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A. Mitchell Polinsky's
Scholarly Papers
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Total Downloads
8,951 |
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Citations
696 |
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1.
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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29 Nov 05
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07 Feb 07
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1,836 (1,706)
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This entry for the forthcoming The New Palgrave Dictionary of Economics (Second Edition) surveys the economic analysis of five primary fields of law: property law; liability for accidents; contract law; litigation; and public enforcement and criminal law. It also briefly considers some criticisms of the economic analysis of law.
law and economics, property law, liability for accidents, contract law, litigation, public enforcement, criminal law
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The Economic Theory of Public Enforcement of Law
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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30 May 98
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21 Apr 08
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1,350 ( 2,960) |
153
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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26 Jun 00
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21 Apr 08
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This article surveys the theory of the public enforcement of law -- the use of public agents (inspectors, tax auditors, police, prosecutors) to detect and to sanction violators of legal rules. We first present the basic elements of the theory, focusing on the probability of imposition of sanctions, the magnitude and form of sanctions, and the rule of liability. We then examine a variety of extensions of the central theory, concerning accidental harms, costs of imposing fines, errors, general enforcement, marginal deterrence, the principal-agent relationship, settlements, self-reporting, repeat offenders, imperfect knowledge about the probability and magnitude of fines, and incapacitation.
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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30 May 98
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07 Sep 99
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1,314
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Abstract:
This article surveys the theory of the public enforcement of law--the use of public agents (inspectors, tax auditors, police prosecutors) to detect and to sanction violators of legal rules. We first present the basic elements of the theory, focusing on the probability of imposition of sanctions, the magnitude and form of sanctions, and the rule of liability. We then examine a variety of extensions of the central theory, concerning accidental harms, costs of imposing fines, errors, general enforcement, marginal deterrence, the principal-agent relationship, settlements, self reporting, repeat offenders, imperfect knowledge about the probability and magnitude of fines, and incapacitation.
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3.
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Corruption and Optimal Law Enforcement
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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Posted:
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14 Jul 00
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21 Apr 08
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805 ( 7,083) |
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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14 Jul 00
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21 Apr 08
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This article analyzes corruption of law enforcement agents: payment of bribes to agents so that they will not report violations. Corruption dilutes deterrence because bribe payments are less than sanctions. The state may not be able to offset this effect of bribery by raising sanctions for the underlying offense. Thus, it may be optimal to expend resources to detect and penalize corruption. At the optimum, however, corruption may not be deterred. Nonetheless, it may be desirable to attempt to control corruption in order to raise the offender's costs -- the sum of the bribe payment and the expected sanction for bribery -- and thereby increase deterrence of the underlying violation.
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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28 Aug 00
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19 Oct 00
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We analyze corruption in law enforcement: the payment of bribes to enforcement agents, threats to frame innocent individuals in order to extort money from them, and the actual framing of innocent individuals. Bribery, extortion, and framing reduce deterrence and are thus worth discouraging. Optimal penalties for bribery and framing are maximal, but, surprisingly, extortion should not be sanctioned. The state may also combat corruption by paying rewards to enforcement agents for reporting violations. Such rewards can partially or completely mitigate the problem of bribery, but they encourage framing. The optimal reward may be relatively low to discourage extortion and framing, or relatively high to discourage bribery.
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A. Mitchell Polinsky Stanford Law School
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02 Jun 03
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09 Jun 03
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736 (8,153)
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This essay is a new chapter in An Introduction to Law and Economics (Third Edition, forthcoming 2003). It reexamines some of the principles of liability from earlier chapters when harm is caused by an agent who is under the supervision of a principal. The primary questions addressed are: Is the optimal level of liability different when harm is caused by an agent of a principal rather than by a single actor? Should liability be imposed on the principal, the agent, or both? If on both, what is the optimal mix of liability between the principal and the agent?
principal-agent liability, optimal liability
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5.
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The Theory of Public Enforcement of Law
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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Posted:
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17 Nov 05
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30 Jul 09
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606 ( 10,851) |
145
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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19 Feb 06
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30 Jul 09
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This chapter of the forthcoming Handbook of Law and Economics surveys the theory of the public enforcement of law %u2013 the use of governmental agents (regulators, inspectors, tax auditors, police, prosecutors) to detect and to sanction violators of legal rules. The theoretical core of our analysis addresses the following basic questions: Should the form of the sanction imposed on a liable party be a fine, an imprisonment term, or a combination of the two? Should the rule of liability be strict or fault-based? If violators are caught only with a probability, how should the level of the sanction be adjusted? How much of society%u2019s resources should be devoted to apprehending violators? We then examine a variety of extensions of the central theory, including: activity level; errors; the costs of imposing fines; general enforcement; marginal deterrence; the principal-agent relationship; settlements; self-reporting; repeat offenders; imperfect knowledge about the probability and magnitude of sanctions; corruption; incapacitation; costly observation of wealth; social norms; and the fairness of sanctions.
Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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The Theory of Public Enforcement of Law
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HANDBOOK OF LAW AND ECONOMICS, A. Mitchell Polinsky, Steven Shavell, eds., Vol. 1, 2006, Harvard Law and Economics Discussion Paper No. 529, Stanford Law and Economics Olin Working Paper No. 313, Stanford Public Law Working Paper No. 115, Harvard Public Law Working Paper No. 119
Accepted Paper Series
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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17 Nov 05
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04 Jan 06
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579
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Abstract:
This chapter of the forthcoming Handbook of Law and Economics surveys the theory of the public enforcement of law - the use of governmental agents (regulators, inspectors, tax auditors, police, prosecutors) to detect and to sanction violators of legal rules. The theoretical core of our analysis addresses the following basic questions: Should the form of the sanction imposed on a liable party be a fine, an imprisonment term, or a combination of the two? Should the rule of liability be strict or fault-based? If violators are caught only with a probability, how should the level of the sanction be adjusted? How much of society's resources should be devoted to apprehending violators? We then examine a variety of extensions of the central theory, including: activity level; errors; the costs of imposing fines; general enforcement; marginal deterrence; the principal-agent relationship; settlements; self-reporting; repeat offenders; imperfect knowledge about the probability and magnitude of sanctions; corruption; incapacitation; costly observation of wealth; social norms; and the fairness of sanctions.
public enforcement of law, fines, imprisonment, strict liability, fault-based liability, probability of detection, errors, general enforcement, marginal deterrence, settlements, self-reporting, repeat offenders, fairness of sanctions, norms
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6.
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Mandatory Versus Voluntary Disclosure of Product Risks
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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Posted:
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23 Oct 06
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Last Revised:
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11 Feb 09
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427 ( 17,678) |
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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23 Dec 06
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22 Jun 07
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We analyze a model in which firms are able to acquire information about product risks and may or may not be required to disclose this information. We initially study the effect of disclosure rules assuming that firms are not liable for the harm caused by their products. Although mandatory disclosure obviously is superior to voluntary disclosure given the information about product risks that firms possess - since such information has value to consumers - voluntary disclosure induces firms to acquire more information about product risks because they can keep silent if the information is unfavorable. The latter effect could lead to higher social welfare under voluntary disclosure. The same results hold if firms are liable for harm under the negligence standard of liability. Under strict liability, however, firms are indifferent about revealing information concerning product risk, and mandatory and voluntary disclosure rules are equivalent.
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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23 Oct 06
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11 Feb 09
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405
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Abstract:
We analyze a model in which firms are able to acquire information about product risks and may or may not be required to disclose this information. We initially study the effect of disclosure rules assuming that firms are not liable for the harm caused by their products. Although mandatory disclosure obviously is superior to voluntary disclosure given the information about product risks that firms possess - since such information has value to consumers - voluntary disclosure induces firms to acquire more information about product risks because they can keep silent if the information is unfavorable. The latter effect could lead to higher social welfare under voluntary disclosure. The same results hold if firms are liable for harm under the negligence standard of liability. Under strict liability, however, firms are indifferent about revealing information concerning product risk, and mandatory and voluntary disclosure rules are equivalent.
product risk, information, mandatory disclosure, voluntary disclosure, negligence, strict liability
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7.
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Aligning the Interests of Lawyers and Clients
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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Posted:
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30 May 03
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Last Revised:
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02 Jun 03
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389 ( 19,933) |
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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30 May 03
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02 Jun 03
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The potential conflict of interest between lawyers and clients is well known. If a lawyer is paid for his time regardless of the outcome of the case, the lawyer may wish to bring the case even when it is not in the best interest of the client, may spend more hours working on the case than the client would want, and may reject a settlement when the client would be better off if it were accepted. Alternatively, if the lawyer is compensated according to the conventional contingent fee arrangement - under which he is paid a fraction of any trial award or settlement but bears all of the cost of litigation - the lawyer may have an insufficient incentive to bring the case, may spend too little time working on it if it is brought, and may encourage a settlement when the client would be better off going to trial. In this article we propose a method of compensating lawyers that overcomes the conflict of interest between the lawyer and the client. Our system is a variation of the conventional contingent fee system, but, in contrast to that system, we would have the lawyer bear only a fraction of the cost of litigation - the same fraction that the lawyer obtains of the award or settlement. We demonstrate that when the fraction of the cost that the lawyer bears equals the fraction of the award or settlement that he obtains, he will have an incentive to do exactly what a knowledgeable client would want him to do with respect to accepting the case, spending time on the case, and settling the case. Under our modified contingent fee system, a third party would compensate the lawyer for a certain fraction of his costs, in return for which the lawyer would pay that party an up-front fee. In this way, the client would not bear any costs, even if the case is lost, just as under the conventional contingent fee system.
litigation, conflict of interest between lawyers and clients, trial versus settlement, hourly fee, contingent fee, compensation of lawyers
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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30 May 03
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30 May 03
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389
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The potential conflict of interest between lawyers and clients is well known. If a lawyer is paid for his time regardless of the outcome of the case, the lawyer may wish to bring the case even when it is not in the best interest of the client, may spend more hours working on the case than the client would want, and may reject a settlement when the client would be better off if it were accepted. Alternatively, if the lawyer is compensated according to the conventional contingent fee arrangement - under which he is paid a fraction of any trial award or settlement but bears all of the cost of litigation - the lawyer may have an insufficient incentive to bring the case, may spend too little time working on it if it is brought, and may encourage a settlement when the client would be better off going to trial. In this article we propose a method of compensating lawyers that overcomes the conflict of interest between the lawyer and the client. Our system is a variation of the conventional contingent fee system, but, in contrast to that system, we would have the lawyer bear only a fraction of the cost of litigation - the same fraction that the lawyer obtains of the award or settlement. We demonstrate that when the fraction of the cost that the lawyer bears equals the fraction of the award or settlement that he obtains, he will have an incentive to do exactly what a knowledgeable client would want him to do with respect to accepting the case, spending time on the case, and settling the case. Under our modified contingent fee system, a third party would compensate the lawyer for a certain fraction of his costs, in return for which the lawyer would pay that party an up-front fee. In this way, the client would not bear any costs, even if the case is lost, just as under the conventional contingent fee system.
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A. Mitchell Polinsky Stanford Law School
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09 Jun 03
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09 Jun 03
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377 (20,758)
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This essay is a new chapter in An Introduction to Law and Economics (Third Edition, forthcoming 2003). It discusses how the state should determine the length of a jail term to impose on an individual if he has committed a crime and how much to spend on trying to catch criminals. The analysis focuses on the implications of the cost of detection and the cost of operating and maintaining jails. The optimal probability and magnitude of the sentence are shown to depend on how rapidly the disutility from time in jail rises with the length of the jail sentence.
law enforcement, imprisonment, sanctions, crime, jail term
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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16 May 06
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11 Feb 09
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344 (23,256)
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Abstract:
This entry for the forthcoming The New Palgrave Dictionary of Economics (Second Edition) surveys the economic analysis of public enforcement of law - the use of public agents (inspectors, tax auditors, police, prosecutors) to detect and to sanction violators of legal rules. We first discuss the basic elements of the theory: the probability of imposition of sanctions, the magnitude and form of sanctions (fines, imprisonment), and the rule of liability. We then examine a variety of extensions, including the costs of imposing fines, mistake, marginal deterrence, settlement, self-reporting, repeat offenses, and incapacitation.
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10.
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The Fairness of Sanctions: Some Implications for Optimal Enforcement Policy
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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Posted:
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08 Mar 99
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23 Apr 08
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306 ( 26,506) |
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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07 Jul 00
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23 Apr 08
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In this article we incorporate notions of the fairness of sanctions into the standard model of public enforcement. When both the probability and magnitude of sanctions may be varied, the usual solution involves a very high sanction and a relatively low probability of enforcement if individuals are risk neutral. When the issue of fairness is added to the analysis, the optimal sanction generally is not extremely high because such a sanction would be seen as unfair. The optimal probability of imposing sanctions may be higher than in the usual case (to offset the lower sanction) or lower than in the usual case (because the lower sanction reduces the effectiveness of enforcement).
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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08 Mar 99
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28 Jan 00
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306
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In this article we incorporate notions of the fairness of sanctions into the standard model of public enforcement. We first determine the optimal sanction when the probability of imposing sanctions is fixed, and we relate this optimal sanction to the sanction that is ideal in terms of fairness alone and to the sanction that is ideal in terms of deterrence alone. We then consider optimal enforcement policy when both the probability and magnitude of sanctions may be varied. The usual solution in this case involves the maximal sanction and a relatively low probability of enforcement if individuals are risk neutral. When the issue of fairness is added to the analysis, however, the usual solution generally is not optimal because a very high sanction will be seen as unfair. A consequence of the fairness-related motive to constrain the sanction to a moderate level is that the optimal probability of imposing sanctions changes, and it may be higher or lower than the optimal probability in the usual case.
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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07 Sep 09
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19 Oct 09
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257 (32,690)
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We explain in this Article that the benefits of product liability may well be outweighed by its costs in a wide range of circumstances. One benefit is that the threat of liability may induce firms to improve product safety. However, this benefit is limited: even in the absence of product liability, firms would often be motivated by market forces to enhance product safety because their sales are likely to fall if their products harm consumers; moreover, their products must frequently conform to safety regulations. Consequently, product liability might not be expected to exert a significant additional influence on product safety - and the available empirical evidence suggests that such liability does not in fact have a measurable effect on the frequency of product accidents. A second benefit of product liability is that it causes product prices to increase to reflect the riskiness of products and thereby may improve consumer purchase decisions. But this benefit also involves a detriment, because product prices may rise excessively and undesirably chill purchases. A third benefit of product liability is that it compensates victims of product-related accidents for their losses. Yet this benefit is only partial, for accident victims are already often compensated by their insurers for some or all of their losses. Potentially offsetting the benefits of product liability are its costs, which are great. To transfer a dollar to a victim of a product accident requires more than a dollar on average in legal expenses. Given the limited benefits and the high costs of product liability, we conclude that it may be socially undesirable - especially for widely sold products, with respect to which market forces and regulation are relatively strong. This judgment is in tension both with the broad social endorsement of product liability and with proposals for its reform, which generally do not question its existence. Our more critical assessment of product liability stems from the fact that we engage in an analysis of its benefits and costs, whereas neither the proponents of product liability nor its reformers undertake to do so.
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A Note on Settlements under the Contingent Fee Method of Compensating Lawyers
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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Posted:
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30 May 03
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06 Aug 03
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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30 May 03
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06 Aug 03
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It is commonly thought that a lawyer working under a contingent fee arrangement has an excessive motive - relative to his client's interest - to settle the case, leading to a lower-than-desirable settlement amount and a high settlement rate. The conventional analysis that generates this conclusion omits an important consideration - that if the case were to go to trial, the lawyer would spend an inadequate amount of time on it. We demonstrate that once this effect is taken into account, the lawyer could have an insufficient motive to settle, the opposite of what is usually believed. Specifically, the lawyer's settlement demand could be too high and the resulting settlement rate too low.
litigation, contingent fee, lawyer compensation, trial versus settlement, conflict of interest between lawyer and client
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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30 May 03
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30 May 03
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245
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It is commonly thought that a lawyer working under a contingent fee arrangement has an excessive motive - relative to his client's interest - to settle the case, leading to a lower-than-desirable settlement amount and a high settlement rate. The conventional analysis that generates this conclusion omits an important consideration - that if the case were to go to trial, the lawyer would spend an inadequate amount of time on it. We demonstrate that once this effect is taken into account, the lawyer could have an insufficient motive to settle, the opposite of what is usually believed. Specifically, the lawyer's settlement demand could be too high and the resulting settlement rate too low.
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Remedies for Price Overcharges: The Deadweight Loss of Coupons and Discounts
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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Posted:
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05 Dec 03
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19 Dec 03
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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17 Dec 03
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17 Dec 03
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This article evaluates two different remedies for consumers who have been injured by a price overcharge on the sale of a good. Under a coupon remedy, injured consumers are awarded coupons that can be used for a limited period of time to purchase the good at a price below that which prevails after the overcharge has been eliminated, that is, below the competitive price. Under a discount remedy, any consumer, without proof of injury, may purchase the good for a limited period of time at a price that is set below the competitive price. Both remedies generally cause consumers to buy an excessive amount of the good during the remedy period. Under the coupon remedy only a subset of consumers are affected in this way (those holding a relatively high number of coupons), while under the discount remedy all consumers are affected. We show nonetheless that the resulting deadweight loss could be lower under the discount remedy. We also consider how the deadweight loss changes when the length of the remedy period is increased - by extending the expiration date for the use of coupons or by employing a lower discount for a longer period of time. The deadweight loss may or may not decline under the coupon remedy, though it does decline under the discount remedy. In neither case, however, does it go to zero in the limit.
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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05 Dec 03
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19 Dec 03
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This article evaluates two different remedies for consumers who have been injured by a price overcharge on the sale of a good. Under a coupon remedy, injured consumers are awarded coupons that can be used for a limited period of time to purchase the good at a price below that which prevails after the overcharge has been eliminated, that is, below the competitive price. Under a discount remedy, any consumer, without proof of injury, may purchase the good for a limited period of time at a price that is set below the competitive price. Both remedies generally cause consumers to buy an excessive amount of the good during the remedy period. Under the coupon remedy only a subset of consumers are affected in this way (those holding a relatively high number of coupons), while under the discount remedy all consumers are affected. We show nonetheless that the resulting deadweight loss could be lower under the discount remedy. We also consider how the deadweight loss changes when the length of the remedy period is increased - by extending the expiration date for the use of coupons or by employing a lower discount for a longer period of time. The deadweight loss may or may not decline under the coupon remedy, though it does decline under the discount remedy. In neither case, however, does it go to zero in the limit. Keywords: Price fixing, antitrust remedies, coupons, discounts, deadweight loss
price fixing, antitrust remedies, coupons, discounts, deadweight loss
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14.
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Optimal Fines and Auditing When Wealth is Costly to Observe
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A. Mitchell Polinsky Stanford Law School
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Posted:
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30 Aug 04
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Last Revised:
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27 Oct 04
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179 ( 47,704) |
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A. Mitchell Polinsky Stanford Law School
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27 Sep 04
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25 Oct 04
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Abstract:
This article studies optimal fines when an offender's wealth is private information that can be obtained by the enforcement authority only after a costly audit. I derive the optimal fine for the underlying offense, the optimal fine for misrepresenting one's wealth level, and the optimal audit probability. I demonstrate that the optimal fine for misrepresenting wealth equals the fine for the offense divided by the audit probability, and therefore generally exceeds the fine for the offense. The optimal audit probability is positive, increases as the cost of an audit declines, and equals unity if the cost is sufficiently low. If the optimal audit probability is less than unity, there are some individuals who are capable of paying the fine for the offense who misrepresent their wealth levels. I also show that the optimal fine for the offense results in underdeterrence due to the cost of auditing wealth levels.
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A. Mitchell Polinsky Stanford Law School
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| Posted: |
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30 Aug 04
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Last Revised:
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27 Oct 04
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163
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5
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Abstract:
This article studies optimal fines when an offender's wealth is private information that can be obtained by the enforcement authority only after a costly audit. I derive the optimal fine for the underlying offense, the optimal fine for misrepresenting one's wealth level, and the optimal audit probability. I demonstrate that the optimal fine for misrepresenting wealth equals the fine for the offense divided by the audit probability, and therefore generally exceeds the fine for the offense. The optimal audit probability is positive, increases as the cost of an audit declines, and equals unity if the cost is sufficiently low. If the optimal audit probability is less than unity, there are some individuals who are capable of paying the fine for the offense who misrepresent their wealth levels. I also show that the optimal fine for the offense results in underdeterrence due to the cost of auditing wealth levels.
fines, auditing, public enforcement, penalties, misrepresentation of wealth
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15.
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Optimal Awards and Penalties When the Probability of Prevailing Varies Among Plaintiffs
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Versions (3)
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hide multiple versions |
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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Posted:
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04 Mar 96
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Last Revised:
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04 Apr 02
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179 ( 47,704) |
11
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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| Posted: |
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04 Apr 02
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Last Revised:
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04 Apr 02
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17
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11
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Abstract:
This article derives the optimal award to a winning plaintiff and the optimal penalty on a losing plaintiff when the probability of prevailing varies among plaintiffs. Optimality is defined in terms of achieving a specified degree of deterrence of potential injurers with the lowest litigation cost. Our main result is that the optimal penalty on a losing plaintiff is positive, in contrast to common practice in the United States. By penalizing losing plaintiffs and raising the award to winning plaintiffs (relative to what it would be if losing plaintiffs were not penalized), it is possible to discourage relatively low-probability-of-prevailing plaintiffs from suing without discouraging relatively high-probability plaintiffs, and thereby to achieve the desired degee of deterrence with lower litigation costs. This result is developed first in a model in which all suits are assumed to go to trial and then in a model in which settlements are possible.
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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| Posted: |
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04 Mar 96
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Last Revised:
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30 Jun 98
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0
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Abstract:
This article derives the optimal award to a winning plaintiff and the optimal penalty on a losing plaintiff when the probability of prevailing varies among plaintiffs. Optimality is defined in terms of achieving a specified degree of deterrence of potential injurers with the lowest litigation cost. Our main result is that the optimal penalty on a losing plaintiff is positive, in contrast to common practice in the United States. By penalizing losing plaintiffs and raising the award to winning plaintiffs (relative to what it would be if losing plaintiffs were not penalized), it is possible to discourage relatively low-probability-of-prevailing plaintiffs from suing without discouraging relatively high-probability plaintiffs, and thereby to achieve the desired degree of deterrence with lower litigation costs.
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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| Posted: |
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01 Feb 97
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Last Revised:
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20 Jun 98
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162
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11
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Abstract:
This article derives the optimal award to a winning plaintiff and the optimal penalty on a losing plaintiff when the probability of prevailing varies among plaintiffs. Optimality is defined in terms of achieving a specified degree of deterrence of potential injurers with the lowest litigation cost. Our main result is that the optimal penalty on a losing plaintiff is positive, in contrast to common practice in the United States. By penalizing losing plaintiffs and raising the award to winning plaintiffs (relative to what it would be if losing plaintiffs were not penalized), it is possible to discourage relatively low-probability-of-prevailing plaintiffs from suing without discouraging relatively high-probability plaintiffs, and thereby to achieve the desired degree of deterrence with lower litigation costs.
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16.
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The Optimal Use of Fines and Imprisonment When Wealth is Unobservable
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A. Mitchell Polinsky Stanford Law School
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Posted:
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30 Aug 04
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Last Revised:
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08 Feb 07
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159 ( 53,514) |
27
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A. Mitchell Polinsky Stanford Law School
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| Posted: |
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29 Sep 04
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Last Revised:
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22 Oct 04
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9
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27
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Abstract:
This article studies the optimal use of fines and imprisonment when an offender's level of wealth is private information that cannot be observed by the enforcement authority. In a model in which there are two levels of wealth, I derive the optimal mix of sanctions, including the imprisonment sentence imposed on offenders who do not pay the fine - referred to as the 'alternative' imprisonment sentence. Among other things, I demonstrate that if imprisonment sanctions are used, the optimal alternative imprisonment sentence is sufficiently high that high-wealth individuals prefer to pay a fine exceeding the wealth level of low-wealth individuals and bear a lower (possibly no) imprisonment sentence rather than to pretend to be low-wealth individuals. I also show that if the optimal enforcement system would rely exclusively on fines when wealth is observable, the inability to observe wealth is detrimental because higher fines then could not be levied on higher-wealth individuals. In this case, it may be desirable when wealth is unobservable to impose an imprisonment sentence on offenders who do not pay the fine - who will be low-wealth offenders - in order to induce high-wealth offenders to pay the fine. However, if the optimal enforcement system would employ both fines and imprisonment sentences when wealth is observable, the inability to observe wealth is not detrimental. In this case, the same sanctions would be chosen if wealth is unobservable and these sanctions lead high-wealth individuals to pay more than low-wealth individuals.
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A. Mitchell Polinsky Stanford Law School
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| Posted: |
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30 Aug 04
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Last Revised:
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08 Feb 07
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150
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27
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Abstract:
This article studies the optimal use of fines and imprisonment when an offender's level of wealth cannot be observed by the enforcement authority. I employ a model in which there are two types of offenders - a low-wealth type and a high-wealth type. The consequence of the unobservability of wealth depends on whether the enforcement authority would employ fines alone, or would also impose imprisonment sentences, if wealth were observable. In the former case, the inability to observe wealth lowers social welfare. But in the latter case, the unobservability of wealth does not lower social welfare. In both cases, offering offenders a choice of sanctions can induce high-wealth offenders to pay higher fines even though their wealth is unobservable. Specifically, a relatively high imprisonment sentence must accompany the payment of a low fine, so that high-wealth offenders will prefer to pay a higher fine and bear a lower (possibly no) imprisonment sentence.
Fines, Imprisonment, Public enforcement, Penalties, Unobservable wealth
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17.
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A Damage-Revelation Rationale for Coupon Remedies
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Versions (3)
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hide multiple versions |
Export Bibliographic Info |
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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Posted:
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17 Mar 05
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Last Revised:
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06 Aug 09
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112 ( 72,505) |
2
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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| Posted: |
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23 Jun 08
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Last Revised:
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23 Jun 08
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0
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2
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Abstract:
This article studies optimal remedies in a setting in which damages vary among plaintiffs and are difficult to determine. We show that giving plaintiffs a choice between coupons to purchase units of the defendant's product at a discount and cash-a coupon-cash remedy-is superior to cash alone. The optimal coupon-cash remedy offers a cash amount that is less than the value of the coupons to plaintiffs who suffer relatively high harm. Such a remedy induces these plaintiffs to choose coupons, and plaintiffs who suffer relatively low harm to choose cash. Sorting plaintiffs in this way leads to better deterrence because the costs borne by defendants (the cash payments and the cost of providing coupons) more closely approximate the harms that they have caused.
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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| Posted: |
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04 May 05
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Last Revised:
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06 Aug 09
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17
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2
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Abstract:
This article studies optimal remedies in a setting in which damages vary among plaintiffs and are difficult to determine. We show that giving plaintiffs a choice between cash and coupons to purchase units of the defendant's product at a discount -- a "coupon-cash remedy" -- is superior to cash alone. The optimal coupon-cash remedy offers a cash amount that is less than the value of the coupons to plaintiffs who suffer relatively high harm. Such a remedy induces these plaintiffs to choose coupons, and plaintiffs who suffer relatively low harm to choose cash. Sorting plaintiffs in this way leads to better deterrence because the costs borne by defendants (the cash payments and the cost of providing coupons) more closely approximate the harms that they have caused.
Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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| Posted: |
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17 Mar 05
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Last Revised:
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04 May 05
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95
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2
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Abstract:
This article studies optimal remedies in a setting in which damages vary among plaintiffs and are difficult to determine. We show that giving plaintiffs a choice between cash and coupons to purchase units of the defendant's product at a discount - a "coupon-cash remedy" - is superior to cash alone. The optimal coupon-cash remedy offers a cash amount that is less than the value of the coupons to plaintiffs who suffer relatively high harm. Such a remedy induces these plaintiffs to choose coupons, and plaintiffs who suffer relatively low harm to choose cash. Sorting plaintiffs in this way leads to better deterrence because the costs borne by defendants (the cash payments and the cost of providing coupons) more closely approximate the harms that they have caused.
class action remedies, coupons, damage revelation, accuracy
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18.
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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| Posted: |
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20 Jul 00
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Last Revised:
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20 Apr 08
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45 (124,361)
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12
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Abstract:
This article studies the implications for the theory of deterrence of (a) the manner in" which individuals' disutility from imprisonment varies with the length of the imprisonment" term; and (b) discounting of the future disutility and future public costs of imprisonment. Two" questions are addressed: Is deterrence enhanced more by increasing the length of imprisonment" terms or instead by raising the likelihood of imposing imprisonment? What is the optimal" combination of the severity and probability of imprisonment sanctions?"
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19.
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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| Posted: |
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27 Feb 01
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Last Revised:
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27 Feb 01
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40 (130,332)
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19
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Abstract:
Some of the costs of enforcing laws are "fixed" -- in the sense that they do not depend on the number of individuals who commit harmful acts -- while other costs are "variable" -- they rise with the number of such individuals. This article analyzes the effects of fixed and variable enforcement costs on the optimal fine and the optimal probability of detection. It is shown that the optimal fine rises to reflect variable enforcement costs; that the optimal fine is not directly affected by fixed enforcement costs; and that the optimal probability depends on both types of enforcement costs.
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20.
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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| Posted: |
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25 Aug 00
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Last Revised:
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29 Dec 00
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34 (138,089)
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46
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Abstract:
This paper examines the use of fines and imprisonment to deter individuals from engaging in harmful activities. These sanctions are analyzed separately as well as together, first for identical risk-neutral individuals and then for two groups of risk-neutral individuals who differ by wealth. When fines are used alone and individuals are identical, the optimal fine and probability of apprehension are such that there is some "underdeterrence." If individuals differ by wealth, then the optimal fine for the high wealth group exceeds the fine for the low wealth group. When imprisonment is used alone and individuals are identical, the optimal imprisonment term and probability may be such that there is either underdeterrence or overdeterrence. If individuals differ by wealth, the optimal imprisonment term for the high wealth group may be longer or shorter than the term for the low wealth group. When fines and imprisonment are used together, it is desirable to use the fine to its maximum feasible extent before possibly supplementing it with an imprisonment term. The effects of risk aversion on these results are also discussed.
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21.
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A. Mitchell Polinsky Stanford Law School
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| Posted: |
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03 May 04
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Last Revised:
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03 May 04
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32 (140,918)
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2
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Abstract:
This paper is concerned with the risk-allocation effects of alternative types of contracts used to set the price of a good to be delivered in the future. Under a fixed price contract, the price is specified in advance. Under a spot price contract, the price is the price prevailing in the spot market at the time of delivery. These contract forms are examined in the context of a market in which sellers have uncertain production costs and buyers have uncertain valuations. The paper derives and interprets a general condition determining which contract form would be preferred when the seller and/or buyer is risk averse. In addition, an example is provided in which a spot price contract with a floor price is superior both to a "pure" spot price contract and a fixed price contract.
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22.
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Should Liability Be Based on the Harm to the Victim or the Gain to the Injurer?
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Show Abstracts |
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Versions (2)
|
hide multiple versions |
Export Bibliographic Info |
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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Posted:
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|
04 May 00
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Last Revised:
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03 Mar 08
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25 (153,767) |
14
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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| Posted: |
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05 Sep 00
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Last Revised:
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05 Sep 00
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25
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14
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Abstract:
Should the level of liability imposed on an injurer be based on the harm he caused or instead on the gain he obtained from engaging in the harmful act? The main point of this article is that there is a strong reason to favor liability based on harm rather than gain when account is taken of the possibility of legal error. Notably, even a small underestimate of gain can lead an injurer to commit a harmful act when the harm greatly exceeds his gain, causing a large social loss. In contrast, a comparable error in the estimate of harm will not lead an injurer to engage in the harmful act when the harm significantly exceeds his gain. The general superiority of harm-based liability is shown to hold under the rules of negligence and strict liability and regardless of whether potential injurers know the error that will be made.
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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| Posted: |
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04 May 00
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Last Revised:
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03 Mar 08
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0
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Abstract:
Should the level of liability imposed on an injurer be based on the harm he caused or instead on the gain he obtained from engaging in the harmful act? There is a strong reason to favor liability based on harm rather than gain when account is taken of the possibility of legal error. Notably, even a small underestimate of gain can lead an injurer to commit a harmful act when the harm greatly exceeds his gain, resulting in a large social loss. In contrast, a comparable error in the estimate of harm will not lead an injurer to engage in the harmful act when the harm significantly exceeds his gain. The general superiority of harm-based liability holds under the rules of negligence an strict liability and regardless of whether potential injurers know the error that will be made.
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23.
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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| Posted: |
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07 Oct 00
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Last Revised:
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07 Oct 00
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24 (156,183)
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11
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Abstract:
This paper analyzes optimal fines in a model in which individuals can commit up to two offenses. The fine for the second offense is allowed to differ from the fine for the first offense. There are four natural cases in the model, defined by assumptions about the gains to individuals from committing the offense. In the case fully analyzed it may be optimal to punish repeat offenders more severely than first-time offenders. In another case, it may be optimal to impose less severe penalties on repeat offenders. And in the two remaining cases, the optimal penalty does not change.
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24.
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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| Posted: |
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28 Jan 02
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Last Revised:
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14 Apr 08
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23 (158,762)
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Abstract:
One of the principal results in the economic theory of liability is that, assuming litigation is costless, the rule of strict liability with compensatory damages leads the injurer to choose the socially appropriate level of care. This paper reexamines this result when litigation is costly. It is shown that strict liability with compensatory damages generally leads to a socially inappropriate level of care and to excessive litigation costs. Social welfare can be increased by adjusting compensatory damages upward or downward, with the desired direction depending on the effect of changes in the level of liability on the injurer's decision to take care and on the victim's decision to bring suit.
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25.
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A. Mitchell Polinsky Stanford Law School
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| Posted: |
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04 Jul 04
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Last Revised:
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04 Jul 04
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21 (164,320)
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15
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Abstract:
This paper formally analyzes strict liability and negligence in a market setting. The discussion emphasizes the impact of the rules on the market price and on the number of firms in the industry. For simplicity, the damage caused by each firm is assumed to be determined only by that firm's "care" (and not also by the firm's output or the victim's behavior).
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26.
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A. Mitchell Polinsky Stanford Law School
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| Posted: |
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11 Apr 04
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Last Revised:
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11 Apr 04
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21 (164,320)
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1
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Abstract:
No abstract is available for this paper.
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27.
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A. Mitchell Polinsky Stanford Law School
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| Posted: |
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18 Aug 04
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Last Revised:
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13 Sep 08
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18 (172,894)
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11
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Abstract:
No abstract is available for this paper.
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28.
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A. Mitchell Polinsky Stanford Law School
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| Posted: |
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19 Jun 04
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Last Revised:
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06 Dec 08
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18 (172,894)
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5
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Abstract:
No abstract is available for this paper.
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29.
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A. Mitchell Polinsky Stanford Law School Yeon-Koo Che Columbia University
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| Posted: |
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25 Aug 00
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Last Revised:
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06 Jan 02
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18 (172,894)
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32
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Abstract:
A "decoupled" liability system is one in which the award to the plantiff differs from the payment by the defendant. The optimal system of decoupling makes the defendant's payment as high as possible. Such a policy allows the award to the plantiff to be lowered, thereby reducing the plaintiff's incentive to sue - and hence litigation costs - without sacrificing the defendant's incentive to exercise care. The optimal award to the plaintiff may be less than or greater than the optimal payment by the defendant. The possibility of an out-of-court settlement does not qualitatively affect these results. If the settlement can be monitored, it may be desirable to decouple it as well.
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30.
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A. Mitchell Polinsky Stanford Law School
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| Posted: |
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28 Jun 04
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Last Revised:
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28 Jun 04
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15 (181,535)
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6
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Abstract:
In nuisance-type cases, legal commentators generally recommend - and the courts seem to increasingly use - the award of damages rather than the granting of an injunction of the harmed party. This essay compares the economic consequences of injunctive and damage remedies under a variety of circumstances. The discussion focuses of the ability of the remedies to deal with strategic behavior of the litigants, the cost of redistributing income among the litigants (or classes of litigants), and the imperfect information of the courts. In ideal circumstances - cooperative behavior, costless redistribution, and perfect information - injunctive and damage remedies are equivalent. The presence of strategic behavior alone does not change this conclusion. However, if it is also costly to redistribute income, the remedies are no longer equivalent. When there are a small number of litigants in these circumstances, neither remedy is generally more effective. When there are a large number of litigants, the damage remedy is superior. Finally , and most realistically, if the courts also have imperfect information, neither remedy dominates the other. Thus, the general presumption in favor of damage remedies is not supported.
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31.
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A. Mitchell Polinsky Stanford Law School William P. Rogerson Northwestern University - Department of Economics
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| Posted: |
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27 Jun 04
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Last Revised:
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27 Jun 04
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15 (181,535)
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10
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Abstract:
No abstract is available for this paper.
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32.
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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| Posted: |
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25 Aug 00
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Last Revised:
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29 Dec 00
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15 (181,535)
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37
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| |
Abstract:
This paper analyzes optimal fines in a model in which individuals can commit up to two offenses. The fine for the second offense is allowed to differ from the fine for the first offense. There are four natural cases in the model, defined by assumptions about the gains to individuals from committing the offense. In the case fully analyzed it may be optimal to punish repeat offenders more severely than first-time offenders. In another case, it may be optimal to impose less severe penalties on repeat offenders. And in the two remaining cases, the optimal penalty does not change.
|
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33.
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A. Mitchell Polinsky Stanford Law School
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| Posted: |
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25 Jun 04
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Last Revised:
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06 Dec 08
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14 (184,395)
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19
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Abstract:
The present paper analyzes the competitive, monopolistic, and public enforcement of fines allowing for the costs of enforcement to differ by the choice of the enforcer. There are a number of reasons to expect such differences. First, the benefits from coordinating enforcement -- for example, avoiding duplication of investigative effort and exploiting economies of scale in information processing -- are obtained under public enforcement and monopolistic enforcement, but not under competitive enforcement. Second, the profit motive might be imagined to lead to lower costs under either form of private enforcement relative to public enforcement. Third, when the revenue from fines under public enforcement is not sufficient to finance enforcement costs, there may be a deadweight burden incurred in making up the deficit from other sources. Conversely, if the fine revenue exceeds enforcement costs, the effective cost of enforcement would be lower. On balance, these considerations suggest that monopolistic enforcement may be cheaper than competitive enforcement, but that public enforcement could be more or less expensive than private enforcement.
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34.
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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| Posted: |
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28 Dec 06
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Last Revised:
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28 Dec 06
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13 (187,291)
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17
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Abstract:
No abstract is available for this paper.
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35.
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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| Posted: |
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27 Dec 06
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Last Revised:
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09 Sep 08
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13 (187,291)
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2
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Abstract:
No abstract is available for this paper.
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36.
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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| Posted: |
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18 Aug 04
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Last Revised:
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18 Aug 04
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13 (187,291)
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5
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Abstract:
No abstract is available for this paper.
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37.
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A. Mitchell Polinsky Stanford Law School
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| Posted: |
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10 Jul 07
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Last Revised:
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09 Sep 08
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7 (203,520)
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Abstract:
No abstract is available for this paper.
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38.
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A. Mitchell Polinsky Stanford Law School Daniel L. Rubinfeld University of California at Berkeley - School of Law
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| Posted: |
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14 Jul 08
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Last Revised:
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19 Aug 08
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0 (0)
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1
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Abstract:
Consumers injured by price overcharges often are awarded coupons that can be used for a limited period of time to purchase the good at a price below that which prevails after the overcharge has been eliminated. Coupon remedies cause a deadweight loss by inducing excessive consumption by consumers with relatively low demand during the remedy period. The magnitude of the loss can be comparable to that caused by the price overcharge. As demand variability goes to zero, the deadweight loss from coupon remedies goes to zero. Eliminating the expiration date for the use of coupons does not eliminate the loss.
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39.
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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| Posted: |
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15 Sep 97
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Last Revised:
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15 Feb 01
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0 (0)
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Abstract:
Punitive damages law is one of the more controversial features of the American legal system. Trial and appellate courts have been struggling for many years to develop a coherent set of principles for assessing when punitive damages should be awarded, and at what level. In this Article Professors Polinsky and Shavell use economic reasoning to provide a relatively simple set of principles for answering these questions, given the goals of deterrence and punishment. With respect to the deterrence objective, upon which their Article focuses, their main point is that punitive damages ordinarily should be awarded if, but only if, an injurer has a significant chance of escaping liability for the harm he caused. When this condition holds, punitive damages are needed to offset the deterrence-diluting effect of the chance of escaping liability. (They mention as well a deterrence rationale for punitive damages that does not rest on the possibility of escape from liability -- that punitive damages may be needed to remove the socially illicit gains that individuals obtain from malicious acts.) Professors Polinsky and Shavell also discuss the tension between the implications of the deterrence objective and present punitive damage law, including the law's emphasis on the reprehensibility of a defendant's conduct and on a defendant's wealth. With respect to the punishment objective, Professors Polinsky and Shavell stress that the imposition of punitive damages on corporations may fail to serve its intended purpose (although the imposition of punitive damages on individual defendants accomplishes punishment in a straightforward manner). This is primarily because the payment of punitive damage awards by corporations often does not lead to greater punishment of culpable employees, but instead punishes the corporation's shareholders and customers.
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40.
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A. Mitchell Polinsky Stanford Law School
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| Posted: |
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09 May 97
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Last Revised:
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03 Jul 98
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Abstract:
This comment on an empirical study of punitive damages by Thoeodore Eisenberg and several co-authors (abstracted in LPDRA No. 1, January 17, 1997) makes three main points. First, contrary to what they imply, punitive damages may be a significant factor in litigation despite the fact that only a small fraction of cases in their sample involve punitive damage judgments. Second, notwithstanding their interpretation, their results are consistent with the view that punitive damages are awarded on a random basis. Third, in opposition to their suggestion, punitive damages may not be rational even if the level of punitive damages is systematically and positively related to the level of compensatory damages.
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41.
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A. Mitchell Polinsky Stanford Law School Steven Shavell Harvard Law School
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16 Dec 96
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Last Revised:
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22 Dec 97
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Abstract:
This article uses a two-period version of the standard economic model of deterrence to study whether sanctions should depend on an individual's record of prior convictions -- his offense history. The principal contribution of the article is to demonstrate that it may be optimal to treat repeat offenders disadvantageously because such a policy serves to enhance deterrence: When an individual contemplates committing an offense in the first period, he will realize that if he is caught, not only will he bear an immediate sanction, but also -- because he will have a record -- any sanction that he bears in the second period will be higher than it would be otherwise.
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