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Abstract:
Until recently, most managers of publicly held corporations had little reason to worry about corporate criminal liability. Times have changed. Criminal activity puts public corporations at greater peril than previously. State and federal prosecutors are more willing to proceed against publicly held firms and their managers. Convicted corporations now face onerous criminal fines and civil penalties as well as intrusive government oversight and other nonmonetary sanctions. Managers also now are more responsible for the fate of their companies should a crime occur. In contrast to the traditional approach to corporate criminal liability - under which there was little managers could do to avoid a conviction or reduce the sanction once a crime was detected - under the modern approach, managers can take actions that fully or partially insulate a company from criminal liability for its employees' wrongs. Managers can protect their firms by responding proactively with programs designed to deter crime.

Managers of publicly held firms must understand the changing landscape of federal criminal law if they are to successfully respond to the challenges presented by potential wrongdoing by managers and other employees. This chapter discusses how managers can best respond to the evolving practice of corporate criminal liability. It highlights measures that managers can take to deter crime; it also discusses what managers can do to reduce potential sanctions for any crimes that are committed. Finally, the chapter discusses problems with the current system and pitfalls that arise for managers attempting to promote good corporate compliance.

Abstract:
Behavioral Law and Economics has become an increasingly prominent field within legal scholarship, and most recently within the corporate area. A behavioral bias of particular relevance in corporate contexts is the differential between individuals' willingness to pay to obtain a legal entitlement and her willingness to accept to part with one, known as the "endowment effect." Should endowment effects pervade relationships within business organizations, it would significantly complicate much of the common wisdom within corporate law, such as the presumed optimality of ex ante voluntary agreements. Existing experimental research, however, does not adequately address whether and to what extent the endowment effect operates within corporate environments.

This Article presents an experimental test for endowment effects within a principal-agent relationship that typifies many firms. We find that subjects situated in an agency relationship do not exhibit a significant endowment effect. Using an additional experimental test, we argue that this dampening phenomenon is likely due to the fact that the agency context induces subjects to view property rights principally for their exchange value, thereby causing them to "disendow" their initial legal entitlements.

Abstract:
The goal of this paper is to examine optimal individual and entity-level liability for negligence when expected accident costs depend both on the agent's level of expertise and the principal's level of authority. We consider these issues in the context of physician and managed care organization (MCO) liability for medical malpractice. It is shown that the standard rules for the determination of negligence and damages do not result in an efficient outcome when only physicians are held liable for their torts, but is restored if MCOs are held solely liable for the torts committed by their physicians. There is a damage rule that induces the efficient outcome when physicians are held liable for their torts, however these damages are a complex function of the details of the MCO contract.

Abstract:
A number of corporate law scholars have recently proposed granting shareholders an enhanced right to oversee the use of takeover defenses. While these "shareholder choice" proposals vary somewhat in their content, they generally agree that shareholder oversight is justified if and only if shareholders hold a bona fide advantage over managers in evaluating and responding to hostile bids. This article challenges that basic premise, arguing that even if shareholders enjoy a comparative advantage over management in reacting to hostile bids, it does not follow that a shareholder choice regime is value enhancing, because it would give managers an incentive to search for ways to thwart prospective oversight, perhaps even through value-destroying managerial choices that render the firm an unattractive takeover target. We demonstrate (a) that a number of such thwarting defenses exist, (b) that managerial threats to use them are credible, and (c) that their utilization would be difficult or impossible for courts to regulate. We also find empirical support for these hypotheses. Consequently, an immutable, one-size-fits-all shareholder choice rule is likely to be an imprudent policy choice for courts.

Abstract:
A number of corporate law scholars have recently proposed granting shareholders an enhanced right to oversee the use of takeover defenses. While these "shareholder choice" proposals vary somewhat in their content, they generally agree that shareholder oversight is justified if and only if shareholders hold a bona fide advantage over managers in evaluating and responding to hostile bids. This article challenges that basic premise, arguing that even if shareholders enjoy a comparative advantage over management in reacting to hostile bids, it does not follow that a shareholder choice regime is value enhancing, because it would give managers an incentive to search for ways to thwart prospective oversight, perhaps even through value-destroying managerial choices that render the firm an unattractive takeover target. We demonstrate (a) that a number of such thwarting defenses exist, (b) that managerial threats to use them are credible, and (c) that their utilization would be difficult or impossible for courts to regulate. We also find empirical support for these hypotheses. Consequently, an immutable, one-size-fits-all shareholder choice rule is likely to be an imprudent policy choice for courts.

Abstract:
In order to regulate risk taking efficiently, tort liability rules governing organizations' liability for torts by their agents should ensure that organizations both want their agents to take optimal precautions and benefit from using cost-effective mechanisms to regulate agents. This chapter shows that vicarious liability, the current rule governing organizations' liability for their agents' torts, does not satisfy these objectives. By holding organizations liable for torts committed by employees, but not by independent contractors, vicarious liability discourages organizations from asserting direct control over agents, even when control is an efficient way to regulate care. Organizations governed by vicarious liability also may not attempt to induce efficient care-taking by independent contractors because organizations often do not maximize profits by inducing efficient care. Indeed, vicarious liability encourages organizations to undermine the effect of individual tort liability by hiring judgment-proof independent contractors.

Abstract:
This chapter provides a framework for assessing the contributions of experiments in Law and Economics. We identify criteria for determining the validity of an experiment and find that these criteria depend upon both the purpose of the experiment and the theory of behavior implicated by the experiment. While all experiments must satisfy the standard experimental desiderata of control, falsifiability of theory, internal consistency, external consistency and replicability, the question of whether an experiment also must be contextually attentive - in the sense of matching the real world choice being studied - depends on the underlying theory of decision-making being tested or implicated by the experiment.

We find that the importance of contextual attentiveness depends on whether the experiment tests or implicates a "nitary-process" theory of decision-making or a multiple-process theory. Unitary-process theories posit that people employ a single operational approach to make decisions across a broad (or universal) domain of activity. Rational Choice Theory is a unitary-process theory. Because unitary-process theories posit that people employ the same decision-making program in all contexts, experimenters can falsify a unitary-process theory using an experimental choice which bears little resemblance to any real-world choice. Faith in a unitary process account also permits legal policymakers to draw broad normative implications from experiments involving quite artificial choices. By contrast, multiple-process theories hold that people employ multiple decision-making programs when they make choices. Moreover, the relative impact of these programs can depend on the context of the decision. This posited interaction between context and decision-making implies that experimentalists seeking to examine legal decision-making must be sensitive to contextual factors likely to affect deliberative and non-conscious programs in the real world. In addition, policymakers must proceed cautiously before using experimental evidence to draw normative policy conclusions because experimental results may not be robust across contexts.

Abstract:
This Article provides an economic analysis of optimal negligence liability for physicians and Managed Care Organizations explicitly modeling the role of physician expertise and MCO authority. We find that even when patients anticipate the risks imposed on them, physicians and MCOs do not take optimal care absent sanctions. Markets and contracts do not provide optimal incentives because market prices are determined at the moment of contracting, but physician expertise and MCO authority depend on non-contractable actions taken post-contract. Negligence liability can induce optimal care if damage rules are optimal. Optimality requires that MCOs be held liable for both their own negligent treatment coverage decisions and for negligence by affiliated physicians. Moreover, we find that MCOs should be liable even when they do not exert direct control over physicians. Finally, we show that it may be optimal to preclude physicians or MCOs from obtaining liability waivers from patients, even when patients are fully-informed and waive only when it is in their interests to do so at that moment.

Abstract:
This article shows that courts should not adopt a rule of strict shareholder choice that requires managers to obtain shareholder consent for actions taken post-bid that could deter a hostile acquisition. Managers need to be able to act unilaterally to protect the target when a hostile bid threatens its value. Such threats require managerial action, unfettered by a shareholder approval requirement, when the target needs to be able to respond quickly. The conclusion that shareholders can benefit from granting managers unilateral authority to adopt some takeover defenses, even when shareholders are well-informed, is well-illustrated by the Oracle-PeopleSoft contest. PeopleSoft's shareholders would have been worse off had their managers not been able to defend the firm from the threat posed by Oracle's bid because PeopleSoft's shareholders could not have acted sufficiently quickly to preserve the firm's value. In addition, this article shows that shareholder choice proponents cannot remedy the over-regulation problem by amending the rule to grant managers authority to adopt some post-bid defenses. Such a rule would create a zone of weakly regulated low-cost defenses within a strict shareholder choice regime, thereby encouraging managers to employ substitute defenses that may be more costly for the firm than are traditional takeover defenses.

Abstract:
This article shows that courts should not adopt a rule of strict shareholder choice that requires managers to obtain shareholder consent for actions taken post-bid that could deter a hostile acquisition. Managers need to be able to act unilaterally to protect the target when a hostile bid threatens its value. Such threats require managerial action, unfettered by a shareholder approval requirement, when the target needs to be able to respond quickly. The conclusion that shareholders can benefit from granting managers unilateral authority to adopt some takeover defenses, even when shareholders are well-informed, is well-illustrated by the Oracle-PeopleSoft contest. PeopleSoft's shareholders would have been worse off had their managers not been able to defend the firm from the threat posed by Oracle's bid because PeopleSoft's shareholders could not have acted sufficiently quickly to preserve the firm's value. In addition, this article shows that shareholder choice proponents cannot remedy the over-regulation problem by amending the rule to grant managers authority to adopt some post-bid defenses. Such a rule would create a zone of weakly regulated low-cost defenses within a strict shareholder choice regime, thereby encouraging managers to employ substitute defenses that may be more costly for the firm than are traditional takeover defenses.

Abstract:
This chapter explores the evolution in Delaware's approach to director oversight of legal compliance. The transformation of Delaware's duty to monitor is, in part, a story of how the dramatic increase in the scope and magnitude of federal corporate criminal liability pushed the Delaware state courts to treat compliance with federal criminal law as an important corporate governance issue. It also is the story of the struggle between the Delaware Chancery Court and the Delaware Supreme Court over the standard of conduct and standard of review to govern directors' oversight duties.

In the seminal opinion on this issue, In re Caremark International Inc. Derivative Litigation, Chancellor William T. Allen challenged two different facets of Delaware Supreme Court precedent. First, he in effect reversed Allis-Chalmers by holding that directors have a duty to ensure that the firm establishes an effective compliance program, where no duty previously existed. Second, he pushed back against Smith v. Van Gorkom by holding that (i) the proper standard of review to govern director liability for breach of this monitoring duty was good faith, not gross negligence (irrespective of 102(b)(7)), and (ii) that bad faith required a conscious neglect of duty, not merely objectively (excessively) unreasonable conduct. Chancellor Allen's approach in Caremark arises from his twin convictions that (1) directors will satisfy judicially imposed duties even without the threat of liability and (2) judges do not have the expertise to assess the objective reasonableness of directors' actions. Caremark succeeded in moving the Delaware Supreme Court to Chancellor Allen's approach, as evident from Stone v. Ritter. Yet, as became evident following WorldCom and Enron, Caremark did not induce directors to focus adequately on compliance. Caremark specifies a general oversight duty, without specific content. Directors have latitude to adopt a loose interpretation of their oversight duties, largely insulated from liability by the good faith standard of review. In response, federal authorities and the stock exchanges intervened with more precise rules relating to corporate oversight of compliance.

Abstract:
During a recent study of how 1991 federal sentencing guidelines have affected the penalties that federal courts impose on public corporations, we performed an independent evaluation of the quality of the data on corporate sanctions that the U.S. Sentencing Commission releases to the public. Our initial findings led us to use other, independently-compiled data for our own research. This paper presents the main findings of our evaluation, which focused on the quality of the Commission's 1988-1996 (ICPSR) data on public corporations. First, the Commission's post-Guidelines data on penalties for public corporations appear to be incomplete and non-representative of the underlying case population. For example, the ICPSR post-1991 data appear to exclude a disproportionate number of large fines imposed on public corporations. No similar difficulties in the ICPSR pre-Guidelines (1988-1989) data were found. Shortfalls in the post-Guidelines data on other kinds of defendants, such as individuals, appear to be less marked. Second, the Commission's data are missing variables that may explain a substantial part of the case-by-case variation that occurs in sentencing. The data reveal little about the harm caused by the offense, which is often estimated in court papers. Also missing is information about the identity of the sentencing judge and about the identity of the corporation being sentenced. We review the history of the Commission's efforts to collect data on federal sentencing, highlighting institutional constraints and other factors that appear relevant to the difficulties we have found in the data that the Commission releases to the public.

Abstract:
The Second Annual Conference on Empirical Legal Studies will be held at New York University School of Law in New York. The conference will feature original empirical and experimental legal scholarship by leading scholars from a diverse range of fields.

The attached downloadable pdf includes further details on the conference and submission instructions.

Abstract:
Contractual liability proponents claim that states can best reform malpractice liability by allowing patients to contract over, and out of, liability. Proponents assert that informed patients would be better off if allowed to contract over liability than they would if states reformed malpractice liability directly because informed patients would contract for the rules that maximize their welfare. Proponents also claim states reforming malpractice liability could only benefit patients by including a right to contract out of liability. This article demonstrates that these claims are incorrect. Proponents’ faith in informed contracting rests on the incorrect premise that patients obtain the same net benefit from liability imposed by contract as from malpractice liability imposed by the state. Patients who benefit from the deterrence that malpractice liability provides are worse off if required to contract over liability because contractual liability is a fundamentally different, less beneficial, form of liability. Contractual liability is less beneficial and more costly than state-imposed malpractice liability because it is plagued by four inefficiencies: Collective goods, time inconsistency, adverse selection, and network externality problems. Thus, far from expanding choices, the move to contractual liability could hurt patients by forcing them into a form of liability that is both less valuable and more expensive, thereby creating inefficient, welfare-reducing, incentives to waive the right to impose liability by contract for patients who would have benefited from state-imposed liability. This conclusion holds whether patients negotiate liability contracts directly with individual physicians or accept standard form contracts governing malpractice liability offered by their health insurers.

Abstract:
Behavioral Law and Economics (BLE) has become an immensely popular field among legal scholars. This trend is hardly surprising, given the interdisciplinary nature of law and the fact that BLE's chief aim is to unify two well-established (but traditionally distinct) accounts of human behavior: psychology and economics. While the influence of BLE is certainly wide-spread, a particularly pertinent application is in corporate law, which must regulate a rich and intricate set of agency relationships. The extent to which cognitive biases cause deviations from the predictions of rational choice theory in such contexts has significant implications both for our understanding of existing rules and for normative legal reform proposals.

Two such biases seem especially relevant in the corporate context: endowment effects and (so-called) "other regarding preferences." This Article presents the first experimental test for these biases in the corporate-law context. We find, somewhat surprisingly, that the agency context appears substantially to dampen both of them. However, this dampening effect appears to be far from uniform, with some demographic groups (such as single men) exhibiting virtually no evidence of biases while others (such as women, married and/or cohabitating subjects, and subjects from small families) exhibiting the opposite. As such, our findings may serve as cautionary tale for both those who uncritically apply BLE to corporations as well as those who staunchly defend traditional rational choice theory.

Abstract:
Proponents of contractual liability assert that contracting is superior to malpractice because patients will select the rules that maximize their welfare so long as contracting is voluntary and the parties correctly estimate the costs and benefits of imposing liability. This article analyzes the claim that patients have optimal incentives to contract into liability when they are informed about the consequences of liability. It shows that contractual liability is inefficient, even when patients are informed, because contracting itself is not an optimal mechanism for imposing liability because patients derive less benefit from imposing liability by contract than they could obtain from liability imposed by the state by fiat. Specifically, this article examines the two plausibly-efficient forms of contractual liability: individual negotiable contractual liability and MCO contractual liability. It shows that neither provides patients with sufficient benefits to induce optimal contracting over liability.

Patients engaged in individual negotiated contracting with medical providers at the point of service do not have optimal incentives either to adopt malpractice liability reforms or contract around reforms adopted by the state because malpractice liability is designed to confer collective, multi-period, benefits on patients - in the form of investments in safety that benefit many patients collectively both now and in the future. Patients do not derive the full benefit of the collective, multi-period investments produced by malpractice liability when required to impose it through individual contracts. Accordingly, even when contracting is informed and voluntary, patients can be harmed by the introduction of contractual liability because it provides incentives for them to reject liability even when they would be better off were liability imposed by the state. By contrast, collective non-negotiable contracting between patients and Managed Care Organizations) does not face as serious a collective goods problem. But this form of contracting is inefficient because it is distorted by adverse selection. MCOs will charge patients more for liability than is optimal because patients' demand for liability provides a signal of their expected demand for expensive medical services since liability confers the greatest expected benefits on patients likely to need hospital care. Accordingly, contractual liability will not induce even informed patients to impose liability whenever they would be better off were it imposed. Thus, we cannot be confident that states could better serve patients by allowing contracting over liability than they could by adopting effective reforms to malpractice liability and leaving it within the control of the tort system.

Abstract:
This paper investigates the impact of the U.S. Sentencing Guidelines governing organizational defendants, which came into effect in 1991. Our empirical analysis focuses on publicly held firms convicted of crimes in Federal courts in 1988-1996, and analyzes both criminal fines and total sanctions (defined as nonfine criminal sanctions, civil sanctions and administrative sanctions).

The empirical analysis has two parts. First we examine the extent to which criminal fines and total sanctions are higher under the Guidelines than they were previously. We find that both tend to be substantially higher than before, although the increase in criminal fines exceeds the increase in total sanctions. The second part investigates these observed penalty increases more closely. We are interested in whether increased sanctions are attributable to the mandatory constraint imposed by the Guidelines, or whether judges would have increased sanctions during this period even if not subjected to mandatory sentencing provisions. Empirical tests derive from the observation that many of the sanctions imposed after the enactment of the Guidelines are not governed by the Guidelines' mandatory fine provisions. Comparing post-Guidelines sanctions that were constrained by the Guidelines with those that were not, we find that criminal fines are significantly higher in cases constrained by the Guidelines, but total pecuniary sanctions are not. This finding is consistent with the view that, while the Guidelines may have forced judges to impose higher fines than they would otherwise have imposed, the Guidelines did not constrain the total sanction. That is, substitution between mandatory criminal fines and other non-fine pecuniary sanctions appears to have occurred. We explore several alternative explanations for this somewhat surprising finding.

Abstract:
This paper investigates the impact of the U.S. Sentencing Guidelines governing organizational defendants, which came into effect in 1991. Our empirical analysis focuses on publicly held firms convicted of crimes in Federal courts in 1988-1996, and analyzes both criminal fines and total sanctions (defined as nonfine criminal sanctions, civil sanctions and administrative sanctions).

The empirical analysis has two parts. First we examine the extent to which criminal fines and total sanctions are higher under the Guidelines than they were previously. We find that both tend to be substantially higher than before, although the increase in criminal fines exceeds the increase in total sanctions. The second part investigates these observed penalty increases more closely. We are interested in whether increased sanctions are attributable to the mandatory constraint imposed by the Guidelines, or whether judges would have increased sanctions during this period even if not subjected to mandatory sentencing provisions. Empirical tests derive from the observation that many of the sanctions imposed after the enactment of the Guidelines are not governed by the Guidelines' mandatory fine provisions. Comparing post-Guidelines sanctions that were constrained by the Guidelines with those that were not, we find that criminal fines are significantly higher in cases constrained by the Guidelines, but total pecuniary sanctions are not. This finding is consistent with the view that, while the Guidelines may have forced judges to impose higher fines than they would otherwise have imposed, the Guidelines did not constrain the total sanction. That is, substitution between mandatory criminal fines and other non-fine pecuniary sanctions appears to have occurred. We explore several alternative explanations for this somewhat surprising finding.

Abstract:
This paper examines why the United States persists in taxing corporate income twice -- once at the corporate level and again at the shareholder level. The continued imposition of double taxation is puzzling: the double tax is widely recognized as being but unfair and inefficient, and it places a substantial burden on a powerful interest group, publicly-held corporations. Nevertheless, proposals to eliminate the double tax by integrating the corporate and individual tax invariably die a quiet death. We argue that the resilience of the corporate tax is a manifestation of the most enduring source of problems in corporate law, the separation of ownership and control in publicly-held corporations. As a result of this separation, shareholders and managers often have divergent objectives: in particular, managers are more concerned with promoting new investments. Accordingly, managers do not lobby in favor of integration because it creates a windfall for old capital; rather they lobby for benefits to new capital such as Accelerated Depreciation and Investment Tax Credits. Moreover, some managers will actively oppose integration because they benefit from the retained earnings trap created in certain circumstances by the double tax.

Abstract:
This paper examines why the United States persists in taxing corporate income twice -- once at the corporate level and again at the shareholder level. The continued imposition of double taxation is puzzling: the double tax is widely recognized as being but unfair and inefficient, and it places a substantial burden on a powerful interest group, publicly-held corporations. Nevertheless, proposals to eliminate the double tax by integrating the corporate and individual tax invariably die a quiet death. We argue that the resilience of the corporate tax is a manifestation of the most enduring source of problems in corporate law, the separation of ownership and control in publicly-held corporations. As a result of this separation, shareholders and managers often have divergent objectives: in particular, managers are more concerned with promoting new investments. Accordingly, managers do not lobby in favor of integration because it creates a windfall for old capital; rather they lobby for benefits to new capital such as Accelerated Depreciation and Investment Tax Credits. Moreover, some managers will actively oppose integration because they benefit from the retained earnings trap created in certain circumstances by the double tax.

Abstract:
Federal Sentencing Guidelines Governing Organizations purport to constrain judicial discretion over corporate criminal penalties. We investigate the effect on courts? sentencing decisions using pre- and post-Guidelines data, including evidence on cases and penalties that the Guidelines do not completely control. We find that fines and total penalties are higher than they were previously. Evidence that fines directly increased more in Guidelines-constrained cases than elsewhere suggests the effort to constrain judicial discretion has had a direct effect. Evidence of higher total penalties, even in cases not directly constrained by the Guidelines, suggests that judges may have cooperated with the policy of imposing higher fines and total sanctions, although not to the extent that the Guidelines prescribe. Our findings are inconsistent with the basic attitudinal model from the political science literature. We explore other forces that may be at work.

Abstract:
Behavioral Economic Analysis of Law argues that people do not behave consistent with rational choice theory, and moreover that the deviations from rational behavior are systematic. These systematic deviations from rational choice theory present a challenge to conventional Law and Economics. Nevertheless, this Comment argues that Behavioral Economic Analysis of Law is not in a position to supplant conventional Law and Economics. In many circumstances rational choice remains a reasonable description of individual choice because many -- though not all -- cognitive biases are muted as people learn by experience, work within organizations, or obtain advice from experts. In addition, Behavioral Economic Analysis of Law generally cannot make defensible alternative normative policy prescriptions to govern those circumstances where people are not rational because it does not yet have a coherent, robust, useful alternative model of human behavior to serve as a basis for such recommendations. This Comment demonstrates the limitations of behavioral analysis by examining three cognitive biases: the endowment effect, over-optimism, and a concern for fairness. The Comment shows that it is difficult to base policy on these biases because they are present in some circumstances but not in other, often seemingly similar, circumstances. Moreover, it often will be difficult to predict how these biases affect actual decision making because the environment in which people actually operate is far more complex than that of most behavioral experiments. Finally, even when biases are predictable, the normative policy implications are far from clear: government efforts to address biases generally entail the intervention of judges, legislators or bureaucrats who also would be subject to various biases. The very power of the behavioralist critique - that even educated people exhibit certain biases- undercuts efforts to intervene to redress them.

Abstract:
Behavioral Economic Analysis of Law argues that people do not behave consistent with rational choice theory, and moreover that the deviations from rational behavior are systematic. These systematic deviations from rational choice theory present a challenge to conventional Law and Economics. Nevertheless, this Comment argues that Behavioral Economic Analysis of Law is not in a position to supplant conventional Law and Economics. In many circumstances rational choice remains a reasonable description of individual choice because many -- though not all -- cognitive biases are muted as people learn by experience, work within organizations, or obtain advice from experts. In addition, Behavioral Economic Analysis of Law generally cannot make defensible alternative normative policy prescriptions to govern those circumstances where people are not rational because it does not yet have a coherent, robust, useful alternative model of human behavior to serve as a basis for such recommendations. This Comment demonstrates the limitations of behavioral analysis by examining three cognitive biases: the endowment effect, over optimism, and a concern for fairness. The Comment shows that it is difficult to base policy on these biases because they are present in some circumstances but not in other, often seemingly similar, circumstances. Moreover, it often will be difficult to predict how these biases affect actual decisionmaking because the environment in which people actually operate is far more complex than that of most behavioral experiments. Finally, even when biases are predictable, the normative policy implications are far from clear: government efforts to address biases generally entail the intervention of judges, legislators or bureaucrats who also would be subject to various biases. The very power of the behavioralist critique -- that even educated people exhibit certain biases -- undercuts efforts to intervene to redress them.

Abstract:
Tort liability rules cannot be efficient unless damage rules are efficient. Designing optimal damage awards is remarkably difficult, however. Contrary to conventional wisdom, optimal damage awards do not necessarily fully compensate victims for their losses. Moreover, the issue of what is full compensation is more complex than it might at first appear. This article surveys the literature on tort damages, including damages for serious physical injury and death. Section II discusses the efficiency criteria. Section III presents the basic analysis of tort damages for injuries to replaceable commodities, focusing on the relationship between liability rules and optimal damage rules. Section IV discusses damages for physical injury and death, examining, among other issues, the deterrence and insurance values of life. Section V examines special topics, such as optimal liability when corporations are defendants, whether recovery should depend on defendants' wealth, economic and nonpecuniary losses, and the calculation of damages. An exhaustive bibliography is attached at the end.

Abstract:
In this article we examine the structure of the legal regime that should govern a corporation's liability for crimes and intentional torts committed by its managers and other employees. This issue has gained much salience recently as reform initiatives increasingly replace strict liability with nuanced regimes that mitigate liability when firms undertake to monitor employees, and to investigate and report wrongdoing. In addition to inducing optimal activity levels, this article identifies four enforcement functions that corporate liability must often discharge: (1) inducing firms to sanction culpable agents; (2) inducing firms to thwart wrongdoing through preventive technologies and procedures; (3) inducing optimal policing measures such as monitoring, investigating, and reporting misconduct; and (4) and ensuring that employees find credible threats by firms to implement these policing measures. Our analysis reveals that neither traditional strict liability nor duty-based liability can induce firms to monitor, investigate or report wrongdoing optimally. We recommend that the law impose a mixed regime on firms instead. In the special case where firms can always credibly threaten to police their employees, a kind of sliding -- or adjusted -- form of strict liability appears to be the optimal mixed regime. In the general case, however, the optimal mixed regime is a form of composite liability, which holds firms strictly liable for all their agents' wrongs but substantially reduces this liability whenever firms satisfy their monitoring, investigation, and reporting duties. Employing our analysis, we analyze recent liability reform efforts, including the United States Sentencing Guidelines Governing the Sentencing of Organizations, prosecution guidelines for environmental crimes, and environmental audit privileges. We show that although the Guidelines are a step in the right direction, they do not provide firms with optimal incentives to police their employees. In addition, we are critical of the Environmental Protection Agency's new guidelines governing prosecutions of environmental crimes for similar reasons. Finally, we demonstrate that a composite liability regime is likely to be superior to the solution favored by some states of combining an environmental audit privilege with traditional vicarious strict liability for environmental wrongdoing.

Abstract:
In the United States, firms are criminally liable for crimes committed by their employees within the scope of their employment to benefit the firm. Firms are liable even if they expressly prohibited wrongdoing and implemented procedures to prevent it. This paper summarizes a principal-agent analysis of corporate criminal liability. Corporate crimes can usefully be divided into two categories: (i) crimes which benefit the individual wrongdoer only if (and proportionately to the extent that) the firm benefits on net (net of criminal liability) and (ii) those which benefit the individual wrongdoer even if the firm does not benefit on net. Crimes committed by owners of closely held firms in order to increase profits generally fall into the first category. Crimes committed by managers of publicly held firms in order to protect their jobs (or get a promotion) generally fall into the second category. Optimal corporate liability rules for these two types of crimes differ. The first type of crime can be optimally deterred by holding firms strictly liable for agents crimes, subject to a penalty equal to the social cost of crime to others divided by the probability of detection. This liability rule optimally deters Type I crimes even if agents are insolvent because it ensures that firms -- and thus agents -- do not profit from suboptimal crimes. Deterring the second type of crime is more difficult, however. To do this, firms often must implement measures designed to increase the probability of bringing wrongdoers to justice. A composite corporate liability regime (which combines strict liability with duty-based mitigation provisions) is best able to both induce such expenditures and to serve the other goals of corporate liability. This corporate liability need not be criminal, however. Indeed, recent analysis suggests that corporate civil liability may generally be superior to corporate criminal liability.

Abstract:
Both the scope and magnitude of corporate criminal liability has expanded dramatically in the last decade. This expansion raises important issues about both the origins of corporate wrongdoing and its control. The central theoretical and empirical issues explored in the present analysis are: Why are corporate crimes committed? Are these crimes best deterred by individual liability, corporate liability, or joint individual and corporate liability? When corporate liability is appropriate, should it be strict, duty-based liability or a combination of the two, and what is the appropriate fine structure? Finally, should corporate liability be criminal or civil?

Abstract:
Leading law and economics scholars claim that the best way to reform medical malpractice liability is to permit patients and medical providers to determine the scope of malpractice liability by contract. Contractual liability is superior to any form of tort liability for malpractice, it is argued, because contractual liability benefits those patients not well served by existing tort law, but does not hurt patients who benefit from malpractice liability because these patients can, and will, impose liability by contract.

This chapter shows that contractual liability is not necessarily better than tort liability because it can make patients worse off. Proponents of contractual liability asserts that contractual liability cannot make patients worse off because they assume that liability obtained by contract affords patients the same benefits as liability imposed by tort. This is not the case. Medical providers often will be unable to design contracts that enable patients to obtain the same benefits from contracted-for liability as they can from tort liability because tort liability benefits patients through the incentives to invest in care (to benefit all patients) provided by the threat of liability for injuries to other patients, now and in the future. Providers may not be able to replicate this collective, multiperiod liability by contract. Patients unable to replicate the benefits of tort liability by contract may rationally reject contractual liability, even when they would have benefited from (and voted for) tort liability for malpractice. If so, contractual liability makes these patients worse off. Patients also are worse off if they are not sufficiently informed to contract in their own best interests. Accordingly, while malpractice liability reform is essential, policymakers cannot assume that it would be better accomplished by private contracting because contractual liability and tort liability are quite different products.