002)
Douglas Lichtman, Copyright as a Rule of Evidence (May 2002, updated January
2003)
Richard A. Epstein, Steady the Course: Property Rights in Genetic Material (May
2002)
Jack Goldsmith and Cass R. Sunstein, Military Tribunals and Legal Culture:
What a Difference Sixty Years Makes (June 2002)
William M. Landes and Richard A. Posner, Indefinitely Renewable Copyright
(July 2002)
Anne Gron and Alan O. Sykes, Terrorism and Insurance Markets: A Role for the
Government as Insurer? (July 2002)
Cass R. Sunstein and Adrian Vermeule, Interpretation and Institutions (July 2002)
Cass R. Sunstein, The Rights of Animals: A Very Short Primer (August 2002)
Cass R. Sunstein, Avoiding Absurdity? A New Canon in Regulatory Law (with
Notes on Interpretive Theory) (August 2002)
Randal C. Picker, From Edison to the Broadcast Flag: Mechanisms of Consent and
Refusal and the Propertization of Copyright (September 2002)
Eric A. Posner, A Theory of the Laws of War (September 2002)
Eric A. Posner, Probability Errors: Some Positive and Normative Implications for
Tort and Contract Law (September 2002)
Lior Jacob Strahilevitz, Charismatic Code, Social Norms, and the Emergence of
Cooperation on the File-Swapping Networks (September 2002)
David A. Weisbach, Does the X-Tax Mark the Spot? (September 2002)
Cass R. Sunstein, Conformity and Dissent (September 2002)
Cass R. Sunstein, Hazardous Heuristics (October 2002)
Douglas Lichtman, Uncertainty and the Standard for Preliminary Relief (October
2002)
Edward T. Swaine, Rational Custom (November 2002)
Julie Roin, Truth in Government: Beyond the Tax Expenditure Budget (November
2002)
20
169.
170.
171.
172.
173.
174.
175.
Avraham D. Tabbach, Criminal Behavior, Sanctions, and Income Taxation: An
Economic Analysis (November 2002)
Richard A. Epstein, In Defense of “Old” Public Health: The Legal Framework for
the Regulation of Public Health (December 2002)
Richard A. Epstein, Animals as Objects, or Subjects, of Rights (December 2002)
David A. Weisbach, Taxation and Risk-Taking with Multiple Tax Rates (December 2002)
Douglas G. Baird and Robert K. Rasmussen, The End of Bankruptcy (December
2002)
Richard A. Epstein, Into the Frying Pan: Standing and Privity under the Telecommunications Act of 1996 and Beyond (December 2002)
Douglas G. Baird, In Coase’s Footsteps (January 2003)
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