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March|April 2005
An Academic Auction By David Bitkower
Job Fair By Dana Mulhauser
The Mobile Law Office By Margot Sanger-Katz
Self-Adhesive Salvation By Nicholas Hengen
Domesticated Disputes By Dashka Slater
Cases & Controversies
The Prudent Jurist By William H. Simon

An Academic Auction

Seat in Con Law with Levinson. No Reserve. Must See! Bid Now!!!

By David Bitkower

JAY WILSON IS NOT THE FIRST LAW STUDENT who couldn't get into a popular class. But last December, the 36-year-old second-year student at New York University School of Law may have become the first to try to purchase a class seat on the black market. Wilson offered $300 for a spot in Daryl Levinson's perennially oversubscribed constitutional law class and $200 for one in Burt Neuborne's evidence class. A day later, having received no response, he upped the ante. "Please, please," Wilson wrote, "I'm raising the offer for Levinson to $500. Serious offer."

Wilson made his pitch on an N.Y.U. student e-mail listserv called "Coase's List," after Nobel Prize winning economist Ronald L. Coase. As most first-year law students learn, Coase is responsible for an intellectual cornerstone of the law and economics movement. The Coase Theorem states that market forces will allocate property rights efficiently, no matter who initially holds those rights, as long as the interested parties can make contracts without additional transaction costs. A corollary, however, is that contracts are almost never made without transaction costs, so legal rules should try to minimize those costs for the parties and for society. In a nod to this aspect of the Coase Theorem, the N.Y.U. law students use their e-mail listserv to minimize costs when they advertise class outlines, rides to the airport, and other hot law school commodities, and when they trade in unregulated commerce. Think eBay, add too many study sessions spent figuring out how the Coase Theorem works, and you get the idea.

Because N.Y.U.'s law school does not have a waiting list for oversubscribed classes, the students also use Coase's List to trade class spots. Rather than drop a sought-after spot in an otherwise full class, a student can offer to trade the class he has for a class he wants. If a suitable partner is found, the two students meet at a computer terminal to drop their places so that each can snatch up the other's before anyone else notices the openings. Occasionally, such offers are accompanied by "sweeteners" like baked goods or breakfast in bed. But Wilson is the first student anyone can remember who offered cash. As Wilson later reflected, "I pushed it over, apparently, the invisible line."

The N.Y.U. Student Bar Association, which administers Coase's List, agreed that a line had been crossed, and promptly sent out a notice that, "with all due respect to Mr. Coase's theorem," students offering cash or "obvious cash substitutes" for classes would be barred from the list.

Law students being law students, and exam time meaning procrastination time, the list was soon flooded with requests for clarification of the rule. One student queried, "Sexual favors: obvious cash substitute or not?" Another offered "tips on building a classical recording collection" in exchange for a spot in international law, but noted wistfully, "This is not a cash substitute. Nobody would pay me cash to do this." A third student quoted IRS Regulation 1.61-2(d)(1) as a reminder for students to treat the fair market value of cash substitutes as taxable income.

The N.Y.U. administration took the issue more seriously, and within a week Vice Dean Barry Adler circulated an e-mail to the student body decreeing, "Spots in law school classes are not property of enrolled students and may not be sold or bought." The e-mail threatened unspecified "sanctions" against violators. Not four hours later, Adler circulated another e-mail extending the ban to all trading of class spots, because he was worried that students would hoard classes for barter. On the SBA's advice, however, he withdrew the second decree.

N.Y.U. students were quick to criticize these impositions on their right to contract. One student labeled the SBA "Socialist Bureaucratic Apparatchiks" and lamented "another setback for the American democratic values our men and women in uniform are fighting to bring to Iraq." (The student proudly sports a Ralph Nader sticker on his laptop, according to campus scuttlebutt, so either his comments or his sticker were intended as ironic.) Another student remarked, "It's not called Coase's List for nothing—if it were meant to be a barter-driven socialist collective, they would have named it Trotsky's List."

Adler, who was also Wilson's first-year contracts professor, would not cede the economic argument. He acknowledged that banning cash transactions might lead to inefficiencies—say, if Wilson had found a student holding a spot in Neuborne's evidence class who would have been happier with a less popular evidence class and a $200 dinner at Il Mulino, the old-world Italian restaurant down the street from N.Y.U. But the law school was also concerned with the distribution of wealth among its students. As Adler correctly observed, legal rules affect not only how resources are allocated, but who winds up spending how much. By barring the sale of classes, the law school aimed to avoid putting pressure on better-off students to buy the classes they wanted, and, even more importantly, pressure on poorer students to sell their valuable seats. "There's nothing inconsistent with Coase's Theorem there," Adler insisted.

The opportunity for empirical research was not lost on law and economics professors. Oren Bar-Gill, who teaches a behavioral law and economics class at N.Y.U., was quick to point out flaws in the putative free market for class spots. "In a Coasean world, one would think it makes sense to allow trading cash for classes, because both parties are better off," he explained. "But you also have to take into account the ex ante effects of the rule." Specifically, Bar-Gill feared that students would initially bid in the lottery not for the classes they wanted but for the classes most likely to fetch a high price on Coase's List. Then "bright but not so rich students" would avoid N.Y.U., knowing that many spots in the best classes would eventually be sold to their wealthier peers. Or, Bar-Gill mused, poor entrepreneurs might choose N.Y.U. over its competitors precisely because they could expect to earn pocket money by selling their class picks. As a result, many students would end up not getting the classes they wanted, and N.Y.U. would end up losing the students it wanted.

As the class-selling episode drew to a close, different people drew different morals from the story. Adler announced that the school was "looking at ways" to make a waiting list possible. Neuborne claimed that he was "furious about the practice." He said, "It cuts me out of the profit. If any student wants favorable treatment from me, the student must deal directly with me in a cash transaction." The most fitting coda belonged to a student who posted the following on Coase's List:

  • a spot in neuborne's evidence: $500.
  • one year's tuition at nyu law: $38,000.
  • proving every existing lawyer stereotype right: priceless.

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