1. Is Antitrust Too Complicated for Generalist Judges? The Impact of Economic Complexity & Judicial Training on Appeals Michael R. Baye, Indiana University Joshua D. Wright, George Mason University Georgetown University School of Law Law and Economics Workshop October 2, 2009

2. Introduction Antitrust analysis is becoming increasingly complex Increasingly relies on economic experts More mathematically rigorous and technically demanding analysis Shift from per se rules to a case by case, “effects-based” approach Sherman Act delegates to the judiciary identification of “unreasonable restraints of trade” Over the past few decades, merger analysis has “come of age” So, what impact does this complexity have on the quality of judicial decision-making?

3. Economic Complexity and Judicial Decisions ABA Task Force published a report in 2006 on the role of economic evidence in federal court: “It is critical that judges and juries understand economic issues and economic testimony in order to reach sound decisions” Survey of antitrust economists found that only 24% believe that judges “usually” understand the economic issues A number of potential solutions have been suggested: Expanding use of court appointed experts Increasing use of Daubert Creating specialized antitrust courts Providing basic economic training to judges

4. Economic Training for Judges George Mason’s Law and Economics Center (LEC) began training judges in 1976 At one point, it was responsible for providing economic training to about 40% of the federal judiciary Criticism eventually arose that the program was designed to indoctrinate judges with a conservative, free-market oriented set of economic beliefs Provides judges with economic knowledge they would otherwise not get Many judges opt for such training Rationale: it reduces time spent on cases and improves reputations (reduced appeals or reversals)

5. Our Paper Represents a first attempt to examine the effect of economic complexity and assess training on the quality of judicial decisions in antitrust Our findings: Economic complexity increases the likelihood that a judge’s opinion is appealed (and reversed) Judges with basic economic training have decisions appealed (and reversed) less frequently Experience is a poor substitute for economic training for judges Lends some support to the claim that antitrust analysis has become too complex for generalist judges

6. Four Categories of Data Information extracted from judicial opinions Universe of all rulings on substantive antitrust claims by federal district court judges (641 decisions) and administrative law judges (73 decisions) from 1996-2006 Includes Type of antitrust claim (merger, monopolization, price fixing, etc.) Plaintiff (FTC, DOJ, private party, State AG) Date of decision Whether the decision was appealed Whether an appeal resulted in a reversal

7. Four Categories of Data (cont.) Judge and court characteristics Judges’ political ideology (political party of the appointing President) Judges’ post-graduate education Judges’ prior antitrust experience (number of prior AT decisions) Federal appellate circuit to which the judge belongs

8. Four Categories of Data (cont.) Economic complexity of the case Searched decisions and generated counts of 14 key terms one would expect to arise in complex antitrust cases Terms such as “Regression”, “Economic Expert”, “Statistics”, “Econometrics” , “Economist”, “Economic Report”, etc. Whether judge received basic economic training 128 judges attended LEC economics training seminars beforethe particular decision was issued

9. Majority of Cases Involve Judges with Little Antitrust Experience and are “Simple” Cases Distribution of Judges’ Prior Antitrust Experience Distribution of Economic Complexity

10. Measures of the Quality of Judicial Decisions Primary measure of the quality of an initial court’s decision is a party’s decision to appeal Since a party incurs costs by appealing, such appeals constitute a revealed preference – i.e. the party decides that the opportunity to overturn the decision is great enough to warrant the cost All things equal, an appeal indicates the party’s belief, often formed with input from economic experts, that it can convince the court that the initial decision contained reversible error Though appeals may be based in legal issues, these are inextricably linked with economic issues in the realm of antitrust cases

11. Measures of the Quality of Judicial Decisions Secondary measure of the quality is the reversal of decisions by appellate. Disadvantages of this measure: Reversals made by panels of decision-makers, so difficult to control for training, ideology, and interaction among these decision-makers Occurs conditional on an appeal, so greatly reduces sample size

12. Caveats Number of “complex” cases is limited Not sufficient thickness in the data to separately control for each key term Split decisions into “simple” (no key terms) and “complex” (any key term) cases Some potentially important predictors of appeals not observed Stakes of the litigation may correlate with case type and complexity, which are in the model Quality of legal representation and judge-specific effects may also affect the appeal rate The sample excludes cases that are settled and focuses on “close calls” Potential endogeneity

13. Comparison of Means

14. Summary of Means Comparisons Appeal rates differ greatly based on complexity and training Economically complex cases are 24.2% more likely to be appealed than simple cases Decisions authored by judges with basic economic training are 12.8% less likely to be appealed than those by untrained judges Results are significant at the 1% level Similar results when reversals are used as indicator of judicial quality Complex cases are reversed 9.1% more often Untrained judges’ decisions are reversed 10.1% more often

15. Appeal Rates and Training Levels Vary Greatly Across Circuits, Case Types, and Plaintiffs

16. Regression Analysis Probit regressions Dependent variable is an indicator for whether the case was appealed Independent variables: Dummy for whether the case was “complex” Whether the judge was trained Interactions Year of decision Type of case fixed effects Plaintiff fixed effects Circuit fixed effects

17. Baseline Probit Regressions

18. Summary of Baseline Results Results similar to means comparisons Complexity increases the appeal rate by 23.6% while economic training reduces appeals by 10.7% Including interaction terms: Complexity increases appeal rate by 10% Basic economic training decreases appeals by 10% in simple cases Economic training has no effect in complex cases Results robust to the addition of a time trend and fixed effects for case type, plaintiff, and circuit

19. Economic Training vs. Prior Antitrust Experience These results lend some support to reforms to provide judges with greater economic training What about proposals to create antitrust tribunals to give judges repeated exposure to complex antitrust issues? Does experience in antitrust cases have an effect on the appeal rate? Add “EXPERIENCE,” which measures the number of previous antitrust decisions issued by the judge, which has a small negative effect on appeals (suggesting experience not a substitute for training)

20. Economic Training vs. Prior Antitrust Experience

21. Additional Robustness Checks Alternative dataset with Federal District Court judges only FTC administrative litigation has higher appeal rate (91.2%), greater levels of economic complexity (78.1%), and ALJs had no economic training (0%) Judicial training vs. political ideology Perhaps decision to attend training captures conservative or pro-business leanings. Control for PARTY Judicial training vs. judge quality Perhaps propensity to get training reflects fact that better judges seek to improve themselves. Control for QUALITY (Masters or Ph. D)

22. Results Robust For These Data and Additional Controls

23. Summary and Concluding Remarks Decisions involving the evaluation of complex economic evidence are appealed at a 10% higher rate Decisions of judges with basic economic training have a 10% lower appeal rate in “simple” cases Basic economic training does not reduce appeals in “complex” cases Court appointed experts? More advanced economic training? Antitrust experience (repeated exposure to antitrust cases) does not appear to be a good substitute for economic training Specialized tribunals? Out of sample predictions?