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?