The Knowledge Tax
Government subsidies to higher education have recently become a hot-button political issue. But what if the federal government does not actually subsidize higher education, but taxes it? Labor economists struggle to explain why the rates of return to higher education have remained much higher than the rates of return to other investments. This Article proposes a novel explanation: distortionary taxation. Economic theory suggests that when investments that are substitutes for one another are taxed inconsistently, investors shun the investment option that is taxed more heavily. Unfavorable tax treatment of higher education could therefore create an undersupply of educated labor. This distortion may reduce economic growth and social welfare.
We would like to thank the workshop participants at University of Michigan Law School, Northwestern University Law School, Notre Dame Law School, University of Toronto Law School, Stanford Law School, and N.Y.U. School of Law; and conference participants at the 2024 American Law and Economics Association Meeting for many helpful comments and suggestions. We are most grateful to Jonathan Morad Artal (Stanford Class of 2025) and Andrea Lofquist (Michigan Class of 2024) for their valuable research assistance and comments on earlier drafts.
We would like to thank the workshop participants at University of Michigan Law School, Northwestern University Law School, Notre Dame Law School, University of Toronto Law School, Stanford Law School, and N.Y.U. School of Law; and conference participants at the 2024 American Law and Economics Association Meeting for many helpful comments and suggestions. We are most grateful to Jonathan Morad Artal (Stanford Class of 2025) and Andrea Lofquist (Michigan Class of 2024) for their valuable research assistance and comments on earlier drafts.
The flexibility to renegotiate can facilitate long-term contracting and thereby beneficial reliance investments and risk allocation. The prospect of modification can induce contracting parties who expect their bargaining power to improve to enter into contracts earlier and realize the advantages of longer-term relationships. Otherwise, those parties might decline to contract or delay until those opportunities realize, thereby foregoing the benefits of long-term risk allocation or reliance investments. The parties decide not only whether, but also when, to make legally binding commitments to each other. Courts should be more lenient in enforcing contract modifications that, prompted by a shift in bargaining power, may have only a redistributive effect. Parties can design under-compensatory damages that would provide a credible threat of breach ex post to facilitate ex post modification. Requiring good faith in modification (along with damages) can constrain possible holdup and protect reliance investments and risk allocation.
For thoughtful comments, the authors thank Jennifer Arlen, Rick Brooks, Kevin Davis, Brian Galle, Jacob Goldin, and participants in workshops at Columbia Law School, Texas A&M University School of Law, and the American Law and Economics Association Annual Meeting. Ji Young Kim provided excellent research assistance.
For thoughtful comments, the authors thank Jennifer Arlen, Rick Brooks, Kevin Davis, Brian Galle, Jacob Goldin, and participants in workshops at Columbia Law School, Texas A&M University School of Law, and the American Law and Economics Association Annual Meeting. Ji Young Kim provided excellent research assistance.
For thoughtful comments, the authors thank Jennifer Arlen, Rick Brooks, Kevin Davis, Brian Galle, Jacob Goldin, and participants in workshops at Columbia Law School, Texas A&M University School of Law, and the American Law and Economics Association Annual Meeting. Ji Young Kim provided excellent research assistance.
The negative moral emotions of guilt and shame impose real social costs but also create opportunities for policymakers to engender compliance with legal rules in a cost-effective manner. This Essay presents a unified model of guilt and shame that demonstrates how legal policymakers can harness negative moral emotions to increase social welfare. The prospect of guilt and shame can deter individuals from violating moral norms and legal rules, thereby substituting for the expense of state enforcement. But when legal rules and law enforcement fail to induce total compliance, guilt and shame experienced by noncompliers can increase the law’s social costs. The Essay identifies specific circumstances in which rescinding a legal rule will improve social welfare because eliminating the rule reduces the moral costs of noncompliance with the law’s command. It also identifies other instances in which moral costs strengthen the case for enacting legal rules and investing additional resources in enforcement because deterrence reduces the negative emotions experienced by noncompliers.
In today’s competitive global economy, U.S. companies upholding strict labor and human rights standards increasingly face unfair competition from foreign firms that exploit forced labor. In this Essay, we argue that this exploitation is not just a grave human rights crisis but also a serious market distortion that disadvantages ethical businesses in the United States and elsewhere.
This Essay outlines a strategic approach to confront this unfairly uneven playing field. Beyond simply deploying the existing legal tools, we propose a unified federal enforcement strategy and smarter trade agreements with enforceable labor standards. We also propose affirmative incentives, including procurement preferences and legal safe harbors, for companies that invest in ethical sourcing. The final component to the integrated strategy we propose is greater investment in traceability technologies and public-private partnerships to identify and root out forced labor deep within supply chains. Ultimately, we outline a forward-looking blueprint to ensure fair and competitive markets for U.S. businesses, ones that reward integrity and drive a global race to the top in labor practices. Economic competitiveness and human dignity, we argue, must be pursued together, not treated as competing priorities.