The rate at which US Companies cite regulations as an obstacle has quadrupled over the last 20 years (via Quartz)

“Michael Bommarito II and Daniel Martin Katz, legal scholars at the Illinois Institute of Technology, have tried to measure the growth of regulation by analyzing more than 160,000 corporate annual reports, or 10-K filings, at the US Securities and Exchange Commission. In a pre-print paper released Dec. 29, the authors find that the average number of regulatory references in any one filing increased from fewer than eight in 1995 to almost 32 in 2016. The average number of different laws cited in each filing more than doubled over the same period.”

Measuring the Temperature and Diversity of the U.S. Regulatory Ecosystem (Preprint on arXiv + SSRN)

From the Abstract:  Over the last 23 years, the U.S. Securities and Exchange Commission has required over 34,000 companies to file over 165,000 annual reports. These reports, the so-called “Form 10-Ks,” contain a characterization of a company’s financial performance and its risks, including the regulatory environment in which a company operates. In this paper, we analyze over 4.5 million references to U.S. Federal Acts and Agencies contained within these reports to build a mean-field measurement of temperature and diversity in this regulatory ecosystem. While individuals across the political, economic, and academic world frequently refer to trends in this regulatory ecosystem, there has been far less attention paid to supporting such claims with large-scale, longitudinal data. In this paper, we document an increase in the regulatory energy per filing, i.e., a warming “temperature.” We also find that the diversity of the regulatory ecosystem has been increasing over the past two decades, as measured by the dimensionality of the regulatory space and distance between the “regulatory bitstrings” of companies. This measurement framework and its ongoing application contribute an important step towards improving academic and policy discussions around legal complexity and the regulation of large-scale human techno-social systems.

Available in PrePrint on SSRN and on the Physics arXiv.

Tax Day: A Mathematical Approach to the Study of the United States Code

United States Code
United States Code

April 15th is Tax Day! Unless you’ve filed for an extension or you’re a corporation on your own fiscal year, you’ve hopefully finished your taxes by now!

While you were filing your return, you may have noticed references to the Internal Revenue Code (IRC). The IRC, also known as Title 26, is legal slang for the “Tax Code.”  Along with the Treasury Regulations compiled into the Code of Federal Regulations (26 C.F.R.), the Internal Revenue Code contains many of the rules and regulations governing how we can and can’t file our taxes.  Even if you prepared your taxes using software like TurboTax, the questions generated by these programs are determined by the rules and regulations within the Tax Code and Treasury Regulations.

Many argue that there are too many of these rules and regulations or that these rules and regulations are too complex. Furthermore, many also claim that the “Tax Code” is becoming larger or more complex over time. Unfortunately, most individuals do not support this claim with solid data. When they do, they often rely on either the number of pages in Title 26 or the CCH Standard Federal Tax Reporter. None of these measures take into consideration the real complexity of the Code, however.

In honor of Tax Day, we’re going to highlight a recent paper that we’ve written that tries to address some of these issues – A Mathematical Approach to the Study of the United States Code. The first point to make is that this paper is a study of the entire United States Code. Title 26, the Tax Code, is actually only one small part of the set of rules and regulations defined in the United States Code. The United States Code as a whole is the largest and arguably most important source of Federal statutory law. Compiled from the legislation and treaties published in the Statutes at Large in 6-year intervals, the entire document contains over 22 million words.

In this paper, we develop a mathematical approach to the study of the large bodies of statutory law and in particular, the United States Code. This approach can be summarized as guided by a representation of the Code as an object with three primary parts:

  1. A hierarchical network that corresponds to the structure of concept categories.
  2. A citation network that encodes the interdependence of concepts.
  3. The language contained within each section.

Given this representation, we then calculate a number of properties for the United States Code in 2008, 2009, and 2010 as provided by the Legal Information Institute at the Cornell University Law School. Our results can be summarized in three points:

  1. The structure of the United States Code is growing by over 3 sections per day.
  2. The interdependence of the United States Code is increasing by over 7 citations per day.
  3. The amount of language in the United States Code is increasing by over 2,000 words per day.

The figure above is an actual image of the structure and interdependence of the United States Code. The black lines correspond to structure and the red lines correspond to interdependence.  Though visually stunning, the true implication of this figure is that the United States Code is a very interdependent set of rules and regulations, both within and across concept categories.

If you’re interested in more detail, make sure to read the paper –A Mathematical Approach to the Study of the United States Code. If you’re really interested, make sure to check back in the near future for our forthcoming paper entitled Measuring the Complexity of the United States Code.