Amitai Aviram’s research while affiliated with Illinois College and other places

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Publications (13)


Overcoming Impediments to Information Sharing
  • Article

October 2010

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104 Reads

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34 Citations

SSRN Electronic Journal

Amitai Aviram

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Avishalom Tor

When deciding whether to share information, firms consider their private welfare. Discrepancies between social and private welfare may lead firms excessively to share information to anti-competitive ends - in facilitating of cartels and other harmful horizontal practices - a problem both antitrust scholarship and case law have paid much attention to. On the other hand, legal scholars have paid far less attention to the opposite type of inefficiency in information sharing among competitors - namely, the problem of sub-optimal information sharing. This phenomenon can generate significant social costs and is of special importance in network industries because the maintenance of compatibility, a key to producing positive network effects, typically requires information sharing. Understanding the hitherto neglected impact of sub-optimal information sharing is important not only for many areas of antitrust law, but also for developing effective policies towards network industries and critical infrastructures more generally, as well as for improving those procedural rules that concern information exchange among litigating parties.This paper therefore advances the legal analysis of impediments to efficient information sharing in a number of significant ways: First, it shows that the strategic behavior of competitors may erect an economic barrier to information sharing that has not been previously addressed in the literature - the fear of degradation. This form of strategic behavior involves the strategic refusal to share information when the refusal inflicts a greater harm on one's rivals than on oneself, and thus generates a competitive advantage. Second, the paper reveals a hitherto unrecognized set of behavioral impediments to information sharing, wherein rivalry norms and managers' risk attitudes bias competitors' judgments of the prospects of information sharing and the status-quo bias and ambiguity aversion lead these decision makers to avoid such arrangements. Third, it integrates these economic and behavioral insights with the findings of the extant literature to create a new framework for predicting when private information sharing will be suboptimal. Finally, we suggest how the alignment of private information sharing with social optimality may be promoted, based on the framework developed here.


Bias Arbitrage

September 2006

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51 Reads

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3 Citations

The production of law - including the choice of a law's subject matter, the timing of its enactment and the manner in which it is publicized and perceived by the public - is significantly driven by an extra-legal market in which politicians and private parties compete over the opportunity to engage in bias arbitrage. Bias arbitrage is the extraction of private benefits through actions that identify and mitigate discrepancies between objective risks and the public's perception of the same risks. Politicians arbitrage these discrepancies by enacting laws that address the misperceived risk and contain a 'placebo effect' - a counter-bias that attempts to offset the pre-existing misperception. If successful, politicians are able to take credit for the change in the perceived risk, while social welfare is enhanced by the elimination of deadweight loss caused by the risk misperception. However, politicians must compete with private parties such as insurers, experts and the media, who can engage in bias arbitrage using extra-legal means. This article analyses methods in which parties engage in bias arbitrage and the effect of interaction between potential bias arbitrageurs on the production of law.


A Note on Economic Theories of the Firm

January 2006

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31 Reads

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2 Citations

SSRN Electronic Journal

This note is designed to explain basic concepts of the economic theory of the firm to students who have no background in economics. It does not purport to cover all or even most of the scholarship in the field, nor does it aim to provide new insights into the theory of the firm. I find this note to be a useful teaching tool in introductory organizational law courses. The note is copied from: Amitai Aviram, Unincorporated Business Entities: Course Material.


Network Responses to Network Threats: The Evolution into Private Cybersecurity Associations

November 2005

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1 Read

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1 Citation

Cybersecurity is a leading national problem for which the market may fail to produce a solution. The ultimate source of the problem is that computer owners lack adequate incentives to invest in security because they bear fully the costs of their security precautions but share the benefits with their network partners. In a world of positive transaction costs, individuals often select less than optimal security levels. The problem is compounded because the insecure networks extend far beyond the regulatory jurisdiction of any one nation or even coalition of nations. Originally published in 2006, this book brings together the views of leading law and economics scholars on the nature of the cybersecurity problem and possible solutions to it. Many of these solutions are market based, but they need some help, either from government or industry groups, or both. Indeed, the cybersecurity problem prefigures a host of twenty-first-century problems created by information technology and the globalization of markets.


A Paradox of Spontaneous Formation: The Evolution of Private Legal Systems

February 2005

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30 Reads

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108 Citations

Scholarship on private legal systems (PLS) explains the evolution of norms created and enforced by PLSs, but rarely addresses the evolution of institutions that form PLSs. Such institutions are assumed to form spontaneously (unless suppressed by law) when law is either unresponsive or incapable of directing behavior in welfare-maximizing manners. But, as this paper demonstrates, PLSs typically cannot form spontaneously. Newly formed PLSs cannot enforce cooperation since the effectiveness of mechanisms used to secure this cooperation (e.g., the threat of exclusion) depends on the PLS's ability to confer benefits to its members, and newly formed PLSs do not yet confer such benefits. Successful PLSs bypass this barrier by building on extant foundations - preexisting institutions that already benefit members, typically through functions requiring less costly enforcement. The threat of losing preexisting benefits disciplines members to abide by the PLSs' rules, which in turn allows the PLSs to regulate behavior. This pattern indicates that rather than developing spontaneously, PLSs develop in phases, initially facilitating activities that are unrelated to regulating behavior and incur lower enforcement costs, the provision of which enables the PLS to regulate behavior in the second stage. The paper suggests normative applications of this observation in the fields of antitrust, critical infrastructure protection and corporate governance.


In Defense of Imperfect Compliance Programs

August 2004

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17 Reads

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5 Citations

SSRN Electronic Journal

In Organizational Misconduct: Beyond the Principal-Agent Model, Professor Krawiec argues that organizations have perverse incentives to implement ineffective compliance programs, and supports this argument with a survey of empirical research. Based on her argument she urges that organizations be held strictly liable to corporate crimes (in terms of both guilt and punishment), regardless of the implementation of a compliance program by the accused organization. Assuming arguendo that criminal law's current treatment of compliance programs gives organizations an incentive to design inefficient programs, this Article posits that corporate crime may be better deterred if criminal law embraces, rather than remains agnostic to, compliance programs. First, Krawiec's policy suggestion overstates the impact of the legal sanction on corporate behavior. The legal sanction is only one of several sanctions imposed for organizational misconduct. The public relations effect of misconduct may harm organizations more than any legal sanction, giving them an incentive to implement compliance programs that assure the public of the organization's compliance with the law. Second, Krawiec does not consider utility that is derived from reducing the public's subjective perception of the likelihood of misconduct. This placebo effect that exists whether a compliance program is objectively effective or not, may increase utility by offsetting behavioral biases that cause the public to overestimate the probability of organizational misconduct.


Network Responses to Network Threats: The Evolution Into Private Cyber-Security Associations

July 2004

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20 Reads

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11 Citations

SSRN Electronic Journal

Imagine a data storage and retrieval system that stores millions of discrete files in such a way that they can be accessed, searched, and retrieved by millions of users who can access the system wherever they are connected to the Internet. Imagine that this system is under a multipronged attack. Its enemies have used a variety of techniques, ranging from shutting down the main search server under the threat of armed seizure, to inserting malicious files to corrupt the system, to capturing and threatening the operators of storage devices. Imagine that even through all these assaults, the system continues to operate and to provide high-quality storage, search, and retrieval functionality to millions of users worldwide. That would be a system worth studying as a model for cybersecurity, would it not? That system has in fact been in existence for five years. It has indeed been under the kinds of attacks described over this entire period. It is the peer-to-peer music file-sharing system. It is the epitome of a survivable system. Its primary design characteristic is radically distributed redundant capacity. The primary economic puzzles in understanding whether it is a model that can be harnessed to design survivable systems more generally are these: Why there is so much excess capacity for its core components - storage, processing, and communications capacity, in the hands of many widely distributed users? And how one might replicate it for uses that are somewhat less controversial than sharing music files.


Information Sharing in Critical Infrastructure Industries: Understanding the Behavioral and Economic Impediments

February 2004

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19 Reads

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4 Citations

SSRN Electronic Journal

This paper is a specialized version, abbreviated and focused on application to critical infrastructure protection, of our paper titled "Overcoming Impediments to Information Sharing." Impediments to information sharing between firms operating critical infrastructure have been identified as a key security concern in the recently promulgated National Strategy for the Physical Protection of Critical Infrastructures and Key Assets. This paper identifies economic and behavioral impediments to information sharing among rivals in general, and rivals operating critical infrastructure in particular. The paper then assesses conditions affecting the severity of these impediments. Finally, the paper takes first steps in developing a framework that will predict more accurately when private information sharing would be suboptimal and suggest how better to align private information sharing with social optimality.


Accommodating a New Tenant in the House of Cards: Introducing Competition Into a Network Industry

February 2004

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17 Reads

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1 Citation

SSRN Electronic Journal

The network facilities of many network industries are natural monopolies. It is well accepted, however, that certain network industries may efficiently accommodate competition between several firms over the utilization of the network facilities. Historically, many networks had been created by a single firm, and introducing competition into such networks often requires compelled accommodation of a new competitor into a network dominated by an incumbent. This paper studies one case of compelled accommodation in a networks industry - the introduction of a second processor of Visa-brand credit cards in Israel. The paper does not attempt to offer a theory on this matter, but rather provides a detailed case study that should assist in establishing an empirical basis to theories on government's role in introducing competition into a network industry.



Citations (7)


... The current study investigates a potential conflict of interest faced by corporate directors that has implications for risk management, corporate governance, ethics and law. This conflict, termed bias arbitrage, occurs when agents attempt to extract personal benefit from principals" misperceptions of risk (Aviram 2007). For example, if shareholders (principals) perceive that the risk of financial reporting fraud is 1%, but directors (agents) estimate that the probable risk 1 of financial reporting fraud is 0.01%, the directors can personally benefit from publicly announcing new programs ostensibly designed to reduce the probable risk of fraud. ...

Reference:

Will Corporate Directors Engage in Economically Harmful Bias Arbitrage?
Bias Arbitrage
  • Citing Article
  • September 2006

... 414 An illustration of such a situation was given by Aviram. 415 He explains that if two individuals were caught for robbing a bank, without being able to talk to one another prior to a criminal court's decision and both individuals were given two options, namely to betray the other person or not to talk at all, either party will choose the option that minimalizes his risk to go to prison, even though this would go against the common interest. Aviram exemplifies this by using the following three options that can, but do not necessarily, result in a prison sentence. ...

A Paradox of Spontaneous Formation: The Evolution of Private Legal Systems
  • Citing Article
  • February 2005

... the Conflict Commission rests in its ability to integrate existing norms and practices into a new adjudicative body. Though it represents a formalized institutional body within the bazaar, the Commission relies on the informal practices that have long permeated the bazaar, including social networks that regulate the behavior of exchangers through the dual threats of reputational damage and social ostracism (Aviram 2003). As Roderick Macdonald (2013, 316) writes, these "informal, unwritten rules are significant not just because they are evidence of the 'law in action' but also because they are resources from which explicit, written rules typically draw their power and content." ...

Regulation by Networks
  • Citing Article
  • March 2003

SSRN Electronic Journal

... In this way, while IR scholars have suggested that non-state actors are part of normmaking processes, the literature on cyber norms often maintains a focus on the role of states (Kuebris and Badiei 2017). For the purposes of this paper, taking for granted this notion of cyber norms is particularly problematic in the sense that it discounts the participation of a wider spectrum of actors, namely private actors (Aviram 2004). This section thus focuses on the role of private companies in setting norms within cybersecurity. ...

Network Responses to Network Threats: The Evolution Into Private Cyber-Security Associations
  • Citing Article
  • July 2004

SSRN Electronic Journal

... Therefore, the argument can be made that SIS may be associated with human behavior. Indeed, prior research argues that the understanding of SIS requires an analysis of what behavior may motivate humans to participate in SIS and what may deter them from doing so [8,10]. ...

Overcoming Impediments to Information Sharing
  • Citing Article
  • October 2010

SSRN Electronic Journal