Publication year: 2012 Source:International Review of Law and Economics Levent Koçkesen, Murat Usman We model the settlement of a legal dispute when the trial outcome depends on the behavior of a strategically motivated judge. A defendant, who is uninformed about the level of harm that he has caused, makes a take-it-or-leave-it offer to an informed plaintiff. If the parties cannot agree on a settlement and the case goes to trial, the judge decides how much effort to exert in discovering the actual damages. We show that, under very general assumptions, this model exhibits multiple equilibria. In some equilibria, the judge exerts less effort and more cases settle out of court, whereas in others the opposite occurs. We also show that the judge prefers the low effort equilibria with high settlement rate and argue that a “managerial judge” could easily steer the parties towards low effort equilibria. This may be deemed undesirable, since in low-effort equilibria, the terms of the settlement heavily favor the informed plaintiff, and this in turn induces over-investment in ex ante preventive care by the defendant.
Highlights
► We study the settlement of a legal dispute under asymmetric information. ► If the case goes to trial, the judge needs to exert effort to discover true damages. ► Under general conditions this model exhibits multiple equilibria. ► The judge and the informed party are better off in the low effort equilibria. ► A managerial judge may help parties select the low effort equilibria.
Publication year: 2012 Source:International Review of Law and Economics Emanuela Carbonara, Francesco Parisi, Georg von Wangenheim Due to a variety of circumstances, lawmakers occasionally create laws whose aims are perceived as outright unjust by the majority of the people. In other situations, the law may utilize improper means for the pursuit of a just goal. In all such cases, lawmaking processes generate rules that do not reflect the values of the underlying population. In these cases individuals may face legal commands or prohibitions that conflict with their sense of justice or fairness. Individuals can oppose unjust laws through protest. Social opposition to unjust laws may trigger social norms that can have countervailing effects on legal intervention. The dynamic effects of these phenomena are the object of this paper.
Highlights
► We study the feedback mechanism between law and social norms using a dynamic setup. ► When laws depart from current social values we may observe backlash effects. ► A law sanctioning socially admissible behavior may increase that behavior. ► Laws trying to bend unwanted social norms may reinforce them. ► Differently from expressive laws, laws that backlash may create social divide.
Publication year: 2011 Source:International Review of Law and Economics, Volume 31, Issue 4 Bertrand Crettez, Regis Deloche In common law legal systems, there is no legal duty to rescue persons in danger. By contrast in code-based legal systems, the principle of duty to rescue does apply. What is behind this difference? To answer this question, we develop a new model extending the reach and strength of the standard civic duty game by taking into account the cost of wrongful intervention. We use this model to analyze and compare three policy options: doing nothing, adopting a duty-to-rescue rule, and encouraging would-be rescuers. We show that a duty-to-rescue rule is more likely to be welfare enhancing when the cost of inappropriately intervening is low, and that, in certain cases, encouraging would-be rescuers is preferred by a representative citizen to both a duty-to-rescue rule and no-rule. Finally, we offer an explanation for the choices made in the USA and France as to whether to use rescue laws.
Highlights
► In civil (common) law countries, the principle of duty to rescue does (not) apply. ► We examine this difference by taking into account the cost of wrongful intervention. ► We compare three policy options: rule, no rule, and encouraging would-be rescuers. ► We explain the choices made in the USA and France as to whether to use rescue laws.
Publication year: 2011 Source:International Review of Law and Economics, Volume 31, Issue 2 Atsushi Tsuneki This article considers the problem of socially efficient liability rules for firms in contestable markets where natural monopoly prevails due to decreasing average cost. If the fixed cost that pushes the entry-limiting price above marginal cost is large relative to the level of external harm of firms, the negligence regime is socially superior to the strict liability regime. In the opposite case, the strict liability rule may be socially superior.
Highlights
► We model contestable markets with natural monopoly due to decreasing average cost. ► We examine the welfare effect of liability rules for firms. ► If the fixed cost that pushes the entry-limiting price above marginal cost is large relative to the level of external harm of firms, the negligence regime is socially superior to the strict liability regime. ► In the opposite case, the strict liability rule may be socially superior.
Publication year: 2011 Source:International Review of Law and Economics, Volume 31, Issue 4 Matt E. Ryan, Peter T. Leeson This paper is the first to investigate the relationship between hate groups and hate crime empirically. We do so using panel data for the U.S. states between 2002 and 2008. Contrary to conventional wisdom, we find little evidence that hate groups are associated with hate crime in the United States. We find somewhat stronger evidence that economic hardship may be related to hate crime. However, evidence for the potential importance of economic factors remains weak. Further, we find that demographic variables are not significantly related to hate crime in the United States. Our results leave the question of what factors may drive hate crime in America unresolved. But they cast doubt on the popular perception that hate groups are among them.
Highlights
► This paper is the first to investigate the relationship between hate groups and hate crime empirically. ► We find little evidence that hate groups are associated with hate crime in the United States. ► We find somewhat stronger evidence that economic hardship may be related to hate crime. ► Further, we find that demographic variables aren’t significantly related to hate crime in the United States. ► Our results cast doubt on the popular perception that hate groups are an important contributor to hate crime in America.
Publication year: 2011 Source:International Review of Law and Economics, Volume 31, Issue 2 Lars Mathiesen, Øivind Anti Nilsen, Lars Sørgard One approach to merger simulations used in antitrust cases is to calibrate demand from market shares and a few additional parameters. When the products involved in the merger case are differentiated along several dimensions, actual diversion ratios may be very different from those calculated from market shares. This again may affect the predicted post-merger price effects. This article shows how merger simulation can be performed using observed diversion ratios. To illustrate the potential effects of this approach we use diversion ratios from a local grocery market in Norway. In this case diversions from the acquired to the acquiring stores were considerably smaller than suggested by market shares, and the predicted average price increase from the acquisition was 40% lower using this model rather than a model based upon market shares. This analysis also suggests that even a subset of observed diversion ratios may significantly change the prediction from a merger simulation based upon market shares.
Research highlights
► Diversion ratios are useful in defining how closely firms compete. ► Diversion ratios improve estimated price effects of horizontal mergers. ► Data from a local grocery market in Norway is used for illustration. ► Even a small subset of diversion ratios change predictions from a merger simulation.
Publication year: 2011 Source:International Review of Law and Economics, Volume 31, Issue 4 Murat C. Mungan Sanctions for regulation violations are used to deter conduct which could potentially result in great social harms. This practice over-deters low-risk entities and under-deters high-risk entities, which leads to social losses. This paper analyzes whether and how such social losses can be mitigated. I show that this can be achieved by allowing regulatees to purchase passes exempting them from regulations at appropriate prices, although they remain liable for any harm they cause.
Publication year: 2011 Source:International Review of Law and Economics, Volume 31, Issue 4 Pierfrancesco La Mura, Marc Steffen Rapp, Bernhard Schwetzler, Andreas Wilms AbstractWe study the certification role of fairness opinions in corporate transactions in a simple non-cooperative setting with asymmetric information and possibly misaligned managerial incentives, and discuss the effect of different regulatory scenarios. Specifically, we compare three settings: one in which no third-party fairness opinion is available, one in which the management is required to obtain a fairness opinion before any transaction, and one in which the management’s decision to require a fairness opinion is voluntary. We compare shareholder value in each of the three scenarios and discuss implications for the optimal design of regulatory environments for fairness opinions.
Highlights
► We study the certification role of fairness opinions in corporate transactions. ► Our model, a simple non-cooperative setting, allows for asymmetric information and possibly misaligned managerial incentives. ► We analyze the effect of different regulatory scenarios on shareholder value and discuss implications for optimal regulation.
Publication year: 2011 Source:International Review of Law and Economics, Volume 31, Issue 3 Donald J. Wright AbstractA model of costly medical malpractice claims, based on Bayes Rule, is developed to examine the effects of physicians being liable for actual damage under a negligence rule. This model is consistent with empirical evidence concerning the pattern of claims. It is shown that compensating actual damage does not provide physicians with appropriate incentives to spend the second best optimal amount of time with patients or to treat the second best optimal number of patients. As a result, too much medical malpractice occurs relative to the second best social optimum.
Highlights
► A model of costly medical malpractice claims, based on Bayes Rule, is developed to examine the effects of physicians being liable for actual damage under a negligence rule. ► This model is consistent with empirical evidence concerning the pattern of claims. ► It is shown that compensating actual damage does not provide physicians with appropriate incentives to spend the second best optimal amount of time with patients or to treat the second best optimal number of patients. ► As a result, too much medical malpractice occurs relative to the second best social optimum.
