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Abstract:
This essay traces the vein of thought represented by Calabresi's "The Costs of Accidents", both backward in time to examine its sources, and forward to its impact on current scholarship. I focus on three broad topics: positive versus normative law and economics, positivist versus anti-positivist thinking in law, and the assumption of rationality in law and economics.

economic analysis of law, rationality, legal positivism, normative economics, positive economics, utilitarianism, instrumentalism, behavioral economics, optimal deterrence

Abstract:
If we define the deterrence benefits from contract enforcement as avoided harms net of avoidance costs, we should expect contracting parties to choose the dispute resolution forum that provides the greatest difference between deterrence benefits and dispute resolution costs. We apply this framework to franchise contracts and conduct an empirical analysis of the determinants of arbitration agreements among franchising parties. Although it is obvious that contracting parties have an incentive to choose arbitration in order to reduce dispute resolution costs, there have been no studies of the importance of deterrence concerns. We examine the deterrence hypothesis and find a great deal of support for it. Our results suggest that deterrence factors outweigh litigation costs in the design of dispute resolution agreements. We find that the probability of arbitration is significantly higher when the parties rely on implicit contract terms for governance and compliance with those terms is difficult to ensure.

contract law, tort law, law and economics, litigation, governance, franchising, arbitration

Abstract:
If we define the deterrence benefits from contract enforcement as avoided harms net of avoidance costs, we should expect contracting parties to choose the dispute resolution forum that provides the greatest difference between deterrence benefits and dispute resolution costs for every type of dispute. We apply this general framework to franchise contracts and conduct an empirical analysis of the determinants of arbitration agreements among franchising parties. Although it is obvious that contracting parties have an incentive to choose arbitration in order to reduce dispute-resolution costs, there have been no studies of the importance of deterrence concerns. We examine the deterrence hypothesis here and find a great deal of support for it. Indeed, our results suggest that deterrence factors generally outweigh litigation costs in the design of dispute resolution agreements. We find that the probability of arbitration is significantly higher when the parties are likely to rely on implicit contract terms for governance and compliance with those terms is difficult to ensure.

contract law, tort law, law and econ, litigation, governance, franchising, arbitration

Abstract:
In a recent symposium issue of the George Mason Law Review, Steven Salop and R. Craig Romaine use the Microsoft litigation as a focus for discussion of antitrust law. Salop and Romaine argue that each of the allegations against Microsoft could constitute evidence of a design by Microsoft to reduce competition and to preserve or extend monopoly power. They argue as well that the right legal standard to apply in monopolization cases is a "competitive effects" test that balances the benefits and harms of the monopolist's conduct. This article exposes problems with their approach, explains why it departs from current antitrust standards, and urges an approach consistent with current standards.

Abstract:
Many legal rules turn on a party's state of mind or intent with respect to some action or consequence. Legal scholars have long debated the contours of such requirements and the sorts of proof required for them. Intent has been an especially controversial issue in antitrust law. This paper provides a theory of legal standards that explains the role of intent analysis in antitrust and in other areas of the law. We argue that intent requirements, and many other legal rules, can be understood by focusing on the goal of minimizing the expected costs from legal errors. After developing a positive theory of intent standards, we apply the theory to antitrust to show that it explains both the allocation of and proof requirements for the specific intent standards in antitrust doctrine. We then use the Microsoft case as a concrete study of the function of intent rules in antitrust.

Abstract:
This paper presents a model of penalties that reconciles the conflicting accounts of optimal punishment by Becker, who argued penalties should internalize social costs, and Posner, who suggested penalties should completely deter offenses. The model delivers specific recommendations as to when penalties should be set to internalize social costs and when they should be set to completely deter offensive conduct. One basic recommendation is that whenever the cost of transacting with respect to some entitlement is less than the cost of enforcing the right to that entitlement, penalties should be set to completely deter. I use the model to generate a positive account of the function and scope of criminal law doctrines, such as intent, necessity, and rules governing the distinction between torts and crimes. The model is also consistent with the history of criminal penalties set out by Adam Smith.

internalization, deterrence, optimal penalties, punitive damages, law enforcement, necessity doctrine, criminal intent

Abstract:
This paper presents a model of penalties that reconciles the
conflicting accounts optimal punishment by Becker, who argued
penalties should internalize social costs, and Posner, who
suggested penalties should completely deter offenses. The
model delivers specific recommendations as to when penalties
should be set to internalize social costs and when they should
be set to completely deter offensive conduct. I use the model
to generate a positive account of the function and scope of
criminal law doctrines, such as intent, necessity, and rules
governing the distinction between torts and crimes. The model
is also consistent with the history of criminal penalties set
out by Adam Smith.

internalization, deterrence, optimal penalties, punitive damages, law enforcement, necessity doctrine, criminal intent

Abstract:
The lack of detailed implications and general failure to come to grips with important features of tort doctrine have been substantial shortcomings in the dominant positive theory framework of Holmes and Posner. I extend the dominant framework below to enable it to justify various intentional tort doctrines, and the specific form and allocation of strict liability rules within tort law. After developing the positive framework, I apply it to the Restatement (Third) of Tort Law. The theory explains many of the detailed provisions and commentary of the Restatement, and identifies one area in which the Restatement (Third) seems inconsistent with tort doctrine. I also discuss the value of positive theory as a part of the Restatement project.

Abstract:
The lack of detailed implications and general failure to come to grips with important features of tort doctrine have been substantial shortcomings in the dominant positive theory framework of Holmes and Posner. I extend the dominant framework below to enable it to justify various intentional tort doctrines, and the specific form and allocation of strict liability rules within tort law. After developing the positive framework, I apply it to the Restatement (Third) of Tort Law. The theory explains many of the detailed provisions and commentary of the Restatement, and identifies one area in which the Restatement (Third) seems inconsistent with tort doctrine. I also discuss the value of positive theory as a part of the Restatement project.

Abstract:
This paper offers a decision theoretic framework for analyzing tying law, and presents a critical assessment of post-Chicago tying theory. The decision theoretic framework takes into account the likelihood of judicial error in the application of rules and the costs of such error. We use the decision theoretic framework to assess the proper legal rules regarding tying and technological integration. Three general themes run throughout much of our analysis. First, the per se rule against tying simply has no economic foundation. Second, while the post-Chicago literature established the theoretical possibility of anticompetitive tying, one must know the frequency of anticompetitive tying to formulate a rational legal rule. Because beneficial tying is so pervasive, rules against tying could be harmful even with a small rate of "false convictions." Third, the most plausible post-Chicago theory of anticompetitive tying is based on the assumption that the tying and tied goods are complementary and that they are both susceptible to market power. However, the long-established principle that integrated complementary monopoly results in lower prices than independent complementary monopolies suggests that a policy biased toward independent complementary monopolies has the predictable consequence of reducing consumer welfare. There are two implications for the law: for contractual tying cases, the rule of reason with a heavy burden of proof for plaintiffs should be applied; and for technological integration cases, the deferential legal standard in most circuits is preferable to the D.C. Circuit's rule of reason standard for software.

Abstract:
This paper offers a decision theoretic framework for analyzing tying law, and presents a critical assessment of post-Chicago tying theory. The decision theoretic framework takes into account the likelihood of judicial error in the application of rules and the costs of such error. We use the decision theoretic framework to assess the proper legal rules regarding tying and technological integration. Three general themes run throughout much of our analysis. First, the per se rule against tying simply has no economic foundation. Second, while the post-Chicago literature established the theoretical possibility of anticompetitive tying, one must know the frequency of anticompetitive tying to formulate a rational legal rule. Because beneficial tying is so pervasive, rules against tying could be harmful even with a small rate of "false convictions." Third, the most plausible post-Chicago theory of anticompetitive tying is based on the assumption that the tying and tied goods are complementary and that they are both susceptible to market power. However, the long-established principle that integrated complementary monopoly results in lower prices than independent complementary monopolies suggests that a policy biased toward independent complementary monopolies has the predictable consequence of reducing consumer welfare.

Abstract:
Calabresi and Melamed published the seminal article on property rules and liability rules in 1972. In recent years new articles presenting rigorous analyses of bargaining incentives have overturned some of the fundamental claims of the Calabresi-Melamed analysis. In particular, the proposition that property rules are socially preferable to liability rules when transaction costs are low appears to be either no longer valid or severely weakened under the new analyses. This paper reexamines the property rule versus liability rule question in light of the contributions of the recent bargaining theory literature. In contrast to this literature, I find that the fundamental propositions of Calabresi-Melamed remain valid, and I extend the framework to provide a more detailed positive economic theory of common law rules. The key contribution of this paper is pointing out the importance of subjective valuations in the analysis of property and liability rules. This allows for a synthesis of Calabresi-Melamed and the bargaining theory literature within an expanded framework.

economics of property and liability rules, property rules, liability rules, bargaining incentives, bargaining theory, Calabresi-Melamed propositions

Abstract:
Calabresi and Melamed published the seminal article on property rules and liability rules in 1972. In recent years new articles presenting rigorous analyses of bargaining incentives have overturned some of the fundamental claims of the Calabresi-Melamed analysis. In particular, the proposition that property rules are socially preferable to liability rules when transaction costs are low appears to be either no longer valid or severely weakened under the new analyses. This paper reexamines the property rule versus liability rule question in light of the contributions of the recent bargaining theory literature. In contrast to this literature, I find that the fundamental propositions of Calabresi-Melamed remain valid, and I extend the framework to provide a more detailed positive economic theory of common law rules. The key contribution of this paper is pointing out the importance of subjective valuations in the analysis of property and liability rules. This allows for a synthesis of Calabresi-Melamed and the bargaining theory literature within an expanded framework.

economics of property and liability rules, property rules, liability rules, bargaining incentives, bargaining theory, Calabresi-Melamed propositions

Abstract:
This paper investigates a dataset that codes key features of the competition laws of 102 countries. It first compares the scope of the laws overall, and of various subcomponents such as the law governing dominance, collusive conduct, and mergers. The second question examined in this paper is whether competition law has any effect on the intensity of competition within a nation. We find, in ordinary least squares regressions, that the scope of a country's competition law is positively associated with the perceived intensity of competition in the country's economy. However, we find no evidence that the scope of competition law is positively associated with an objective proxy of the intensity of competition. Moreover, instrumental variables regressions, though preliminary, do not indicate that the scope of competition law affects the perceived intensity of competition.

antitrust, competition laws, laws governing dominance, laws governing collusive conduct, laws governing mergers, intensity of competition within a nation, scope of competition laws

Abstract:
This paper, prepared for the 2001 Washburn Torts Seminar, argues that tort law has some properties that make it superior to statute-based regulatory schemes as a system of environmental protection. In particular, two arguments, one based on enforcer-malfeasance and one based on information, suggest that tort law is preferable to statutory regulation. I sketch these arguments and apply them to nuisance law. The result is a set of conditions or rules-of-thumb for determining where tort law is preferable to environmental regulation. The framework implies that emission standard regulation can and should be implemented without preempting nuisance law.

Abstract:
In this paper we provide an economic justification for the pro-defendant bias in American Criminal Procedure that we argue paints a more complete picture of the extent and breadth of these pro-defendant procedures than the most commonly forwarded justifications to date. The most commonly forwarded rationale for the pro-defendant bias in American Criminal Procedure is that the costs associated with false convictions (i.e., sanctioning and deterrence costs associated with the erroneous imposition of criminal sanctions) are greater than the costs associated with false acquittals. We argue that on closer inspection this rationale does not justify the extent of our pro-defendant criminal procedures. We offer another justification for these protections: to constrain the costs associated with abuses of prosecutorial or governmental authority. In a nutshell, our claim is that these procedural protections make it more costly for self-interested actors, whether individuals or government enforcement agents, to use the criminal process to obtain their own ends. Such protections help to reduce the rent-seeking and deterrence costs associated with abuses of prosecutorial or governmental authority in the criminal sphere. The theory developed here explains several key institutional features of American Criminal Procedure and provides a positive theory of the case law as well. The theory is also corroborated by empirical evidence on corruption from several countries.

Abstract:
This chapter provides a survey of the law and literature on monopolization. The focus is American law, but the issues considered are equally applicable to European law. After briefly reviewing the history of monopolization law in the U.S., I review various approaches to the legal standard for monopolization suggested in the literature. I then attempt to model monopolization standards, and assess their desirability in light of error costs.

monopolization, dominance law, Sherman Act Section 2, rent seeking, welfare tradeoffs, consumer harm, specific intent, profit sacrifice, equally efficient competitor test, welfare balancing test, error costs

Abstract:
This paper presents a cradle-to-grave model of tort liability, incorporating the decision to comply with the due-care standard, the decision to file suit, and the decision to settle. I use the model primarily to examine settlement rates, plaintiff win rates, and compliance with the due-care standard. The key results of the model are as follows: (1) litigation to judgment occurs only when some but not all actors comply with the due-care standard, and (2) if defendants have the information advantage at trial, plaintiff win rates generally will be less than fifty percent. I apply the model and its simulation results to several empirical issues in the litigation literature. The model simulation indicates that the British rule for allocating legal costs is superior to alternatives in terms of social welfare. In addition, the model is capable of explaining several empirical features of litigation and puzzles in the literature on trial outcomes.

Abstract:
This paper presents a cradle-to-grave model of tort liability, incorporating the decision to comply with the due-care standard, the decision to file suit, and the decision to settle. I use the model primarily to examine settlement rates, plaintiff win rates, and compliance with the due-care standard. The key results of the model are as follows: (1) litigation to judgment occurs only when some but not all actors comply with the due-care standard, and (2) if defendants have the information advantage at trial, plaintiff win rates generally will be less than fifty percent. I apply the model and its simulation results to several empirical issues in the litigation literature. The model simulation indicates that the British rule for allocating legal costs is superior to alternatives in terms of social welfare. In addition, the model is capable of explaining several empirical features of litigation and puzzles in the literature on trial outcomes.

Abstract:
In a large number of products liability lawsuits, sellers assert that plaintiffs' claims should be rejected because their products fall under some federal regulatory regime, and that the regulatory statute takes precedence over or preempts state tort law. This paper is an attempt to set out a positive theory of the doctrine on preemption of products liability claims. The federal case law is largely consistent with an approach that seeks to minimize the costs of erroneous decisions to preempt tort lawsuits. In particular, two factors explain many of the outcomes of the preemption cases in federal courts: agency independence and the degree of congruence between the regulatory and common law standards.

products liability, preemption, product safety regulation, negligence, strict liability, failure to warn, legislative intent, error costs, design defect, manufacturing defect, fraud on agency

Abstract:
This paper provides a general overview of the differences between American and European monopolization law. American courts have taken a relatively conservative approach toward monopolization law, in the sense of showing reluctance to penalize a firm simply because of its monopoly status, and of allowing wide scope, at least at the level of pure legal doctrine, for efficiency defenses to be asserted. Europe, in comparison, has taken an interventionist approach. Error-cost analysis provides a justification for the American approach. A preliminary empirical examination suggests that the scope of a country's monopolization law is inversely related its degree of trade dependence.

Article 82 of the European Community Treaty, Sherman Act Section 2, monopolization law, American monopolization law, European monopolization law, error-cost analysis, scope of a country's monopolization law, degree of trade dependence

Abstract:
The notion that damages should be multiplied by the reciprocal of the probability of punishment is one of the basic lessons of the law and economics literature. However, the simple 1/p multiplier turns out be inapplicable in the civil damages setting. The multiplier that brings about first-best deterrence must be chosen by striking a balance between the supply of lawsuits and the need to internalize costs. Moreover, given the costs of litigation, a multiplier that minimizes overall social costs (in contrast to achieving first-best deterrence) may need to be set at a level that effectively bars many claims. This article derives optimal damage multipliers for a costly civil litigation system and examines the conflicting implications of deterrence and social cost minimization as objectives in the design of an optimal multiplier. An empirical application suggests that the first-best deterrence multiplier for the tort system is roughly equal to two.

Abstract:
The notion that damages should be multiplied by the reciprocal of the probability of punishment has been around since Bentham and is one of the basic lessons of the law and economics literature. However, the simple 1/p multiplier turns out be inapplicable in the civil damages setting. The multiplier that brings about first-best deterrence must be chosen by striking a balance between the supply of lawsuits and the need to internalize costs. Moreover, given the costs of litigation, a multiplier that minimizes overall social costs (in contrast to achieving first-best deterrence) may need to be set at a level that effectively bars many claims. This paper derives optimal damage multipliers for a costly civil litigation system and examines the conflicting implications of deterrence and social cost minimization as objectives in the design of an optimal multiplier. An empirical application suggests that the first-best deterrence multiplier for the tort system is roughly equal to two.

damages, multiplier, damages multiplier, optimal deterrence, litigation costs, internalization, tort damages

Abstract:
This paper evaluates the claim for slavery reparations from a torts perspective. I start with an examination of the injuries inflicted on slaves, and the extent to which tort law provides a vehicle for redressing these injuries. I then take up the question of derivative claims, claims brought by someone other than the direct victim, a category which covers the reparations complaint. Lastly, I discuss the accounting demand by the reparations plaintiffs. The derivative status of reparations claims presents special obstacles for plaintiffs. However, applying today's law to slavery should be viewed as bringing law to a regime from which it had been entirely displaced, not as a retroactive application of a different set of rules. The more troubling problem for plaintiffs is the passage of time. After enough time has passed, tort doctrine shuts the door on claims based on old and distant injuries. It appears that the only component of reparations lawsuits that has the potential for social gain is the demand for an accounting.

Reparations lawsuits, restitution, torts, derivative claims, slavery

Abstract:
If a tortious act (e.g., negligently firing a rifle) occurs in state X and the harm (e.g., killing a bystander) occurs in state Y, which state's law should apply? This is a simple example of the "choice of law" problem in torts. The problem arises between states or provinces with different laws within one nation and between different nations. In this comment, prepared for the 2006 American Association of Law Schools Annual Meeting, I examine this problem largely in terms of incentive effects, and briefly consider how the analysis could be incorporated into the standard introductory course on tort law. I conclude that a zone of foreseeable impact rule provides the best underlying principle in conflict of law situations. This rule supports the traditional legal approach (lex loci) to conflicts of laws and helps to explain modern approaches as well.

tort, choice of law, zone of foreseeable impact, conflict of law, law of forum, law of injury site, law of decision site, balancing tests

Abstract:
These remarks, presented at the 2004 AALS Annual Meeting panel on civil procedure, review the economic theory of arbitration and related empirical evidence. For parties who can choose between alternative legal regimes, the key determinants of that choice are the governance benefits and enforcement costs connected to the rules under each regime. The choice between arbitration and litigation should be made on the same basis. The empirical literature, though sparse, suggests that superior governance benefits provide a significant reason for arbitration agreements.

arbitration, governance, enforcement, norms, choice between arbitration and litigation

Abstract:
The antitrust laws of the United States have, from their inception, allowed firms to acquire significant market power, to charge prices that reflect that market power, and to enjoy supra-competitive returns. This article shows that this policy, which was established by the U.S. Congress and affirmed repeatedly by the U.S. courts, reflects a tradeoff between the dynamic benefits that society realizes from allowing firms to secure significant rewards, including monopoly profits, from making risky investments and engaging in innovation; and the static costs that society incurs when firms with significant market power raise price and curtail output. That tradeoff results in antitrust laws that allow competition in the market and for the market, even if that rivalry results in a single firm emerging as a monopoly, but that prevent firms from engaging in practices that go out of bounds. The antitrust laws ultimately regulate the "boundaries" of the "game of competition." Three implications follow. First, the antitrust laws and intellectual property laws are based on similar policy tradeoffs between static and dynamic effects. Second, the antitrust rules have, all along, been based on this tradeoff and not on the effects of business practices on static consumer welfare in relevant antitrust markets. Third, one unintended consequence of the increased role of economics in antitrust analysis is to overemphasize static considerations which the almost the sole focus of the economics literature that courts and competition authorities consider.

Antitust law, monopoly power, competition

Abstract:
In spite of its tenure as the prevailing economic theory of strict liability, the proposition that strict liability should be preferred to negligence when it is desirable to reduce injurers' activity levels rather than victims' activity levels raises a few questions. First, when should we prefer to reduce injurers' activity levels rather than victims'? Second, why should we not hold both victim and injurer strictly liable? This paper provides a model that answers these questions more effectively than the prevailing economic model. The model presented here offers specific predictions that are consistent with the detailed law on strict liability and the appearance of strict liability in pockets rather than as an across-the-board default rule. The choice between strict liability and negligence depends on the degree to which there is a reciprocal exchange of risk among actors, and the extent to which benefits, in addition to risks, are externalized.

strict liability, negligence, economic theory of strict liability, exchange of risk among actors, externalized benefits

Abstract:
This article examines a model of strict liability with costly litigation and presents conditions under which (1) potential injurers take optimal precautions, (2) increasing the cost of litigation enhances precaution and social welfare, (3) the optimal level of liability exceeds the compensatory level, and (4) increasing the rate of settlement enhances social welfare. The results have implications for controversies surrounding fee shifting, optimal damage awards (e.g., punitive damages), and the social desirability of settlement. The most striking implication is that fee shifting in favor of prevailing plaintiffs is socially desirable in low-transaction-cost settings.

Abstract:
This paper examines a model of strict liability with costly litigation, and presents the conditions under which: (1) potential injurers take optimal precautions, (2) increasing litigation costs enhance precaution and social welfare, (3) the optimal level of liability exceeds the compensatory level, and (4) increasing the rate of settlement increases social welfare. The results have implications for controversies surrounding optimal damage awards (e.g., punitive versus compensatory), fee shifting, and the desirability of settlement.

Abstract:
This paper examines a model of strict liability with costly litigation, and presents the conditions under which: (1) potential injurers take optimal precautions, (2) increasing litigation costs enhance precaution and social welfare, (3) the optimal level of liability exceeds the compensatory level, and (4) increasing the rate of settlement increases social welfare. The results have implications for controversies surrounding optimal damage awards (e.g., punitive versus compensatory), fee shifting, and the desirability of settlement.

Abstract:
These remarks, prepared for the Boston College Third World Law Journal Reparations Symposium, compare different reparations claims in terms of their goals and viability as tort suits. I contrast two approaches observed in the claims: a "doing justice" model, which involves seeking compensation in important cases of uncorrected or uncompensated injustice; and a "social welfare" model that seeks to change the distribution of wealth. Claims under the first category are far more consistent with tort doctrine and likely to meet their goals than the social welfare-based claims.

reparations, restitution, slavery, class action, causation, statute of limitations

Abstract:
It is common in the legal academy to describe judicial decision trends leading to new common law rules as resulting from conscious judicial effort. Evolutionary models of litigation, in contrast, treat common law as resulting from pressure applied by litigants. One apparent difficulty in the theory of litigation is explaining how trends in judicial decisions favoring one litigant, and biasing the legal standard, could occur. This article presents a model in which an apparent bias in the legal standard can occur in the absence of any effort toward this end on the part of judges. Trends can develop favoring the better-informed litigant whose case is also meritorious. Although the model does not suggest an unambiguous trend toward efficient legal rules, it does show how private information from litigants becomes embodied in common law, an important part of the theory of efficient legal rules.

Abstract:
It is common in the legal academy to describe trends in judicial decisions leading to new common law rules as the result of conscious judicial effort. Evolutionary models of litigation, in contrast, treat common law as resulting from pressure applied by litigants. One apparent difficulty in the theory of litigation is explaining how trends in judicial decisions favoring one litigant, and biasing the legal standard, could occur. This paper presents a model in which an apparent bias in the legal standard can occur in the absence of any effort toward this end on the part of judges. Trends can develop favoring the better informed litigant whose case is also meritorious. Although the model does not suggest an unambiguous trend toward efficient legal rules, it does show how private information from litigants becomes embodied in common law, an important part of the theory of efficient legal rules.

common law evolution, common law rules, theory of litigation, litigation, torts, litigation procedure, decisions biasing the legal standard, theory of efficient legal rules

Abstract:
This paper, prepared for "The Future of Organized Labor" conference at Wayne State University, examines two questions: what are the implications of the decline of unions for the future of labor law, and what are the implications of labor law for the decline of unions? After documenting the recent trends (decline in the private sector coupled with slight growth in the public sector), I argue that the change in the public-versus-private composition will lead unions to pursue legislative strategies that will further reduce the share of the private sector workforce in unions. A law reform program that has any chance of success in reversing the decline of private sector unions will have to aim to reduce the competitive disadvantage to firms from unionization. I offer two general proposals in this vein: making labor law more predictable and removing the NLRB from regulating the substantive terms of labor contracts.

union density, labor law, certification elections, labor public policy

Abstract:
Theories of tort law have focused on the breach and causation components of negligence, saying little if anything about duty. This paper provides a positive economic theory of duty doctrine. The theory that best explains duty doctrines in tort law is the same as the theory that explains strict liability doctrine. The core function of both sets of doctrines is to regulate the frequency or scale of activities that have substantial external effects. Strict liability aims to suppress or tax activities that carry unusually large external costs. Duty doctrines, especially those relieving actors of a duty of care, serve several functions, but one important class encourages or subsidizes activities that carry substantial external benefits. Another class of duty-relieving doctrines serves as complements to property rules. Still another class of duty-relieving doctrines serves to permit markets to function without distortions created by liability.

negligence, strict liability, duty, proximate cause, externality, subsidy, tax, property rules, liability rules

Abstract:
This paper sets out a theory of torts and cyberspace wrongs. Its goal is to set out a sparse theoretical account of tort law and apply it to cyberspace torts, both negligent and intentional. I approach this goal by applying the framework of property rules and liability rules to cyberspace torts. That framework suggests that trespass doctrine is appropriate in instances of cyber-invasions of private information resources, such as the breaking of codes to access private information on the web. However, trespass doctrine should play no role in cyber-invasions of public information resources, such as the sending of spam email. I also examine indirect liability claims against operating system sellers or internet service providers for the harms caused by cyberspace actors (e.g., virus writers, copyright violators). The theory presented here suggests that the basis for strict indirect liability is weak. Finally, the theory suggests that immunity rules should play a role in this area, though in a smaller set of instances than those protected by the Communications Decency Act.

property rules, liability rules, immunity, cyberspace, tort law, cyberspace torts, cyber-invasions of private information sources, cyber-invasions of public information sources, virus writers, copyright violators

Abstract:
In Weyerhaeuser v. Ross-Simmons the Supreme Court held that the predatory pricing standard adopted in Brooke Group also applies to predatory bidding claims, because the two types of predation are "analytically similar". I argue that predatory bidding is likely to be more harmful to consumer welfare than is predatory pricing. Successful input market predation may lead to a "dual market power" outcome in which the firm has market power in both the input and the output market. In spite of the analytical distinction, consideration of error costs leads me to conclude that Brooke Group remains the best standard to apply to predatory bidding claims.

Weyerhaeuser v. Ross-Simmons, predatory pricing standard, predatory bidding, Brooke Group

Abstract:
This essay is a series of reflections on the implications of Philip Morris for the tort reform movement. I make an effort below to find a middle ground between the positions of the plaintiff and defendant in Philip Morris. That middle ground involves largely returning to the Supreme Court's pre-Gore treatment of punitive damages and introducing new procedural devices for defendants to challenge awards. I close with a few observations on the implications of this case law for pain and suffering awards.

tort reform, remedies, punitive damages, Philip Morris, multiplier, class actions

Abstract:
This paper applies a simple economic framework to the choice between pleading and summary judgment as points at which a claim can be dismissed. It concludes generally that pleading standards should vary with the evidentiary demands of the associated legal standards and the social costs of litigation. The common law's imposition of higher pleading standards for fraud claims is consistent with this proposition. The theory implies that the rigorous summary judgment standards that have been developed by antitrust courts should lead to a correspondingly rigorous assessment at the pleading stage.

economics of pleading, summary judgment standards, pleading, summary judgment, social costs of litigation

Abstract:
This paper presents an economic analysis of arbitration agreements in the employment context. The goal of this analysis is first to set out, clarify, and illuminate the economics of waiver and arbitration agreements in the employment context. The fundamental economic benefits from employment arbitration can be placed in either of two categories: deterrence benefits and dispute-resolution cost savings. Arbitration enhances the deterrence benefit to the extent that it encourages greater compliance with legal and contractual employment norms. Arbitration obviously has the potential to reduce dispute resolution costs by adopting less formal mechanisms. The second goal of this analysis is to answer the normative question, should predispute arbitration agreements be enforced? I conclude they should be enforced, provided the employee has knowingly and voluntarily waived his rights.

Abstract:
I explore the economic structure of nuisance law as a mechanism for regulating environmental interferences and propose a modernized enforcement regime. The modern regime would retain public enforcement primarily in identifying environmental harms and as a backstop for private enforcement.

economic structure of nuisance law, nuisance law, environmental regulation, command and control rules, liability rules, public enforcement, private enforcement, decentralization inefficiencies, agency cost problems, cost-benefit balancing of the common law

Abstract:
This paper sets out a public choice (rent-seeking) theory of the Due Process Clause, which implies that the function of the clause is to prevent takings through the legislative or common law process. This view of the clause's function supports a preference for expanding rather than contracting the set of entitlements protected by the clause. The Supreme Court's application of due process reasoning in the punitive damages case law is in some respects consistent and in other respects inconsistent with this theory. For the most part, the Court has failed to develop a set of doctrines that would enable lower courts to distinguish takings from punishment consistent with reasonable regulation. This paper suggests general guidelines for developing such doctrines.

torts, law and economics, litigation, rent-seeking, due process clause, public choice, Philip Morris v. Williams, Lochner

Abstract:
The Antitrust Modernization Commission recommends that refusals to deal with rivals in the same market should rarely, if ever, be unlawful. I will focus on the principles that should determine the legal standard governing unilateral refusals to deal. A legal test that is strongly biased in favor of defendants, as the Commission recommends, is desirable as a default rule and especially in cases in which the essential facility at the core of the refusal to deal dispute is efficiency enhancing. However, there is another set of cases in which the defendant gains control of an essential market portal. In these cases, a legal test that is less biased toward defendants may be preferable to the Commission's suggested approach.

The Antitrust Modernization Commission, essential facility, unilateral refusals to deal, monopolization

Abstract:
This essay critically reviews the theory of biomedical ethics from a law-and-economics perspective. It suggests that the best direction for society is toward greater reliance on property rights and recognized spheres of autonomy, coupled with freedom of contract within specified limits; and that as a result, the role of the biomedical ethicist should be diminished over time rather than enhanced. I consider applications to the duty of beneficence and commerce in body parts.

biomedical ethics, law and economics, property rights, freedom of contract, normative ethical theory, positive or descriptive ethical theory, essentialism, commerce in organs, spheres of autonomy

Abstract:
The linkLine price squeeze case pending in the Supreme Court for the Fall 2008 Term is one of the most significant antitrust cases on monopolization law that the Court has taken in years. Amici are professors and scholars in law and economics who have taught, or have conducted research on, antitrust law and the economics of industrial organization. They are William J. Baumol, Robert H. Bork, Robert W. Crandall, George Daly, Harold Demsetz, Jeffrey A. Eisenach, Kenneth G. Elzinga, Richard A. Epstein, Gerald Faulhaber, Franklin M. Fisher, Charles J. Goetz, Robert Hahn, Jerry A. Hausman, Keith N. Hylton, Thomas M. Jorde, Robert E. Litan, Paul W. MacAvoy, Sam Peltzman, J. Gregory Sidak, Pablo T. Spiller, and Daniel F. Spulber.

We agree with the petitioners that the Ninth Circuit has generated an inescapable conflict among circuits, and that its opinion is incompatible with the Supreme Court's decisions in Trinko, Weyerhaeuser, and Brooke Group. We agree with Judge Gould's dissent from the Ninth Circuit's decision in linkLine that Trinko "takes the issues of wholesale pricing out of the case," such that the plaintiffs' only possible remaining theory of harm would be predatory pricing at the retail level - which the plaintiffs did not allege. We also agree with Judge Ginsburg's opinion for the D.C. Circuit in Covad Communications Co. v. Bell Atlantic Corp., which in turn embraces the conclusion of the Areeda-Hovenkamp treatise that "it makes no sense to prohibit a predatory price squeeze in circumstances where the integrated monopolist is free to refuse to deal." The existence of a rule like linkLine has a pervasive impact on business behavior that, at the margin, affects competition and consumers. This deleterious effect extends beyond the telecommunications industry to affect all firms that do business in the Ninth Circuit. These reasons justify reversing the Ninth Circuit's decision.

In our minds, an even larger reason than those described above makes it imperative that the Court reverse this decision. The Ninth Circuit's decision in linkLine implicates the normative foundation of modern Sherman Act jurisprudence: that antitrust law exists to advance consumer welfare. We have three points to make.

First, any rule of price-squeeze liability that threatens liability based on the claim that the difference between a firm's upstream and downstream prices leaves downstream rivals insufficient margin substitutes a rule of competitor welfare for consumer welfare.

Second, properly understood, a price squeeze is a regulatory issue, which makes sense only as a rule of price regulation in an industry already subject to duties to deal and to control by institutionally competent regulators. Attempting to implement regulatory policy through section 2 of the Sherman Act is ill-advised, both because it makes no sense for courts to re-regulate deregulated or lightly regulated industries, and because courts lack the institutional competence to implement regulation.

Third, the Ninth Circuit's rule is of pressing concern precisely because it will deter efficiency-enhancing conduct and competitive pricing. Vertical integration and partial integration are ubiquitous, and firms need to be able to make decisions about such integration without the threat of liability. Vertically integrated firms likewise need to be free to cut retail prices (as long as the prices are not predatory) without concern for rivals - the point of Brooke Group. Moreover, the Ninth Circuit's standard is so vague and open-ended that it creates uncertainty and invites litigation; it also permits imposition of liability based on apparently subjective evaluation of disputed and hard-to-prove facts, which will lead to a substantial risk of false positives.

Abstract:
This paper, prepared for the 2009 Monsanto Lecture in Tort Jurisprudence, explains intent standards in tort law on the basis of the incentive effects of tort liability rules. Intent rules serve a regulatory function by internalizing costs optimally. The intent standard for battery internalizes costs in a manner that discourages socially harmful acts and at the same time avoids discouraging socially beneficial activity. The intent standard for assault is more difficult to satisfy than that for battery because it is designed to provide a subsidy of a sort to the speech that is often intermixed with potentially threatening conduct. In addition to the optimal internalization goal, transaction costs play a role in the specification of intent requirements. The subtle difference between the intent requirements for trespass and battery can be explained on the basis of transaction costs.

intent standards, cost internalization, trespass, battery, assault, mental states, optimal regulation, strict liability

Abstract:
One recurring problem in the punitive damages case law is the degree to which the wealth of the defendant should matter in the determination of a punitive award. Intuition suggests that the wealthy should pay more than the non-wealthy. On the other hand, the view has been expressed that wealth should not play a role in the determination of a punitive award. I will use examples to develop several arguments. The claim that wealth is seldom relevant to the determination of a punitive award is unsupportable. The key proposition advanced in this paper is that the defendant's wealth is relevant when either the victim's loss or the defendant's gain from wrongdoing is unobservable and correlated with the defendant's wealth. Since the victim's loss typically will be observable, wealth will tend to be a relevant factor when optimal deterrence requires elimination of the defendant's gain.

punitive damages, punitive award, defendant's wealth as a factor in determining the award, optimal deterrence

Abstract:
This chapter presents a public choice theory of criminal procedure. The core idea is that criminal procedure is best understood as a set of rules designed to thwart attempts to use the state's law enforcement power in a predatory fashion or in order to transfer wealth generally. For the most part we focus on a set of core procedural protections that can be considered long-established norms.

public choice, rent seeking, criminal procedure theory, reasonable doubt standard, double jeopardy, ex post facto clause, due process, error costs, selective enforcement, cruel and unusual punishment

Abstract:
What purpose is served by a government's protection of religious liberty? Many have been suggested, the most prominent of which center on the protection of freedom of belief and expression. However, since every regulation potentially interferes with religious freedom, it is useful to consider more concrete purposes that could suggest limits on the degree to which religious liberty should be protected. This paper focuses on the concrete economic consequences of state regulation of religion. We examine the effects of state regulation on corruption, economic growth, and inequality. The results suggest that laws and practices burdening religion enhance corruption. Laws burdening religion reduce economic growth and are positively associated with inequality.

regulation of religion, economics of religion, corruption, inequality

Abstract:
This paper extends the economic literature on settlement, and draws some practical insights on reverse settlements. The key contributions to the economic literature on settlements follow from the distinction drawn between standard settlements, in which the status quo is preserved, and injunctive settlements, which prohibit the defendant’s activity. The analysis identifies the conditions under which injunctive settlements (rather than standard settlements) are likely to be observed and the conditions under which reverse settlements will be observed among the injunctive settlements. Specifically, reverse settlements are likely when the stakes associated with the injunction are large relative to damages and litigation costs. The analysis of settlement here has broader implications for efficient remedies and legal rules.

reverse settlements, injunctive settlements, economics of litigation and settlement, antidumping litigation, patent antitrust, patent infringement, nuisance settlements, private and social incentives to litigate

Abstract:
These remarks, prepared for the "Issues in Community Economic Development" conference at Western New England College, provide a brief overview of the law and economics literature on urban economic development. I conclude with a set of principles for legislative reform.

development lending, Community Reinvestment Act (CRA), law and economics of development lending

Abstract:
Economic analysis of nuisance law can be divided into two branches: the transaction cost model and the externality model. The two models provide a relatively complete positive theory of nuisance law. Under the externality model, nuisance law optimally regulates activity levels. Nuisance law induces actors to choose socially optimal activity levels by imposing liability when externalized costs are far in excess of externalized benefits or not reciprocal to other background external costs. Proximate cause doctrine plays an important role in inducing optimal activity levels.

Nuisance Law, transaction cost model, externality model, proximate cause doctrine, socially optimal activity levels

Abstract:
Deterrence and compensation goals should be distinguished, and compensation priorities should change in response to the deterrence goal. This has immediate implications for the problem of handling marginal and fraudulent claims in asbestos litigation. Where the deterrence goals come to the forefront, for example in instances of reckless exposure, it may be desirable for courts to require defendants to pay damages that are not transferred to any claimants. Where the deterrence goals are less compelling, as in instances of ordinary negligence, the importance of weeding out marginal and fraudulent claims becomes paramount. I consider optimal penalties for attorneys who bundle fraudulent claims.

asbestos litigation, deterrence goals, compensation goals, marginal and fraudulent claims, bundling of fraudulent claims

Abstract:
In contrast to the traditional legal commentary, I find nuisance law to be a coherent body of rules that serves an explainable function. Nuisance optimally regulates activity levels. Nuisance law induces actors to choose socially optimal activity levels by imposing liability when externalized costs are far in excess of externalized benefits or far in excess of background external costs. The new enforcement actions for lead paint abatement or gun control purposes have an arguable theoretical basis in nuisance law. However, as currently framed, the lawsuits are inconsistent with significant parts of the doctrine and the theory.

public nuisance law, private nuisance law, strict liability, activity levels, external costs, external benefits, lead paint litigation, gun litigation

Abstract:
This paper modifies the optimal penalty analysis by incorporating investment incentives with external benefits. In the models examined, the recommendation that the optimal penalty should internalize the marginal social harm is no longer valid as a general rule. We focus on antitrust applications. In light of the benefits from innovation, the optimal policy will punish monopolizing firms more leniently than suggested in the standard static model. It may be optimal not to punish the monopolizing firm at all, or to reward the firm rather than punish it. We examine the precise balance between penalty and reward in the optimal punishment scheme.

optimal law enforcement, optimal antitrust penalty, monopolization, innovation, internalization, strict liability, static penalty

Abstract:
Trial selection theory consists of models that attempt to explain or predict the characteristics that distinguish cases that are litigated to judgment from those that settle, and the implications of those characteristics for the development of legal doctrine and for important trial outcome parameters, such as the plaintiff win rate. This paper presents a review of trial selection theory and evidence. We start with a review of the literature, and then present a model that includes Priest-Klein and asymmetric information theories as special cases. We conclude with a review of the empirical evidence.

trial selection theory, trial outcome, plaintiff win rate, Priest-Klein model, Landes-Posner-Gould settlement model

Abstract:
One of the most controversial areas of modern tort law is that of the duty of landowners toward people who visit their land. The common law divided land visitors into three types: invitees, licensees, and trespassers. The highest duty of care was owed to the invitee and the lowest to the trespasser. The distinctions led courts to hand down harsh decisions and to draw formal lines between the categories that seemed to defy common sense at times. This paper explains the incentive-based function of the classical landowner duties. I will argue that the classical duties served useful regulatory functions. The most important was regulating the overall scale of injuries by imposing the risk of latent defective conditions in property to the party who is most likely to be aware of the risk or to take action to avoid the risk.

torts, duty of landowners toward people who visit their land, invitees, licensees, trespassers, regulatory functions of landowner duties

Abstract:
We distinguish standard settlements, in which the status quo is preserved, and injunctive settlements, which prohibit the defendant’s activity. The reverse settlement is a special type of injunctive settlement. We examine the divergence between private and social incentives to settle and policies that would minimize socially undesirable injunctive and reverse settlements (e.g., banning reverse settlements). The results are applied to competition-blocking litigation, such as patent infringement and antidumping.

standard settlements, injunctive settlements, reverse settlements, competitition-blocking litigation, patent infringement, antidumping

Abstract:
This note, largely a comment on an article by Robert Hillman,
describes and contrasts two models of legal evolution. The orthodox view holds that legal evolution occurs through the active effort of judges. An alternative view models legal evolution as the outcome of the trial selection process - i.e., the process through which disputes are selected for trial rather than settled. This note critiques the orthodox view and explores implications of the trial selection model. I find the empirical evidence inconsistent with the orthodox view.

Abstract:
As arbitration agreements have grown in use, they have become controversial, with many critics describing them as a disguised form of waiver. This paper presents an economic analysis of waiver and arbitration agreements. I examine the conditions under which parties have an incentive to enter into these types of agreement, and their welfare implications. Waiver and arbitration agreements are similar, in the sense that one can view a waiver as a special type of arbitration agreement in which litigation costs are zero and the plaintiff always loses.

I show that if parties are well informed, they will enter into waiver agreements when (and only when) litigation is socially undesirable, in the sense that the deterrence benefits provided by the threat of litigation fall short of litigation costs. Under similar conditions, they will enter into arbitration agreements when (and only when) the margin between deterrence benefits and dispute resolution costs is larger under the arbitral regime. These results suggest that a presumpton in favor of enforcement these agreements should be adopted, especially where parties are informed. I discuss exceptions to this presumption, largely based on informational disparities. I use the theory developed here to critically examine well known arguments against arbitration agreements, such as the claim that these agreements inhibit the development of new law.

Although the focus here is on waiver and arbitration agreements, the analysis has broader implications for the literature on the social desirability of litigation and lawyering activity generally. The key implication is that the answer to socially undesirable litigation is not a wholesale reduction in the amount of litigation or the number of lawyers, but an expansion of "markets" in waiver and arbitration agreements.

Abstract:
Why are poor inner cities underserved by financial institutions, and why is it so difficult to find a solution to this problem? Explanations of the lending shortfall problem range between theories based on discrimination to the view that the lending market is working flawlessly. Drawing largely on the economic development literature, I elaborate an alternative explanation here. The asymmetric information theory I offer yields the prediction that urban minority communities will be underserved by financial institutions even in the absence of discriminatory intent.

I claim that the existing framework of banking regulation is in part responsible for the difficulty in finding a solution to the lending shortfall problem. The existing regulatory framework makes it difficult for large scale development-oriented lending institutions to emerge. This is a result of the conflict between fair lending and safety regulation. Relatively small development-oriented banks are constrained by their own prudence or by safety regulators to diversify their loan portfolios, limiting the amount of lending geared toward community development. However, fair lending regulators, specifically Community Reinvestment Act examiners, give banks poor evaluations on the basis of a conservative lending policy. Banks that are forced to choose between satisfying the safety and the fair lending requirements will choose the former, since a failure to satisfy safety demands can lead to harsh disciplinary action by regulators.

An ideal regime would encourage development-oriented banks to expand and adopt a safety regulation scheme that gives banks greater freedom to lend in poor communities. This implies both that the CRA should be modified so that it no longer prevents the expansion of small development-oriented banks that have followed a conservative lending policy and that deposit insurance should be privatized.

In spite of the potential benefits from these changes, they are unlikely to be observed in the near future, because the existing regime represents a political equilibrium supported by dominant interest group coalitions. Lending pressure groups, regulators, virtually all local politicians, and some national politicians generally benefit from the existing enforcement regime for the CRA. More surprisingly, large banks enjoy some benefits and probably benefit overall from the existing CRA enforcement regime.

Abstract:
Should punitive damages aim to deter up to the appropriate level by internalizing costs, or should they aim to eliminate the offender's expectation of gain? This article offers a framework for answering this question and for resolving more practical issues, such as the factors that should be taken into account and the algorithm that should be used in determining a punitive award. The rule I propose is as follows: If the offender's gain is probably greater than the victim's loss, then the punitive award should aim to internalize victim losses; if the offender's gain is probably less than or equal to the victim's loss, then the punitive award should aim to eliminate the prospect of gain on the part of the offender. In most punitive damages cases, the offender's gain is probably less than or equal to the victim's loss. For these cases the appropriate algorithm requires the court to divide the defendant's gain by the probability of liability, thereby setting a minimum for the punitive award.

Abstract:
In this paper we will argue that the CRA as it is currently understood and enforced is no longer an appropriate tool for dealing with discrimination in the lending market and the lack of access to credit in neighborhoods dominated by minorities and people of modest, or minimal means. The statute is based on premises that are questionable in today's lending market, and thus it is not clear that the social benefits provided by the statute are significant. Further, enforcement of the statute generates certain perverse incentives that are costly to society. We emphasize the costly incentive effects in this paper. While the goals of the CRA remain desirable, the current enforcement framework should be reformed.

Abstract:
This paper examines the incentive effects of the Attorney Accountability Act, passed by the United States House of Representatives in February 1995.