Abstract

http://ssrn.com/abstract=161189
 
 

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A Theory of Legal Presumptions


Antonio E. Bernardo


University of California, Los Angeles (UCLA) - Finance Area

Eric L. Talley


University of California, Berkeley - Boalt Hall School of Law

Ivo Welch


University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER)

June 1999

USC Law School, Olin Working Paper No. 99-8

Abstract:     
This paper develops a theoretical account of presumptions, focusing on their capacity to mediate between costly litigation and ex ante incentives. We augment a standard moral hazard model with a redistributional litigation game in which a legal presumption parameterizes how a court "weighs" evidence offered by the opposing sides. Strong pro-defendant presumptions can foreclose lawsuits altogether, but also lead to shirking. Strong pro-plaintiff presumptions have the opposite effects. Moderate presumptions give rise to equilibria in which productive effort and suit occur probabilistically. The socially-optimal presumption trades off litigation costs against agency costs, and could be either strong or moderate, depending on the social importance of effort, the costs of filing suit, and the comparative advantage that diligent agents have over their shirking counterparts in mounting a defense. We posit three applications of the model: the business judgment rule in corporations law, fiduciary duties in financially-distressed firms, and the doctrine of res ipsa loquitur in accident law.

Number of Pages in PDF File: 50

JEL Classification: D81, D82

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Date posted: May 4, 1999  

Suggested Citation

Bernardo, Antonio E. and Talley, Eric L. and Welch, Ivo, A Theory of Legal Presumptions (June 1999). USC Law School, Olin Working Paper No. 99-8. Available at SSRN: http://ssrn.com/abstract=161189 or http://dx.doi.org/10.2139/ssrn.161189

Contact Information

Antonio E. Bernardo (Contact Author)
University of California, Los Angeles (UCLA) - Finance Area ( email )
Los Angeles, CA 90095-1481
United States
310-825-2198 (Phone)
310-206-5455 (Fax)
Eric L. Talley
University of California, Berkeley - Boalt Hall School of Law ( email )
215 Boalt Hall
Berkeley, CA 94720-7200
United States
(510) 642-7875 (Phone)
Ivo Welch
University of California, Los Angeles (UCLA) ( email )
405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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