An Economic Analysis of Libel Law

Eastern Economic Journal (2008) 34, 74-94

21 Pages Posted: 12 Jul 2002

See all articles by Manoj Dalvi

Manoj Dalvi

Long Island University - Department of Finance

James F. Refalo

California State University, Los Angeles

Date Written: January 25, 2007

Abstract

This paper examines the welfare implications of different libel law standards as applied to newspapers in publishing stories. Our work extends the current literature by permitting private and public incentives to deviate, giving rise to an agency problem, and by formulating a two-stage decision model based on a story's expected value. We show that the negligence standard provides incentives for the agent to take actions, merely to insure itself against liability. This results in a deadweight loss to society. We also show that both standards can be socially inefficient; however, correction using policy tools places under strict liability places a lower informational burden on policy makers, than does the negligence standard.

Keywords: Agency, Welfare, Externality, Negligence, Liability, Decision, Deadweight Loss, Subsidy, Expected Value

JEL Classification: D61, D62, D81, K00

Suggested Citation

Dalvi, Manoj and Refalo, James F., An Economic Analysis of Libel Law (January 25, 2007). Eastern Economic Journal (2008) 34, 74-94, Available at SSRN: https://ssrn.com/abstract=318721 or http://dx.doi.org/10.2139/ssrn.318721

Manoj Dalvi (Contact Author)

Long Island University - Department of Finance ( email )

720 Northern Blvd.
Brookville, NY 11548
United States
516-299-2308 (Phone)

James F. Refalo

California State University, Los Angeles ( email )

Los Angeles, CA
United States

HOME PAGE: http://instructional1.calstatela.edu/jrefalo/

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