Abstract Healthcare treatment can be considered a credence good; that is, the patient may not always be able to infer quality ex ante nor observe it ex post. In this article, we study the allocation of liability among two physicians for joint damage under two liability regimes: strict liability and the negligence rule. The credence characteristic implies that the patient imperfectly detects treatment error. We find that the negligence rule is more deterrent than strict liability if the probability of detection of treatment error by the patient is high. If the probability of detection is low, both liability regimes are equivalent. An efficient allocation rule should be based on the degree of substitutability between the precaution levels of the physicians and the probability that the patient detects treatment error.
{"title":"Allocating Liability among Several Physicians: A Theoretical Model","authors":"Dylan Martin-Lapoirie","doi":"10.1515/rle-2021-0079","DOIUrl":"https://doi.org/10.1515/rle-2021-0079","url":null,"abstract":"Abstract Healthcare treatment can be considered a credence good; that is, the patient may not always be able to infer quality ex ante nor observe it ex post. In this article, we study the allocation of liability among two physicians for joint damage under two liability regimes: strict liability and the negligence rule. The credence characteristic implies that the patient imperfectly detects treatment error. We find that the negligence rule is more deterrent than strict liability if the probability of detection of treatment error by the patient is high. If the probability of detection is low, both liability regimes are equivalent. An efficient allocation rule should be based on the degree of substitutability between the precaution levels of the physicians and the probability that the patient detects treatment error.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2022-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81914448","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract This article challenges the conventional wisdom in economic models of litigation that optimism necessarily increases the likelihood of trial and that pessimism increases the chances of settlement. We show that optimism may, to the contrary, expand the settlement range. By increasing the perceived value at stake in litigation, optimism may induce parties to invest additional resources in a dispute, which increases the overall bargaining range. Because of the strategic nature of litigation expenditures, optimistic litigants may spend an amount that outweighs the negative impact of optimism on the bargaining surplus. Whether optimism increases or decreases the settlement rate ultimately depends on whether, in concrete instances, the negative effects of optimism on the bargaining surplus outweigh the positive effects created by the additional investments in litigation. Our results provide counterintuitive insights into the selection of disputes for litigation. (JEL K00, K21).
{"title":"Optimism & Expenditures: The Effect on Settlements","authors":"B. Depoorter, J. D. De Mot","doi":"10.1515/rle-2021-0075","DOIUrl":"https://doi.org/10.1515/rle-2021-0075","url":null,"abstract":"Abstract This article challenges the conventional wisdom in economic models of litigation that optimism necessarily increases the likelihood of trial and that pessimism increases the chances of settlement. We show that optimism may, to the contrary, expand the settlement range. By increasing the perceived value at stake in litigation, optimism may induce parties to invest additional resources in a dispute, which increases the overall bargaining range. Because of the strategic nature of litigation expenditures, optimistic litigants may spend an amount that outweighs the negative impact of optimism on the bargaining surplus. Whether optimism increases or decreases the settlement rate ultimately depends on whether, in concrete instances, the negative effects of optimism on the bargaining surplus outweigh the positive effects created by the additional investments in litigation. Our results provide counterintuitive insights into the selection of disputes for litigation. (JEL K00, K21).","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2022-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79538176","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract This article examines the law and economics of behavioral regulation (“nudging”), which governments and organizations increasingly use to substitute for and complement traditional instruments. To advance its welfare-based assessment, Section 1 examines alternative nudging definitions and Section 2 considers competing nudges taxonomies. Section 3 describes the benefits of nudges and their regulatory appeal, while Section 4 considers their myriad costs—most notably the private costs they generate for their targets and other market participants. Section 5 then illustrates the assessment of public and private welfare nudges using cost-benefit analysis, cost-effectiveness analysis, and rationality-effects analysis.
{"title":"The Law and Economics of Behavioral Regulation","authors":"Avishalom Tor","doi":"10.2139/ssrn.4083701","DOIUrl":"https://doi.org/10.2139/ssrn.4083701","url":null,"abstract":"Abstract This article examines the law and economics of behavioral regulation (“nudging”), which governments and organizations increasingly use to substitute for and complement traditional instruments. To advance its welfare-based assessment, Section 1 examines alternative nudging definitions and Section 2 considers competing nudges taxonomies. Section 3 describes the benefits of nudges and their regulatory appeal, while Section 4 considers their myriad costs—most notably the private costs they generate for their targets and other market participants. Section 5 then illustrates the assessment of public and private welfare nudges using cost-benefit analysis, cost-effectiveness analysis, and rationality-effects analysis.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2022-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75228120","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract This note analyzes the socially optimal allocation of liability when both consumers and the environment incur harm from the activity of a monopolistic firm. We show that the marginal welfare effect from a greater extent of loss shifting depends on the domain of harm (consumer vs. environment) and the relationship between the harm level and the level of output (proportional vs. non-proportional). Starting from the relevant benchmark of full compensation in both domains, reducing the firm’s liability for environmental harm is welfare-improving whereas reducing the firm’s liability for consumer harm is welfare-decreasing when harm increases more than proportionally with the quantity produced.
{"title":"A Note on the Optimality of Domain-specific Liability","authors":"Tim Friehe, Éric Langlais, Elisabeth Schulte","doi":"10.1515/rle-2022-0002","DOIUrl":"https://doi.org/10.1515/rle-2022-0002","url":null,"abstract":"Abstract This note analyzes the socially optimal allocation of liability when both consumers and the environment incur harm from the activity of a monopolistic firm. We show that the marginal welfare effect from a greater extent of loss shifting depends on the domain of harm (consumer vs. environment) and the relationship between the harm level and the level of output (proportional vs. non-proportional). Starting from the relevant benchmark of full compensation in both domains, reducing the firm’s liability for environmental harm is welfare-improving whereas reducing the firm’s liability for consumer harm is welfare-decreasing when harm increases more than proportionally with the quantity produced.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2022-06-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82251886","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract The economic model of crime is often portrayed (and criticized) as being contrary to a moral theory of criminal law. This paper advances the opposing view that the two theories are in fact potentially compatible with one another. The basis for this claim is that, whereas the Becker (1968. Crime and punishment: an economic approach. J. Polit. Econ. 76: 169–217) model is useful in prescribing a theory of optimal enforcement of the law, it does not, and indeed cannot, provide a definitive prescription for its content. The reason is the reciprocal nature of harm in situations involving incompatible rights, a principle first identified by Coase (1960. The problem of social cost. J. Law Econ. 3: 1–44) in the general context of externalities. The paper develops this argument, offers a formal demonstration of it, and draws out some of its implications.
{"title":"Of Coase, Cattle, and Crime: Why the Becker Model is Compatible with a Moral Theory of Criminal Law","authors":"Thomas J. Miceli","doi":"10.1515/rle-2022-0010","DOIUrl":"https://doi.org/10.1515/rle-2022-0010","url":null,"abstract":"Abstract The economic model of crime is often portrayed (and criticized) as being contrary to a moral theory of criminal law. This paper advances the opposing view that the two theories are in fact potentially compatible with one another. The basis for this claim is that, whereas the Becker (1968. Crime and punishment: an economic approach. J. Polit. Econ. 76: 169–217) model is useful in prescribing a theory of optimal enforcement of the law, it does not, and indeed cannot, provide a definitive prescription for its content. The reason is the reciprocal nature of harm in situations involving incompatible rights, a principle first identified by Coase (1960. The problem of social cost. J. Law Econ. 3: 1–44) in the general context of externalities. The paper develops this argument, offers a formal demonstration of it, and draws out some of its implications.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2022-06-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88197630","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract When conducting routine welfare analysis, regulators typically associate the exercise of market power to internal market characteristics such as market shares. However, some researchers argue that factors that are external to a market such as contact across markets may have an impact on market outcomes. An interesting but unanswered question is: how do cross-market factors such as multimarket contact affect consumer welfare? Using a nested logit demand model for air travel, we are able to monetarily estimate the consumer welfare effects of multimarket contact. We find that multimarket contact results in a consumer welfare loss of $0.57 per contact. Extrapolating this welfare cost across consumers and across products proves to be quite sizeable. These negative welfare effects are stronger in long haul markets.
{"title":"Multimarket Contact and Welfare Implications for Airline Passengers","authors":"Jules O. Yimga","doi":"10.1515/rle-2021-0028","DOIUrl":"https://doi.org/10.1515/rle-2021-0028","url":null,"abstract":"Abstract When conducting routine welfare analysis, regulators typically associate the exercise of market power to internal market characteristics such as market shares. However, some researchers argue that factors that are external to a market such as contact across markets may have an impact on market outcomes. An interesting but unanswered question is: how do cross-market factors such as multimarket contact affect consumer welfare? Using a nested logit demand model for air travel, we are able to monetarily estimate the consumer welfare effects of multimarket contact. We find that multimarket contact results in a consumer welfare loss of $0.57 per contact. Extrapolating this welfare cost across consumers and across products proves to be quite sizeable. These negative welfare effects are stronger in long haul markets.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2022-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80726862","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract Spatial models, in the form of latent response theories (ideal point estimation), have been widely used to study the voting behavior of judges in collegial courts. In some specific institutional contexts, building coherent testable hypotheses with conventional methodology is challenging. We set up a non-parametric method to identify the number and nature of the latent ideological traits allegedly orienting judicial voting behavior in the absence of prior information regarding the nature of their preferences. We draw information from explorative cluster analysis conducted on votes cast by judges in the decisions of the court to construct priors in the context of Item Response Theory. We concentrate on the Brazilian Supreme Court in the period 2009–2018. We primarily find that votes express a split which groups judges into two distinct clusters. On one side, we find judges appointed further back in time and with longer tenure on the bench; on the other side, we observe judges more recently appointed and with shorter experience. Judges are likely to respond to the presidential appointer and to elements related to their origin, university education, and career background (aside from the guidance of their own experience). Our study provides an original empirical approach that is not limited to the Brazilian Supreme Court, but is suitable to investigate judicial voting behavior when the nature of potential ideological drivers is debatable, controversial, or unknown.
{"title":"Unfolding Judicial Ideology: A Data-Generating Priors Approach with an Application to the Brazilian Supreme Court","authors":"Damares Medina, L. dalla Pellegrina, Nuno Garoupa","doi":"10.1515/rle-2020-0045","DOIUrl":"https://doi.org/10.1515/rle-2020-0045","url":null,"abstract":"Abstract Spatial models, in the form of latent response theories (ideal point estimation), have been widely used to study the voting behavior of judges in collegial courts. In some specific institutional contexts, building coherent testable hypotheses with conventional methodology is challenging. We set up a non-parametric method to identify the number and nature of the latent ideological traits allegedly orienting judicial voting behavior in the absence of prior information regarding the nature of their preferences. We draw information from explorative cluster analysis conducted on votes cast by judges in the decisions of the court to construct priors in the context of Item Response Theory. We concentrate on the Brazilian Supreme Court in the period 2009–2018. We primarily find that votes express a split which groups judges into two distinct clusters. On one side, we find judges appointed further back in time and with longer tenure on the bench; on the other side, we observe judges more recently appointed and with shorter experience. Judges are likely to respond to the presidential appointer and to elements related to their origin, university education, and career background (aside from the guidance of their own experience). Our study provides an original empirical approach that is not limited to the Brazilian Supreme Court, but is suitable to investigate judicial voting behavior when the nature of potential ideological drivers is debatable, controversial, or unknown.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2022-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81198807","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract We explore English legal evolution by empirically investigating the relevance of late-medieval and early-modern legal ideas for caselaw development during the Industrial Revolution, an era of unprecedented societal change. To ascertain the prevalence of specific legal ideas in pre-1765 case reports, we draw on existing topic model estimates. We measure the relevance of those ideas for subsequent caselaw development using post-1764 citations to the pre-1765 cases. We show that deliberations on court cases heard between 1765 and 1870 systematically invoked a broad range of preexisting legal ideas. Strikingly, the strongest effects are exhibited by Coke-style analysis and precedent-based thought. A key legacy of early English caselaw therefore lay in bestowing modes of reasoning. The reason why a subset of preexisting legal ideas does not exert a detectable effect is that those ideas were generally no longer key to post-1764 legal disputes. Our approach to investigating legal development could be applied in many other contexts.
{"title":"Lasting Legal Legacies: Early English Legal Ideas and Later Caselaw Development During the Industrial Revolution","authors":"Peter Grajzl, Peter Murrell","doi":"10.1515/rle-2021-0070","DOIUrl":"https://doi.org/10.1515/rle-2021-0070","url":null,"abstract":"Abstract We explore English legal evolution by empirically investigating the relevance of late-medieval and early-modern legal ideas for caselaw development during the Industrial Revolution, an era of unprecedented societal change. To ascertain the prevalence of specific legal ideas in pre-1765 case reports, we draw on existing topic model estimates. We measure the relevance of those ideas for subsequent caselaw development using post-1764 citations to the pre-1765 cases. We show that deliberations on court cases heard between 1765 and 1870 systematically invoked a broad range of preexisting legal ideas. Strikingly, the strongest effects are exhibited by Coke-style analysis and precedent-based thought. A key legacy of early English caselaw therefore lay in bestowing modes of reasoning. The reason why a subset of preexisting legal ideas does not exert a detectable effect is that those ideas were generally no longer key to post-1764 legal disputes. Our approach to investigating legal development could be applied in many other contexts.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2022-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84898323","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract This article explores some behavioral findings that are relevant to three areas of contract: formation, performance, and remedies. I compare the rational choice theory analysis of various aspects of contract law with how behavioral findings lead to a change in our understanding of that area of law. A penultimate section considers several criticisms of behavioral economics. A concluding section calls for altering some settled understandings of contract law to accommodate behavioral results and for further research about some still uncertain aspects of contracting.
{"title":"Behavioral Contract Law","authors":"Thomas S. Ulen","doi":"10.1515/rle-2021-0067","DOIUrl":"https://doi.org/10.1515/rle-2021-0067","url":null,"abstract":"Abstract This article explores some behavioral findings that are relevant to three areas of contract: formation, performance, and remedies. I compare the rational choice theory analysis of various aspects of contract law with how behavioral findings lead to a change in our understanding of that area of law. A penultimate section considers several criticisms of behavioral economics. A concluding section calls for altering some settled understandings of contract law to accommodate behavioral results and for further research about some still uncertain aspects of contracting.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2021-12-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89781114","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-11-01DOI: 10.1515/rle-2021-frontmatter3
{"title":"Frontmatter","authors":"","doi":"10.1515/rle-2021-frontmatter3","DOIUrl":"https://doi.org/10.1515/rle-2021-frontmatter3","url":null,"abstract":"","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2021-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83502634","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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