Abstract Adopting the paradigms, findings and tools of behavioral economics has opened a promising avenue for legal research. This article sketches the broader framework within which the papers assembled in this special issue may be placed.
{"title":"The Impact of Behavioral Economics on the Law: Introduction","authors":"C. Engel","doi":"10.1515/rle-2021-0068","DOIUrl":"https://doi.org/10.1515/rle-2021-0068","url":null,"abstract":"Abstract Adopting the paradigms, findings and tools of behavioral economics has opened a promising avenue for legal research. This article sketches the broader framework within which the papers assembled in this special issue may be placed.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2021-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78318740","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 Legal scholars have long assumed that plea bargains are contracts negotiated between rational actors who adhere to the dictates of the normative shadow-of-trial model. The two key features that rational actors presumably haggle over in the shadow of trial are the criminal charge (and associated sentence) and the probability of trial conviction. The behavioral economics theory of discounting, however, offers a theoretical foundation for testing the shadow-of-trial model. This article summarizes findings from experimental discounting studies in behavioral economics and psychological science – showing that these paradigms can be successfully applied to the plea-bargaining decision context wherein the likelihood of trial is uncertain and delayed, and the plea bargain is relatively certain and immediate. We suggest that the implications of applying discounting to plea bargaining are three-fold: (1) empirical evidence suggests that the shadow-of-trial model is too narrow; (2) the discounting of non-monetary losses may involve slightly different psychological processes than contexts involving monetary outcomes; and (3) probability of conviction and delay until trial constitute situational features that elicit guilty pleas despite a defendant’s factual innocence.
{"title":"Behavioral Economics in Plea-Bargain Decision-Making: Beyond the Shadow-of-Trial Model","authors":"Lauren Clatch, E. Borgida","doi":"10.1515/rle-2021-0069","DOIUrl":"https://doi.org/10.1515/rle-2021-0069","url":null,"abstract":"Abstract Legal scholars have long assumed that plea bargains are contracts negotiated between rational actors who adhere to the dictates of the normative shadow-of-trial model. The two key features that rational actors presumably haggle over in the shadow of trial are the criminal charge (and associated sentence) and the probability of trial conviction. The behavioral economics theory of discounting, however, offers a theoretical foundation for testing the shadow-of-trial model. This article summarizes findings from experimental discounting studies in behavioral economics and psychological science – showing that these paradigms can be successfully applied to the plea-bargaining decision context wherein the likelihood of trial is uncertain and delayed, and the plea bargain is relatively certain and immediate. We suggest that the implications of applying discounting to plea bargaining are three-fold: (1) empirical evidence suggests that the shadow-of-trial model is too narrow; (2) the discounting of non-monetary losses may involve slightly different psychological processes than contexts involving monetary outcomes; and (3) probability of conviction and delay until trial constitute situational features that elicit guilty pleas despite a defendant’s factual innocence.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2021-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73195016","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 analysis of law assumes that court decisions are key to incentivizing people and maximizing social welfare. This article reviews the behavioral literature on court decision making, and highlights numerous heuristics and biases that impact judges and jurors and cause them to make decisions that diverge from the social optimum. In light of this review, the article analyzes some of the institutional features of the court system that may help minimize the costs of biased decisions in the courts.
{"title":"Behavioral Economics and Court Decision-Making","authors":"D. Teichman, E. Zamir","doi":"10.1515/rle-2021-0058","DOIUrl":"https://doi.org/10.1515/rle-2021-0058","url":null,"abstract":"Abstract The economic analysis of law assumes that court decisions are key to incentivizing people and maximizing social welfare. This article reviews the behavioral literature on court decision making, and highlights numerous heuristics and biases that impact judges and jurors and cause them to make decisions that diverge from the social optimum. In light of this review, the article analyzes some of the institutional features of the court system that may help minimize the costs of biased decisions in the courts.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2021-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75561486","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 paper explores the interaction, rather than the competition, among incentivist (or rationalist), behavioral, and evolutionary explanations of legal rules and approaches to problems of public policy. It suggests that behavioral economics can play an important role in influencing people where an incentive-based approach to affecting behavior was tried first and failed on a subset of the targeted group. The discussion ranges across examples including savings rates, the performance of educational institutions, health care, rescue, and even university admissions to explore a range of behavioral tools, with a focus on endowment effects and N-of-1 thinking, in order to bring out the clash among – and the teamwork that is possible with – these three approaches.
{"title":"The Evolutionary Force of Behavioral Economics in Law","authors":"Saul Levmore","doi":"10.2139/ssrn.3871414","DOIUrl":"https://doi.org/10.2139/ssrn.3871414","url":null,"abstract":"Abstract This paper explores the interaction, rather than the competition, among incentivist (or rationalist), behavioral, and evolutionary explanations of legal rules and approaches to problems of public policy. It suggests that behavioral economics can play an important role in influencing people where an incentive-based approach to affecting behavior was tried first and failed on a subset of the targeted group. The discussion ranges across examples including savings rates, the performance of educational institutions, health care, rescue, and even university admissions to explore a range of behavioral tools, with a focus on endowment effects and N-of-1 thinking, in order to bring out the clash among – and the teamwork that is possible with – these three approaches.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2021-06-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79788279","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 contributes to the literature addressing family influences on elite political behavior. By empirically assessing the influence of sibling gender on judicial decision-making, we are able to present evidence on the mechanism by which child, sibling and other relatives’ gender may influence elite political behavior. We build on a published dataset by mining various archival sources to compile data on the gender of judges’ siblings. We find no evidence that male judges’ votes on so-called “women’s issues” (employment discrimination based on gender or pregnancy, reproductive rights/abortion, and Title IX) are affected by whether they have a sister, and we are able to rule out large effects of a sibling’s gender on male and female judges’ votes. Our results imply that the relationship between family member gender and elite political behavior is driven by the desire to avoid costs of discrimination, rather than learning from family members.
{"title":"Mechanisms Underlying Familial Influence on Elite Political Behavior: Evidence from the U.S. Circuit Courts of Appeals","authors":"D. Lempert, Alyse Camacho","doi":"10.1515/rle-2020-0042","DOIUrl":"https://doi.org/10.1515/rle-2020-0042","url":null,"abstract":"Abstract This article contributes to the literature addressing family influences on elite political behavior. By empirically assessing the influence of sibling gender on judicial decision-making, we are able to present evidence on the mechanism by which child, sibling and other relatives’ gender may influence elite political behavior. We build on a published dataset by mining various archival sources to compile data on the gender of judges’ siblings. We find no evidence that male judges’ votes on so-called “women’s issues” (employment discrimination based on gender or pregnancy, reproductive rights/abortion, and Title IX) are affected by whether they have a sister, and we are able to rule out large effects of a sibling’s gender on male and female judges’ votes. Our results imply that the relationship between family member gender and elite political behavior is driven by the desire to avoid costs of discrimination, rather than learning from family members.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2021-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88614482","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 models the duty of care as a response to moral hazard where the principal seeks to induce effort that is costly to the agent and unobservable by the principal. The duty of loyalty, by contrast, is modeled as a response to adverse selection where the principal seeks truthful disclosure of private information held by the agent. This model of corporate loyalty differs importantly with standard adverse selection models, however, in that the principal cannot use available contracting variables as a screening mechanism to ensure honest disclosure and must rely upon the use of an external third-party audit technology, such as the court system. This article extends the model to the issue of corporate compliance and argues that the optimal judicial approach would define the duty to monitor as a subset of due care – and not loyalty – but hold that the usual legal protections provided for due care violations no longer apply.
{"title":"A Simple Model of Corporate Fiduciary Duties: With an Application to Corporate Compliance","authors":"W. Bunting","doi":"10.2139/ssrn.3667226","DOIUrl":"https://doi.org/10.2139/ssrn.3667226","url":null,"abstract":"Abstract This article models the duty of care as a response to moral hazard where the principal seeks to induce effort that is costly to the agent and unobservable by the principal. The duty of loyalty, by contrast, is modeled as a response to adverse selection where the principal seeks truthful disclosure of private information held by the agent. This model of corporate loyalty differs importantly with standard adverse selection models, however, in that the principal cannot use available contracting variables as a screening mechanism to ensure honest disclosure and must rely upon the use of an external third-party audit technology, such as the court system. This article extends the model to the issue of corporate compliance and argues that the optimal judicial approach would define the duty to monitor as a subset of due care – and not loyalty – but hold that the usual legal protections provided for due care violations no longer apply.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2021-03-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85109317","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}
{"title":"A Note on the Article by Mark Ramseyer, published in RLE 2020","authors":"F. Parisi, C. Engel","doi":"10.1515/rle-2021-2058","DOIUrl":"https://doi.org/10.1515/rle-2021-2058","url":null,"abstract":"","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2021-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90982746","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 In many accident contexts, the expected accident harm depends on observable as well as unobservable dimensions of the precaution exercised by the parties involved. The observable dimensions are commonly referred to as the ‘care’ levels and the unobservable aspects as the ‘activity’ levels. In a seminal contribution, Shavell, S (1980). Strict liability versus negligence. J. Leg. Stud. 9: 1–25 extended the scope of the economic analysis of liability rules by providing a model that allows for the care as well as activity level choices. Subsequent works have used and extended Shavell’s model to predict outcomes under various liability rules, and also to compare their efficiency properties. These works make several claims about the existence and efficiency of equilibria under different liability rules, without providing any formal proof. In this paper, we re-examine the prevalent claims in the literature using the standard model itself. Contrary to these prevalent claims, we show that the standard negligence liability rules do not induce equilibrium for all of the accident contexts admissible under the model. Under the standard model, even the ‘no-fault’ rules can fail to induce a Nash equilibrium. In the absence of an equilibrium, it is not plausible to make a claim about the efficiency of a rule per-se or vis-a-vis other rules. We show that even with commonly used utility functions that meet all of the requirements of the standard model, the social welfare function may not have a maximum. In many other situations fully compatible with the standard model, a maximum of the social welfare function is not discoverable by the first order conditions. Under the standard model, even individually optimum choices might not exist. We analyze the underlying problems with the standard model and offer some insights for future research on this subject.
{"title":"Equilibria Under Negligence Liability","authors":"A. Feldman, R. Singh","doi":"10.1515/rle-2020-0049","DOIUrl":"https://doi.org/10.1515/rle-2020-0049","url":null,"abstract":"Abstract In many accident contexts, the expected accident harm depends on observable as well as unobservable dimensions of the precaution exercised by the parties involved. The observable dimensions are commonly referred to as the ‘care’ levels and the unobservable aspects as the ‘activity’ levels. In a seminal contribution, Shavell, S (1980). Strict liability versus negligence. J. Leg. Stud. 9: 1–25 extended the scope of the economic analysis of liability rules by providing a model that allows for the care as well as activity level choices. Subsequent works have used and extended Shavell’s model to predict outcomes under various liability rules, and also to compare their efficiency properties. These works make several claims about the existence and efficiency of equilibria under different liability rules, without providing any formal proof. In this paper, we re-examine the prevalent claims in the literature using the standard model itself. Contrary to these prevalent claims, we show that the standard negligence liability rules do not induce equilibrium for all of the accident contexts admissible under the model. Under the standard model, even the ‘no-fault’ rules can fail to induce a Nash equilibrium. In the absence of an equilibrium, it is not plausible to make a claim about the efficiency of a rule per-se or vis-a-vis other rules. We show that even with commonly used utility functions that meet all of the requirements of the standard model, the social welfare function may not have a maximum. In many other situations fully compatible with the standard model, a maximum of the social welfare function is not discoverable by the first order conditions. Under the standard model, even individually optimum choices might not exist. We analyze the underlying problems with the standard model and offer some insights for future research on this subject.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2021-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87518400","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 In accident law, we seek a liability rule that will induce both the parties to adopt socially optimal levels of precaution. Economic analysis, however, shows that none of the commonly used liability rules induce both parties to adopt optimal levels, if courts have access only to ‘Limited Information’ on. In such a case, it has also been established (K. (2006). Efficiency of liability rules: a reconsideration. J. Int. Trade Econ. Dev. 15: 359–373) that no liability rule based on cost justified untaken precaution as a standard of care can be efficient. In this paper, we describe a two-step liability rule: the rule of negligence with the defence of relative negligence. We prove that this rule has a unique Nash equilibrium at socially optimal levels of care for the non-cooperative game, and therefore induces both parties to adopt socially optimal behaviour even in case of limited information.
{"title":"Economic Analysis of Accident Law: A New Liability Rule that Induces Socially Optimal Behaviour in Case of Limited Information","authors":"A. Srivastava, Ankur Srivastava","doi":"10.1515/rle-2019-0049","DOIUrl":"https://doi.org/10.1515/rle-2019-0049","url":null,"abstract":"Abstract In accident law, we seek a liability rule that will induce both the parties to adopt socially optimal levels of precaution. Economic analysis, however, shows that none of the commonly used liability rules induce both parties to adopt optimal levels, if courts have access only to ‘Limited Information’ on. In such a case, it has also been established (K. (2006). Efficiency of liability rules: a reconsideration. J. Int. Trade Econ. Dev. 15: 359–373) that no liability rule based on cost justified untaken precaution as a standard of care can be efficient. In this paper, we describe a two-step liability rule: the rule of negligence with the defence of relative negligence. We prove that this rule has a unique Nash equilibrium at socially optimal levels of care for the non-cooperative game, and therefore induces both parties to adopt socially optimal behaviour even in case of limited information.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2020-11-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/rle-2019-0049","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"72382257","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 International investment arbitration is a third-party dispute resolution mechanism aimed mainly at depoliticizing investment disputes and maintaining efficient investment flows among countries. Almost one-third of treaty-based investor-state disputes brought before this system are settled before the tribunal’s final ruling. Given the classical “Against Settlement” debate in the legal literature, we build an original database of treaty-based arbitrations from 1996 to 2016 to empirically test the determinants of early settlement. We find that the probability of settlement increases if the host state has no experience of resolving those kinds of disputes but decrease if it anticipates a favorable outcome. The nature of the regulatory measures applied by the host state and the identity of foreign investors are additional important determinants of settlement. Interestingly, we find strong evidence of a Dutch effect in dispute resolution.
{"title":"To Settle or to Fight to the End? Case-level Determinants of Early Settlement of Investor-State Disputes","authors":"Duy Vu","doi":"10.1515/RLE-2019-0046","DOIUrl":"https://doi.org/10.1515/RLE-2019-0046","url":null,"abstract":"Abstract International investment arbitration is a third-party dispute resolution mechanism aimed mainly at depoliticizing investment disputes and maintaining efficient investment flows among countries. Almost one-third of treaty-based investor-state disputes brought before this system are settled before the tribunal’s final ruling. Given the classical “Against Settlement” debate in the legal literature, we build an original database of treaty-based arbitrations from 1996 to 2016 to empirically test the determinants of early settlement. We find that the probability of settlement increases if the host state has no experience of resolving those kinds of disputes but decrease if it anticipates a favorable outcome. The nature of the regulatory measures applied by the host state and the identity of foreign investors are additional important determinants of settlement. Interestingly, we find strong evidence of a Dutch effect in dispute resolution.","PeriodicalId":44795,"journal":{"name":"Review of Law & Economics","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2020-11-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85456289","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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