Louis Kaplow

Finn M. W. Caspersen and Household International Professor of Law and Economics

Biography

Louis Kaplow is Finn M.W. Caspersen and Household International Professor of Law and Economics at Harvard Law School, Associate Director of the John M. Olin Center for Law, Economics, and Business, a Research Associate at the National Bureau of Economic Research, and a Fellow of the American Academy of Arts and Sciences.  He has a Ph.D. in economics and a J.D. from Harvard University.  He has published widely in the fields of taxation and public economics, antitrust, law and economics, and welfare economics and moral philosophy.  He serves on editorial boards of numerous journals and has been an economic and legal consultant to government entities and private parties.

Notable publications include: (1) Competition Policy and Price Fixing (Princeton University Press 2013), and a series of articles challenging the market definition paradigm and re-analyzing the role of market power; (2) The Theory of Taxation and Public Economics (Princeton University Press 2008) and a series of related articles presenting a new framework for the analysis of taxation and related subjects in public economics; (3) Fairness versus Welfare (Harvard University Press 2002) (with Steven Shavell), an analytical argument and synthesis at the intersection of economics, moral philosophy, and law; (4) Analytical Methods for Lawyers (2nd ed., Foundation Press 2011) (with Howell Jackson, Steven Shavell, W. Kip Viscusi, and David Cope), an innovative text creating a new foundational course for law students; (5) Antitrust Analysis (7th ed., Aspen Publishing 2013) (with the late Phillip Areeda and Aaron Edlin) and an extensive survey, “Antitrust” (Handbook of Law and Economics 2007) (with Carl Shapiro).

Areas of Interest

Louis Kaplow, Information and the Aim of Adjudication: Truth or Consequences?, 67 Stan. L. Rev. 1303 (2015).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
Type: Article
Abstract
Adjudication is fundamentally about information, usually concerning individuals' previous or proposed behavior. Legal system design is challenging because information ordinarily is costly and imperfect. This Article analyzes a broad array of system features, asking throughout whether design should aim at the truth or at consequences, how these approaches may differ, and what general lessons may be drawn from the comparison. It will emerge that the differences in approach are often large and their character is sometimes counterintuitive. Accordingly, system engineers concerned with social welfare need to aim explicitly at consequences. This message is not one opposed to truth per se but rather a strong admonition: it is dangerous to be attached to the alluring view that adjudication is primarily about generating results most in accord with the truth of the matter at hand.
Louis Kaplow, Myopia and the Effects of Social Security and Capital Taxation on Labor Supply, 68 Nat'l Tax J. 1 (2015).
Categories:
Taxation
,
Labor & Employment
Sub-Categories:
Labor Law
,
Retirement Benefits & Social Security
,
Tax Policy
Type: Article
Abstract
This article analyzes the effect of savings-related policies on labor supply in a model that explicitly incorporates myopic decision-making. Both social security and capital taxation may cause labor supply to rise or fall when individuals are myopic, depending on the curvature of individuals' utility as a function of consumption. Moreover, whatever is the sign of these effects under one assumption about how myopia relates to labor supply decisions, the sign is reversed under the other assumption that is considered. Additionally, some interventions have a first-order effect on labor supply from the outset but others do not, and some labor supply effects rise with the magnitude of the intervention whereas others fall.
Louis Kaplow, Likelihood Ratio Tests and Legal Decision Rules, 16 Am. L. and Econ. Rev. 1 (2014).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Empirical Legal Studies
Type: Article
Abstract
Various legal decision-making criteria can be formulated as likelihood ratio tests, wherein liability, prohibition, or other outcomes are associated with evidence strength exceeding a posited threshold. Stating rules in this manner clarifies their nature, facilitates the comparison of conventional and optimal rules as well as the identification of differences between rules across contexts, and provides further illumination in instances in which a decision standard is not truly a likelihood ratio test.
Louis Kaplow, Multistage Adjudication, 126 Harv. L. Rev. 1179 (2013).
Categories:
Civil Practice & Procedure
Sub-Categories:
Litigation & Settlement
Type: Article
Abstract
Legal proceedings often involve multiple stages: U.S. civil litigation allows motions to dismiss and for summary judgment prior to trial; government agencies as well as prosecutors employ investigative and screening processes before initiating formal adjudication; and many Continental tribunals move forward sequentially. Decisionmaking criteria have proved controversial, as indicated by reactions to the Supreme Court's recent decisions in Twombly and Iqbal and its 1986 summary judgment trilogy, which together implicate the Supreme Court cases most cited by federal courts. Neither jurists nor commentators have articulated coherent, noncircular legal standards, and no attempt has been made to examine systematically how decisions at different procedural stages should ideally be made in light of the legal system's objectives. This Article presents a foundational analysis of the subject. The investigation illuminates central elements of legal system design, recasts existing debates about decision standards, identifies pathways for reform, and provides new perspectives on the nature of facts and evidence and on the relationship between substantive and procedural law.
Louis Kaplow, Market Definition: Impossible and Counterproductive, 79 Antitrust L.J. 361 (2013).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Financial Markets & Institutions
,
Mergers & Acquisitions
,
Antitrust & Competition Law
Type: Article
Abstract
In recent articles, I have advanced a number of criticisms of the market definition/redefinition paradigm, chief among them that market definition is impossible and counterproductive. First, there is no valid way to infer market power from market shares in redefined (non-homogeneous-goods) markets. Second, one cannot choose which market definition is superior without already having in hand one’s best estimate of market power, rendering the exercise pointless. Worse, market power inferences in the chosen market are inferior to the best estimate with which one began. After elaborating these points, this Essay applies them to the three main settings in which the hypothetical monopolist test is employed in various jurisdictions’ merger guidelines, showing this test to be counterproductive in every instance. Finally, it addresses reasons that some are nevertheless reluctant to abandon market definition altogether.
Louis Kaplow, Competition Policy and Price Fixing (Princeton Univ. Press 2013).
Categories:
Corporate Law & Securities
Sub-Categories:
Antitrust & Competition Law
Type: Book
Abstract
Throughout the world, the rule against price fixing is competition law's most important and least controversial prohibition. Yet there is far less consensus than meets the eye on what constitutes price fixing, and prevalent understandings conflict with the teachings of oligopoly theory that supposedly underlie modern competition policy. Competition Policy and Price Fixing provides the needed analytical foundation. It offers a fresh, in-depth exploration of competition law's horizontal agreement requirement, presents a systematic analysis of how best to address the problem of coordinated oligopolistic price elevation, and compares the resulting direct approach to the orthodox prohibition. In doing so, Louis Kaplow elaborates the relevant benefits and costs of potential solutions, investigates how coordinated price elevation is best detected in light of the error costs associated with different types of proof, and examines appropriate sanctions. Existing literature devotes remarkably little attention to these key subjects and instead concerns itself with limiting penalties to certain sorts of interfirm communications. Challenging conventional wisdom, Kaplow shows how this circumscribed view is less well grounded in the statutes, principles, and precedents of competition law than is a more direct, functional proscription. More important, by comparison to the communications-based prohibition, he explains how the direct approach targets situations that involve both greater social harm and less risk of chilling desirable behavior--and is also easier to apply.
Louis Kaplow, Optimal Control of Externalities in the Presence of Income Taxation, 53 Int'l. Econ. Rev. 487 (2012).
Categories:
Taxation
,
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Tax Policy
Type: Article
Abstract
A substantial literature examines how the Pigouvian directive that marginal taxes should equal marginal external harms needs to be modified in light of the preexisting distortion due to labor income taxation. Additional literature considers distributive concerns. It is demonstrated, however, that simple first-best rules unmodified for labor supply distortion or distribution are correct in the model examined. Specifically, setting all commodity taxes equal to marginal harms (and subsidies equal to marginal benefits) can generate a Pareto improvement, as can a marginal reform toward the first-best. Qualifications and explanations for differences from previous work are also presented.
Louis Kaplow, Burden of Proof, 121 Yale L.J. 738 (2012).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Evidence
,
Practice & Procedure
,
Litigation & Settlement
,
Law & Economics
Type: Article
Abstract
The burden of proof is a central feature of all systems of adjudication, yet one that has been subject to little normative analysis. This Article examines how strong evidence should have to be in order to assign liability when the objective is to maximize social welfare. In basic settings, there is a tradeoff between deterrence benefits and chilling costs, and the optimal proof requirement is determined by factors that are almost entirely distinct from those underlying the preponderance of the evidence rule and other traditional standards. As a consequence, these familiar burden of proof rules have some surprising properties, as do alternative criteria that have been advanced. The Article also considers how setting the proof burden interacts with other features of legal system design: the determination of enforcement effort, the level of sanctions, and the degree of accuracy of adjudication. It compares and contrasts a variety of legal environments and methods of enforcement, explaining how the appropriate proof requirements differ qualitatively across contexts. Most of the questions raised and answers presented differ in kind as well as in result from those in prior literature.
Louis Kaplow, On the Optimal Burden of Proof, 119 J. Pol. Econ. 1104 (2011).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Evidence
,
Practice & Procedure
,
Law & Economics
Type: Article
Abstract
The burden of proof, a central feature of adjudication and other decision-making contexts, constitutes an important but largely unappreciated policy instrument. The optimal strength of the burden of proof, as well as optimal enforcement effort and sanctions, involves trading off deterrence and the chilling of desirable behavior, the latter being absent in previous work. The character of the optimum differs markedly from prior results and from conventional understandings of proof burdens. There are important divergences across models in which enforcement involves monitoring, investigation, and auditing. A number of extensions are analyzed, in one instance nullifying key results in prior work.
Louis Kaplow, Targeted Savings and Labor Supply, 18 Int'l. Tax & Pub. Fin. 507 (2011).
Categories:
Labor & Employment
,
Taxation
Sub-Categories:
Retirement Benefits & Social Security
,
Tax Policy
Type: Article
Abstract
Substantial evidence suggests that savings behavior may depart from neoclassical optimization. This article examines the implications of raising the savings rate-whether through social security, retirement plans, or otherwise-for labor supply, where labor supply is determined by behavioral utility functions that reflect the non-neoclassical character of savings behavior. Under one formulation, raising the targeted savings rate increases labor supply regardless of the slope of the labor supply curve; under a second, raising the targeted savings rate has the same effect on labor supply as that of raising the labor income tax rate; and under a third, raising the targeted savings rate has no effect on labor supply. Effects on labor supply are particularly consequential because of the significant preexisting distortion due to labor income taxation.
Louis Kaplow, An Optimal Tax System, 32 Fiscal Stud. 415 (2011).
Categories:
Taxation
,
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Tax Policy
Type: Article
Abstract
A notable feature and principal virtue of Tax by Design is its system-wide perspective on different elements of the tax system. This review essay builds on this trait and offers a more explicit foundation for the report's general approach, drawing on a distribution-neutral methodology that is developed in other work. This technique is then employed to illuminate and extend Tax by Design's analysis regarding the VAT, environmental taxation, wealth transfer taxation and income transfers.
Louis Kaplow, Market Definition and the Merger Guidelines, 39 Rev. Indus. Org. 107 (2011).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
Type: Article
Abstract
The recently issued revision of the US Horizontal Merger Guidelines, like its predecessors and mirrored by similar guidelines throughout the world, devotes substantial attention to the market definition process and the implications of market shares in the market that is selected. Nevertheless, some controversy concerning the revised Guidelines questions their increased openness toward more direct, economically based methods of predicting the competitive effects of mergers. By contrast, this article suggests that, as a matter of economic logic, the Guidelines revision can only be criticized for its timidity. Indeed, economic principles unambiguously favor elimination of the market definition process altogether.
Louis Kaplow, Market Share Thresholds: On the Conflation of Empirical Assessments and Legal Policy Judgments, 7 J. Competition L. & Econ. 243 (2011).
Categories:
Corporate Law & Securities
Sub-Categories:
Antitrust & Competition Law
Type: Article
Abstract
In competition law, market power requirements are often articulated in terms of market shares. The use of market share thresholds, however, conflates two distinct questions: First, how much market power exists in a given situation? Second, how much market power should the law require? As a consequence, neither question is answered, or even directly illuminated. Furthermore, because market shares are not themselves measures of market power but instead merely a factor that bears on its magnitude in a given setting, they are inapt answers to both inquiries. Their use involves a category mistake. The identified problems are illustrated by unpacking Learned Hand's famous pronouncement in Alcoa of the market shares required for the offense of monopolization, but the core defects characterize all market share declarations.
Louis Kaplow, On the Meaning of Horizontal Agreements in Competition Law, 99 Calif. L. Rev. 683 (2011).
Categories:
Corporate Law & Securities
Sub-Categories:
Antitrust & Competition Law
Type: Article
Abstract
Competition law's prohibition on price fixing and related horizontal agreements is one of its few uncontroversial provisions and is understood to be well grounded in economic principles that are taken to provide the foundation for competition policy. Upon examination, however, commonly offered views of the law's conception of agreement prove to be difficult to articulate in an operational manner, at odds with key aspects of legal doctrine and practice, and unrelated to core elements of modern oligopoly theory. This Article explores these and other features of the agreement requirement and suggests the need for a wholesale rethinking of how competition law should approach the oligopoly problem.
Louis Kaplow, Optimal Proof Burdens, Deterrence, and the Chilling of Desirable Behavior, 101 Am. Econ. Rev. 277 (2011).
Categories:
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
Sub-Categories:
Evidence
,
Law & Economics
,
Law & Behavioral Sciences
Type: Article
Abstract
The optimal stringency of the burden of proof is characterized in a model in which relaxing the proof burden enhances deterrence but also chills desirable behavior. The results are strikingly different from those in prior work that uses a simpler model in which individuals only choose whether to commit a harmful act (so only deterrence is at stake). Moreover, the qualitative differences between the optimal rule and the familiar preponderance of the evidence rule----and related rules that look to Bayesian posteriors----are great, much more so than revealed by prior work.
Louis Kaplow, Discount Rates, Social Judgments, Individuals' Risk Preferences, and Uncertainty, 42 J. Risk & Uncertainty 125 (2011).
Categories:
Disciplinary Perspectives & Law
,
Banking & Finance
Sub-Categories:
Risk Regulation
,
Law & Economics
,
Law & Behavioral Sciences
Type: Article
Abstract
The choice of the proper discount rate is important in the analysis of projects whose costs and benefits extend into the future, a particularly striking feature of policies directed at climate change. Much of the literature, including prominent work by Arrow et al. (1996), Stern (2007, 2008), and Dasgupta (2008), employs a reduced-form approach that conflates social value judgments and individuals' risk preferences, the latter raising an empirical question about choices under uncertainty rather than a matter for ethical reflection. This article offers a simple, explicit decomposition that clarifies the distinction, reveals unappreciated difficulties with the reduced-form approach, and relates them to the literature. In addition, it explores how significant uncertainty about future consumption, another central factor in climate policy assessment, raises further complications regarding the relationship between social judgments and individuals' risk preferences.
Louis Kaplow & Alvin C. Warren, Jr., Professor Strnad's Rejoinder: Simply Semantics, 39 Stan. L. Rev. 419 (1987).
Categories:
Taxation
Sub-Categories:
Tax Policy
,
Taxation - Personal Income
,
Taxation - Federal
,
Taxation - Transactional
Type: Article
Abstract
Most of Professor Strnad's original article was devoted to a lengthy algebraic argument asserting that a cash flow tax, rather than an income tax, implements the Haig-Simons concept of income in a non-general-equilibrium setting. In our reply, we made two points about this argument: (1) Professor Strnad's complex algebraic demonstration amounted to a simple and familiar tautology, and (2) the argument did not support his conclusion because Professor Strnad was not in fact applying the Haig-Simons concept used by tax policy analysts for over fifty years. We therefore called his quite distinct formulation, which is definitionally implemented by a cash flow tax, "Strnad income." Professor Strnad's specification of his concept of income requires that: (1) after-tax net present values equal those in the no-tax world, reduced by the tax rate, and (2) after-tax changes in present value equal those in the no-tax world, reduced by the tax rate.
Louis Kaplow & Alvin C. Warren, Jr., An Income Tax by Any Other Name. A Reply to Professor Strnad, 38 Stan. L. Rev. 399 (1986).
Categories:
Taxation
Sub-Categories:
Tax Policy
,
Taxation - Federal
,
Taxation - Personal Income
Type: Article

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