Chris
William Sanchirico’s Home Page[1]
Samuel Blank Professor of Law,
Business, and Public Policy
Co-director, Center for Tax Law and Policy
University of Pennsylvania Law School
The Wharton School, Business and Public Policy Department
3400 Chestnut Street
Philadelphia, Pennsylvania
19104-6204
(215) 898-4220 (V)
(215) 573-2025 (F)
Chris.Sanchirico@law.upenn.edu
Clickable Contents
Mathematical
Probability Theory
Game Theory,
Economics & Mathematics
Curriculum
Vitae as of 4/29/09
by subject area
·
A Critical Look at the Economic
Argument for Taxing Only Labor Income, 63 Tax
L. Rev. ___ (2009-2010).
§
Abstract: According to accepted
wisdom, “the tax substitution argument” fairly establishes that it is best to
tax only labor income, and not also income from savings and investment. In this
Article, I show that the tax substitution argument - which is actually a
disjointed collection of arguments - is variously incomplete, incorrect, and
conclusory.
§
Keywords: Tax policy, equity and efficiency, optimal taxation, tax
substitution argument, consumption tax versus income tax, Atkinson and
Stiglitz, taxes versus legal rules.
§
Web appendix: here.
·
Progressivity and Potential Income:
Measuring the Effect of Changing Work Patterns on Income Tax Progressivity[3] 108 Colum. L. Rev.
1551 (2008)
§
Abstract: The income tax taxes the proceeds from market work, but not the
proceeds from time otherwise allocated - whether enjoyed as self-provided goods
and services or leisure time per se. A two-earner couple that out-sources
household and child care services, for instance, pays for these services with
after tax earnings, while a single-earner couple that self-provides such
services pays no tax on their provision. This article uses data from the Panel
Study of Income Dynamics to measure the distributive impact of the implicit
exclusion for non-market activity. Viewing the exclusion as a kind of tax
benefit, it asks: how is such tax benefit distributed across the income
spectrum? The article finds that variation across income levels in the
labor-income realization ratio - the portion of potential labor income that is realized
as actual labor income - has played a decisive role in shaping the real
progressivity of the Federal income tax. On paper, the Federal income tax
became more progressive during the 1990s. When average tax rates are measured
in terms of potential rather than actual income, however, the income tax shows
a decline in progressivity during that decade. The discrepancy arises from a
change in work patterns. At the start of the decade, tax units with higher
income were realizing a greater proportion of their potential earnings than
were tax units with lower income. By the end of the decade, the realization
ratio was greater at the lower end of the potential income spectrum. This
reversal in labor income realization patterns was substantial enough to overpower
the increase in statutory progressivity.
§
Keywords: Income taxation, progressivity, endowment taxation, work
patterns, potential income, tax incidence, redistribution.
§
Web appendices
v
More technically detailed working paper version
v
Stata do
file creating variables from PSID data.
v
Stata program that runs estimation
procedure and was submitted to balanced repeated replication.
v
Appendix explaining actual
income tax figures and graphs in terms of tax code provisions
·
The Tax Advantage to Paying Private
Equity Fund Managers With Profit Shares: What is it? Why is it Bad? 75 U. Chic. L. Rev. 1071 (2008)
§
Abstract: Private equity is very
much in the public eye. The prototypical private equity fund purchases,
restructures, and resells ailing companies. The managers of such funds are
typically paid with a share of the fund's profits. Over the last several
months, the favorable income tax treatment of these compensatory profits
interests has been the subject of an ever swelling stream of headlines,
editorials, and Congressional hearings. But despite the attention the issue has
received, the tax advantage of compensatory profit shares is not well
understood, and the reasons for reform are, accordingly, not well developed.
This article clarifies the nature of the tax advantage and, with that
understanding in mind, critically assesses some of the chief arguments for and
against the current tax treatment.
§
Keywords: Private equity, profits interests, carry, capital gains,
ordinary income, imputed income, deferral.
§
Web appendix: here
·
Taxing Carry: The Problematic
Analogy to “Sweat Equity,” 117 Tax Notes 239
(2007)
§
Abstract: The enormity of the
earnings reported by some private equity fund managers has drawn sustained
public attention to how such earnings are treated under the income tax.
Reformers call for eliminating the preferential capital gains treatment
accorded to the carried interest portion of fund managers' service
compensation. One of the most prominent
and thus far successful arguments against reform compares the tax advantage of
carried interest to the supposed tax advantage routinely enjoyed by business
owners who work in their own business and compensate themselves with sweat
equity rather than salary. This paper
argues that sweat equity is not only an inapt analogy for carried interest, but
is, on its own terms, misconceived. The tax advantage of carried interest is a
matter of exploiting differences in the marginal tax rates of fund managers and
fund investors. The tax advantage to sweat equity is largely nonexistent.
§
Keywords: Carried Interest, Carry, Profits Interest, Sweat Equity, Private
Equity.
·
Inequality and Uncertainty: Theory
and Legal Applications, 155 U.
Penn. L. Rev. 279 (2006) (with Matthew Adler)
§
Abstract:
"Welfarism" is the principle that social policy should be based
solely on individual well-being with no reference to "fairness" or
"rights." The propriety of this approach has recently been the
subject of extensive debate within legal scholarship. Rather than contributing
(directly) to this debate, we identify and analyze a problem within welfarism
that has received far too little attention. Call this the "ex ante/ex
post" problem. The problem arises from the combination of uncertainty - an
inevitable feature of real policy choice - and a social preference for
equality. If the policymaker is not a utilitarian, but rather has a
"social welfare function" that is equity-regarding to some degree,
then she faces the following choice: Should she care about the equalization of
expected well-being (the ex ante approach), or should she care about the
expected equalization of actual well-being (the ex post approach)? Should she
focus on the equality of prospects or the prospects for equality? In this
Article, we bring the ex ante/ex post problem to the attention of legal
academics, provide novel insight into when and why the problem arises, and
highlight legal applications where the problem figures prominently. We
ultimately conclude that welfarism requires an ex post approach. This is a
counterintuitive conclusion because the ex post approach can conflict with ex
ante Pareto superiority. Indeed, the Article demonstrates that the ex post
application of every equity-regarding social welfare function - whatever its
particular form - must conflict with ex ante Pareto superiority in some choice
situations. Among other things, then, the Article shows that legal academics
must abandon either their commitment to welfarism or their commitment to ex
ante Pareto superiority.
§
Keywords:
Social Welfare, Welfarism, Fairness, Utilitarianism, Consequentialism,
Inequality, Equity, Uncertainty, Ex Post Social Welfare, Ex Ante Social
Welfare, Cost Benefit Analysis, Pigou-Dalton Principle, Sure Thing Principle,
Time Inconsistency, Compensation, Insurance, Tax Policy.
·
Deconstructing
the New Efficiency Rationale, 86
Cornell L. Rev. 1003
(2001)[4]
§
Abstract: One of the most important developments in law and economics over
the last decade has been the emergence and rapid acceptance of a new type of
justification for the field's long-time practice of evaluating legal rules
solely on the basis of the efficiency criterion. This Article challenges these
new arguments. It contends that these arguments are alternatively logically
flawed or reliant on untenable assumptions. The article concludes that law and
economics' exclusive focus on efficiency continues to lack justification even
within the limited purview of modern economic reasoning.
§
Keywords: Tax policy, equity and efficiency, optimal taxation, tax
substitution argument, Atkinson and Stiglitz, taxes versus legal rules.
·
Taxes
versus Legal Rules as Instruments for Equity: A More Equitable View, 29 J.
Legal Stud. 797 (2000).
§
Abstract: Law and economic analysis
most often evaluates legal rules solely on the basis of the efficiency
criterion. The justification usually offered for this exclusive focus on
efficiency is that distributive goals are best accomplished through the tax
code. This paper adopts the same framework used to formalize this justification
and achieves quite different results: It is shown that: 1) even in the presence
of an optimally redistributive tax code, any concern for "equity"
dictates that legal rules should deviate from efficient standards in a manner
that redistributes toward the less-well-off; 2) any showing that differences in
taxable attributes such as income or wealth are the dominant components of
overall inequality would go only to the direction of the proper equity
adjustment to legal rules, not to the fact that some adjustment should be made;
and 3) the role of equity adjustments to legal rules is not limited to
correcting inequalities that arise within the legal system, but extends to
correcting inequalities arising in other areas of the economy.
§
Keywords: Tax policy, equity and efficiency, optimal taxation, tax
substitution argument, Atkinson and Stiglitz, taxes versus legal rules.
·
Detection Avoidance, 81 NYU
L. Rev. 1331 (2006)
§
Abstract: In
practice, the problem of law enforcement is half a matter of what the
government does to catch violators and half a matter of what violators do to
avoid getting caught. In the theory of law enforcement, however, although the
state's efforts at detection play a decisive role, offenders' efforts at
detection avoidance are largely ignored. Always problematic, this imbalance has
become critical in recent years as episodes of corporate misconduct spur new
interest in punishing process crimes like obstruction of justice and perjury.
This article adds detection avoidance to the existing theoretical frame with an
eye toward informing the current policy debate. The exercise leads to several
conclusions. First, despite recent efforts to strengthen laws governing
obstruction and perjury, sanctioning is relatively inefficacious at
discouraging detection avoidance. Sanctions send a mixed message to the
offender: do less to avoid detection, but to the extent you still do something,
do more to avoid detection of your detection avoidance. The article argues that
detection avoidance is more effectively deterred through the structural design
of evidentiary procedure (inclusive of investigation). Specifically advocated
are devices that exploit the cognitive shortcomings of potential avoiders and
the strategic instability of their cooperative arrangements, thereby lowering
the cost effectiveness of devoting resources to avoiding detection.
§
Keywords: Evidence, Procedure, Criminal Law,
Administrative Law, Public Enforcement, Obstruction of Justice, Perjury,
Discovery Sanctions, Spoliation, Document Retention Policies, Document
Destruction.
§
Web appendix: here.
·
Evidence, Procedure, and the Upside
of Cognitive Error, 57 Stan. L. Rev. 291 (2004)
§
Abstract:
Humans are imperfect information processors, a fact almost universally bemoaned
in legal scholarship. But when it comes to how the legal system itself
processes information, cognitive limitations are largely good news. Evidentiary
procedure - inclusive of trial, discovery, and investigation - relies heavily
on the fact that human mental capacity is limited. Such limits are crucial to
separating sincere from insincere testimony. Moreover, notes and other
"cognitive artifacts" that individuals make to compensate for their
limited cognitive ability are an important source of evidence. This article's
primary objective is to elucidate the extent to which cognitive imperfection is
beneficial rather than detrimental to evidentiary process and thus to law as a
whole. Secondarily, the article discusses how the law of evidentiary process
tilts the playing field of litigation in a manner that exacerbates the
cognitive limitations of the potentially insincere and offsets the limitations
of competing participants.
§
Keywords:
Evidence, Procedure, Cognitive Error, Cognitive Biases and Illusions, Cross
Examination, Witness Preparation, Real Evidence, Eyewitness Memory
·
Evidence
Tampering, 53 Duke L. J. 1215 (2004)[5]
§
Abstract: Current writing on evidence tampering—inclusive of the
destruction, fabrication, and suppression of evidence—creates the impression
that our system of litigation is in a state of fundamental disrepair. This
article suggests that this perception may merely reflect defects in the
conventional view of trial's purpose. The conventional view sees trial as a
stand-alone device for uncovering micro-historical truths about what has
already come to pass. In contrast, this article advocates viewing trial as but
one component of the overall mechanism by which the legal system influences
everyday behavior. When trial is viewed less in terms of discerning past
events, and more in terms of shaping future events, several apparently
troublesome aspects of the existing system's treatment of evidence tampering
gain substantial justification, and the way is paved for a more fruitful
evaluation of current doctrine.
§
Keywords: perjury, obstruction of justice, contempt, evidence tampering,
spoliation, document retention policy, discovery sanctions, Rule 11 sanctions,
inherent powers, spoliation tort, professional responsibility
·
Character
Evidence and the Object of Trial, 101 Colum. L. Rev.
1227 (2001).
§
Abstract: Evidence of an individual's character may not in general be offered
to prove that she acted in conformity with that character on a particular
occasion. Most analyses of this general rule - and its many exceptions - start
from the premise that trial is at heart an exercise in finding facts. Yet a
clear and robust rationale for the rules governing character evidence has yet
to be found on this basis. This article views trial and character evidence in a
different light. Trial is regarded as but one part of the overall mechanism by
which the state regulates behavior in the larger world outside the courtroom.
The article focuses specifically on trial's role in the provision of incentives
that induce individuals to account for the welfare of others in their daily
activities. It is shown that the rules governing character evidence are much
easier to explain - and so more fruitfully evaluated - when trial is explicitly
placed in this broader context. From this finding the article draws the larger
lesson that the real object of trial lies more in shaping events than sorting them
out after the fact.
§
Keywords: Character evidence, prior acts evidence, impeachment,
recidivism, “three strikes,” repeat offenders, rape shield.
·
A Primary Activity Approach to Proof
Burdens, 37 J. Legal Stud.
273 (2008).
·
Abstract: The question of which party should bear the burden of proof on a
given factual issue remains one of the most important and problematic in
evidence and procedure. This paper approaches the question from a relatively
unstudied perspective, viewing litigation as a device for influencing primary
activity behavior rather than as a standalone search for truth. Its main
finding is as follows: when a given evidentiary contest concerns the primary
activity behavior of one of the parties, placing the burden of proof on the
other party maximizes the incentive impact of that contest. Though
counterintuitive, the finding accords with a striking regularity in existing
law. The adversary of the incentive target typically does bear the burden of
proof with regard to the target's primary activity behavior. Thus, in tort, the
plaintiff bears the burden on the defendant's negligence, but the defendant
typically bears the burden on the defense that the plaintiff was contributorily
negligent. And in contract the plaintiff bears the burden on the defendant's
nonperformance, while the defendant bears the burden of proof on his defense
that the plaintiff failed to perform.
·
Keywords: Burden of Proof, Burden of Production, Burden of Persuasion,
Procedure, Evidence, Litigation
·
Evidentiary Arbitrage: The
Fabrication of Evidence and the Verifiability of Contract Performance, 74 J. L. Econ. & Org. 72 (2008) (with G.
Triantis).
·
Abstract: Contract theory identifies verifiability as a critical
determinant of the incompleteness of contracts. Although verifiability refers
to the cost of proving relevant facts to a court, very little scholarship
connects explicitly the evidentiary process to the drafting of substantive
contract terms. This paper begins to explore this relationship to provide a
more rigorous explanation of contract design. In particular, the paper concerns
the very core of verifiability - truth-finding by a court - and examines the
impact of the prospect of evidence fabrication on contracting. It thereby also
explores the puzzling tolerance of the adjudicatory system for fabrication and
the incentives to fabricate created by thresholds in burdens of proof. The
paper suggests that, despite undermining truth-finding, evidence fabrication
may be harnessed by contracting parties to improve the (evidentiary)
cost-efficiency of performance incentives in their relationship.
·
Keywords: Verifiability,
contracting, contract design, evidence, fabrication, perjury, evidence
destruction.
·
Should Plaintiffs Win What
Defendants Lose? Litigation Stakes, Litigation Effort, and the Benefits of
Decoupling, 33
J. Legal Stud. 323 (2004) (with A. Choi)
·
Abstract: Professors Polinsky and Che advocate decoupling what plaintiffs
recover from what defendants pay in damages, specifically arguing that lowering
recovery and raising damages (by appropriate amounts) delivers the same level
of primary activity deterrence with fewer filed suits. Professors Kahan and
Tuckman extend Polinsky and Che's analysis to account for the effect of
parties' litigation stakes on the cost of each filed suit, provisionally
concluding that Polinsky and Che's basic argument remains intact. This article
reaches a different conclusion. We show that when the effect of litigation
stakes on litigation effort is more fully taken into account, lowering recovery
and raising damages may no longer improve social welfare. In addition, we
characterize the kinds of suits in which the optimal level of recovery is no
less than the optimal level of damages. Of rhetorical significance in the
current policy debate, we find that such suits resemble the negative picture of
modern litigation invoked by some advocates of reduced recovery. Our basic
findings are robust to the possibility of out-of-court settlement, plaintiffs'
employment of contingent fee lawyers, and alternative fee-shifting rules.
·
Keywords: Decoupling, litigation, procedure, litigation effort, optimal
damages, optimal penalties, optimal recovery, punitive damages, split awards.
·
Relying
on the Information of Interested—and Potentially Dishonest—Parties, 3 Am. L. & Econ. Rev. 320 (2001).
·
Abstract: This paper investigates the role of evidence production in the
regulation of private behavior via judicial and administrative process. The
paper presents a model in which the law makes the agent's fine depend on the
presentation of evidence whose production cost, in turn, depends on how the
agent has behaved in the regulated activity. The targeted behavior becomes more
privately beneficial to the agent to the extent that it reduces the agent's
evidence costs and so improves its highest obtainable payoffs (net of costs) at
the subsequent hearing. This view of evidence production has several notable
implications, including that truth-finding has no direct role in deterrence,
that non-falsifiable evidence, even when available, is unlikely to be the best
choice for the system, and that "overdeterrence" may well be cost
effective.
·
Keywords: litigation, procedure, evidence, evidence production, signaling,
screening, primary activity approach, deterrence, endogenous cost evidence,
endogenous signal costs, truth-finding, overdeterrence.
·
Games,
Information and Evidence Production: With Application to English Legal History, 2 Am. L. & Econ. Rev. 342 (2000).
·
Abstract: I study the problem of how the legal system regulates activity
outside the courtroom on the basis of information supplied, in court, by
interested and potentially dishonest parties. I then apply the framework to the
historical evolution of Civil Procedure.
I identify a trade-off between the "fixed costs" of holding hearings
and the cost of evidence produced therein. When a party's presentation of
evidence is used to set its own liability or recovery, such evidence is useful
in setting incentives only to the extent that the party's evidence production
costs tend to vary with its behavior in the regulated activity. Such production
costs are a loss to the system. The less intense an individual's interest in
how her information will be used, the less the need for production costs in
insuring reliability. But greater reliance on information from others requires
increasing the breadth of circumstances triggering suit and the number of
parties to each action.
An increase in the cost of legal process (both fixed costs and production
costs) warrants increased reliance on the information supplied by interested
parties via costly evidence production. This suggests that increases in the
opportunity cost of process, due to increases in labor productivity, were one
factor in the gradual shift through English legal history from a system relying
mostly on relatively disinterested observers (in the form of the ancient jury)
to one relying mostly on costly evidence production by the parties themselves.
·
Keywords: litigation, procedure, evidence, evidence production, signaling,
screening, correlated types, primary activity approach, deterrence, endogenous
cost evidence, endogenous signal costs, truth-finding, history of jury’s role.
·
The
Burden of Proof in Civil Litigation: A Simple Model of Mechanism Design, 17 Int'l
Rev. L. & Econ. 431 (1997).
·
Finding Error, 2003 Mich. St. L. Rev. 1189 (2004) (in
Symposium: Visions of Rationality in
Evidence Law)
·
The Economics of Evidence, Procedure, and Litigation:
Vol. I (2007), introduction available for download at SSRN
Author page.
·
The Economics of Evidence, Procedure, and Litigation:
Vol. II (2007), introduction available for download at SSRN
Author page
·
Harnessing Adversarial Process: Optimal Strategic
Complementarities in Litigation (U. Pa., Inst. L. & Econ. Res.
Paper Series, No. 05-01, January 2005) (This draft: January 2006), available for download at SSRN
Author page.
·
Enforcement by Hearing: An Integrated Model of
Evidence Production (USC CLEO Working Paper No. 98-19,
1998/Colum. Econ. Dept. Discussion Paper No. 9798-05, 1998),[6] available for
download at SSRN
Author page.
·
Norms,
Repeated Games, and the Role for Law, 91 Cal. L. Rev. 1281 (2003) (with Paul
Mahoney)
·
Competing
Norms and Social Evolution: Is the Fittest Norm Efficient?, 149 U. Pa. L. Rev. 2027 (2001) (with
Paul Mahoney).
·
Big Field, Small Potatoes: An
Empirical Assessment of EPA’s Self-Audit Policy,
23 J. Pol’y Analysis & Mgmt. 415 (2004) (with A. Pfaff)
·
Environmental
Self-Auditing: Setting the Proper Incentives for Discovering and Correcting
Environmental Harm, 16 J. L. Econ. & Org. 189 (2000)
(with A. Pfaff).
·
General and Specific Legal Rules,
161 J. Inst. & Theor. Econ. 329 (2005) (with
P. Mahoney)
·
A
Probabilistic Model of Learning in Games, 64 Econometrica
1375 (1996).
·
Collusion
and Price Rigidity, 71 Rev. Econ. Stud. 317 (2004) (with S.
Athey & K. Bagwell)
·
Minimal Inclusive Sets in Special Classes of Games,
(Colum. Dept. Econ. Discussion Paper No. 9798-11, 1997),[7] available for
download at SSRN
Author page.
·
The
Role of Absolute Continuity in ‘Merging of Opinions’ and ‘Rational Learning,’ 29 Games
& Econ. Beh. 170 (1999) (with R.
Miller).
·
Almost Everybody Disagrees
Almost All the Time: The Genericity of Weakly-Merging Nowhere, (accepted
subject to revision at J. Econ.
Theory ) (1997)
(with R. Miller), available for download at SSRN
Author page.
by subject area
·
Federal
Income Taxation (Penn Law: fall
2009; spring 2008; spring 2007; UVA Law: spring 2000, 2002)
·
Taxation of Business Entities (Penn Law: spring 2010; fall 2008)
·
International Taxation (Penn Law: spring 2009)
·
Tax Policy (Penn
Law: spring 2010; fall 2008; spring 2007; fall 2007)
·
Evidence (Penn Law: fall 2003, spring 2005, spring 2006, fall
2006, fall 2007; NYU Law: fall 2005; Chicago Law: fall 2004; UVA Law: fall
1999, spring 2001, spring 2003)
·
Civil
Procedure (USC Law: fall 1998; UVA Law: fall 2000, 2001; Penn
Law: fall 2002)
·
Advanced
Topics in Procedure and Evidence (Penn
Law: fall 2003, spring 2005, spring 2006; UVA Law: spring 2003; Columbia Law:
spring 1996)
·
Law and Economics (Penn Law: spring 2004; UC Berkeley Jurisprudence
and Social Policy (JSP) Undergrad. Prog.: fall 1994; Stanford Econ. Dept.
Undergrad. Prog.: spring 1995)
·
Game Theory
for Ph.D.’s (Columbia Econ. Dept.
Grad. Prog.: spring 1996, 1997, 1998)
·
Game Theory
for Policy Makers (Program in Econ.
Policy Management (PEPM) at Columbia Univ.’s School of International &
Public Affairs (SIPA): fall 1995, 1996, spring 1998)
·
Intermediate
Microeconomics (Columbia Econ. Dept.
Undergrad. Prog.: fall 1997 (two classes))
·
Mathematical
Methods for Policy Makers (Program
in Econ. Policy Management (PEPM) at Columbia Univ.’s School of International
& Public Affairs (SIPA): summer 1996, 1997, 1998)
·
Mathematical
Methods for Ph.D.’s (Yale Econ.
Dept. Grad. Prog.: fall 1993)
[1] Last updated: 7/3/2009.
[2] See also SSRN Author Page
and Penn Law Faculty Page.
[3] Originally entitled Taxes, Equity, and Work Hours.
[4] Entitled in draft The New Efficiency Rationale: An Internal Critique and incorporating in Part III the working paper Inequity and Distortion: The Continuing Debate on Equity and Efficiency in the Law (A Counter-Response to Professors Kaplow and Shavell).
[5] Entitled in draft Shredders, Fibbers, and Forgers: Evidence Tampering on the Object of Trial.
[6] Originally circulated as part of Enforcement by Hearing: How the Civil Law Sets Incentives (Colum. Econ. Dept. Discussion Paper No 95-9603, 1995) and containing technical arguments referenced in Relying on the Information of Interested—and Potentially Dishonest—Parties, supra.
[7] Containing technical arguments referenced in A Probabilistic Model of Learning in Games, supra.