Supreme Court clerks are reportedly receiving
signing bonuses of
$150,000 to join the appellate practice groups of some firms’ DC
offices. In response, none other than Chief Justice Rehnquist
has made it known he disapproves of the increasingly-lavish dinners
thrown by firms to woo the "graduating" class of clerks.
Aesthetics of the situation aside, what I want to know is, are these
bonuses cost-effective? Are the firms getting their money’s
worth?
The immediate answer would appear to be, "They must be, otherwise
why would they do it?"
But there are at least three potential
fallacies in such a glib response. The first is that, in a
rational world, the premium to fair market value represented by a
Supreme Court clerk should equal the discounted present value of
the additional earnings she will bring to the firm. But saying
that does not determine which party to the transaction—the
clerk or the firm—will "capture" that value. If
clerks are in a strong bargaining position vis-a-vis firms (and,
as a finite commodity, they would appear to be), the clerks themselves
may capture the entire marginal value they represent. (In more technical terms, this would appear to be an example of a near-monopoly encountering a near-monopsony, in which case theory tells us the outcome of negotiations to split the “surplus” is indeterminate.)
Second, firms engaging in this practice say on the record that one
reason they do it is for the "marquee value" of Supreme Court clerks. This
puts me in mind of Detroit’s perennial argument that sexy concept
cars and high-ticket racing teams get customers in such a lather
that they can’t help but buy a Taurus (or, these days, an F-150 pickup). My
view: "Not proven."
Lastly, there’s our old friend, the winner’s curse. By hypothesis,
the firms bidding the most win the clerks (law school debts and all). There’s
no question but that firms view it as a bidding war: "We’re
in a competitive battle…and we’re not going to lose." They
may very will not-lose the battle; but how about the war?
