Showing papers in "The Journal of Legal Studies in 1983"

Criminal Procedure as a Market System

Abstract: I argue in this essay that the aspects of criminal procedure treated with the greatest skepticism by academics and the popular press-prosecutorial discretion, plea bargaining, and sentencing discretion'-may be understood as elements of a well-functioning market system. These three parts of the criminal justice system set the \"price\" of crime, and they set it in the traditional market fashion. Proposals to restrict the actors' discretion in criminal procedure produce effects similar to forms of commandand-control regulation of the economy. We usually identify as a market a system in which actors' transactions are limited by their endowments of resources and by legal rules that enforce deals once struck and prevent them from having severe effects on third parties. If transactions costs are not too high, the system yields efficient results in the sense that further moves cannot improve anyone's lot without making someone else worse off. By contrast, in a regulatory system people may trade only on terms, or at times, laid down by third parties. Trading under regulation leads to an efficient result only if the regulator has set the same price that parties would have reached in their own bargaining. Regulatory and market methods blur at the edges, and at

Settlement out of Court: The Disposition of Medical Malpractice Claims

Abstract: THE main purpose of this paper is to present empirical estimates of a model of the disposition of claims through the courts. Landes, Gould, Posner, and others have developed a theoretical model of the disposition process, in which the decision to settle and the size of settlement depend on the defendant's maximum offer (expected award at verdict plus litigation costs) relative to the plaintiff's minimum ask (expected award at verdict minus litigation costs).' Variants of this model have been applied in several contexts, but so far it has not been tested empirically with data on individual claims.2 The obstacles to estimation by standard econometric techniques are twofold. First, the hypothesized determinants of the outcome-the potential verdict, ask, offer, and litigation costs-are all unobserved in the data available. Second, if the theory is correct, claims closed at each stage of disposition are not random samples but are "selfselected" on the basis of those case characteristics whose effect we wish to measure. Therefore, analysis of the observed outcome-size and probability of payment to the plaintiff, at verdict and in out-of-court settlement-cannot be generalized to the universe of claims as a whole. Param-

The Economics of Symbols, Clan Names, and Religion

Abstract: Standard theories of exchange depict trade as an impersonal exchange between anonymous partners. Jevons’s (1871) “Law of Indifference,” in particular, emphasizes the impersonality of transactions: it is a matter of indifference to the buyer or the seller with whom they do business provided that they obtain the same (homogeneous) commodity at the same price. For a world of contract certainty, this is an acceptable theory. In a world of contract uncertainty, however, it is no longer a matter of indifference with whom one trades.

Causation in Tort Law: An Economic Approach

Abstract: CASES involving issues of "causation" have mightily vexed judges and tort scholars. In Prosser's words, "There is perhaps nothing in the entire field of law which has called forth more disagreement, or upon which the opinions are in such a welter of confusion. Nor, despite the manifold attempts which have been made to clarify the subject, is there yet any general agreement as to the proper approach:"'1 Much of the scholarly literature on the subject, including that part of the literature which takes an explicitly philosophical approach to questions of causation,2 is devoted to trying to define "cause" and then to fit the cases to the definition. The principal result of these efforts has been a negative one: to show that the notions of causation used in tort cases cannot be reduced to

The Effect of Raising the Legal Minimum Drinking Age on Involvement in Fatal Crashes

Abstract: The research method, statistical analysis and results are reported of a study of nine states which raised their legal minimum drinking ages between September 1, 1976 and January 1, 1980. Each of the nine states was paired with a comparison state in which the legal minimum drinking age remained unchanged during the study period. Data on driver involvement in fatal crashes from January 1975 through September 1980 were obtained from the Fatal Accident Reporting System. Only drivers of motor vehicles--automobiles, light trucks, vans, on-off road vehicles--were included. The results of this study indicate that when states raise the drinking age, there is a corresponding decrease in fatal crashes among law-affected drivers. There is also some evidence that raising the drinking age also effects younger drivers, but the reduction in the involvement of such drivers in fatal crashes was not statistically significant. As of January 1981 14 states have raised the legal drinking ages in recent years. It is estimated that these law changes result, each year, in about 380 fewer young drivers involved in nighttime fatal crashes. The societal benefits achieved in states that have raised their drinking ages are substantial.

Risk Sharing through Breach of Contract Remedies

Abstract: This paper examines the sharing of risk under three different remedies for breach of contract. The risk considered arises from the possibility that, after a seller and buyer have entered into an agreement for the exchange of some (not generally available) good, a third party who values the good more than the original buyer may come along before delivery has occurred; the seller will want to breach. It is shown that this risk is optimally allocated by the expectation damage remedy if the seller is risk neutral and the buyer is risk averse, by the specific performance remedy if the opposite is true, and by a liquidated damage remedy if both parties are risk averse. The level of damages under the liquidated damage remedy is also shown to be bounded by the expectation measure of damages and a "damage equivalent" to the specific performance remedy. By means of a numerical example, it is shown that use of the prevailing remedy for breach of contract -- the expectation damage remedy -- may plausibly cause a welfare loss of as much as 20% due to inappropriate risk sharing.

An Alternative Mechanism to Assure Contractual Reliability

Abstract: PARTIES to a contract may not always be reliable. A party may simply choose not to perform the contract, thereby leaving the uncompensated innocent party worse off than if the contract had been performed (expectation loss) and, as is often likely, worse off than if the contract had never been formed (reliance loss). Alternatively, a party may threaten nonperformance in order to induce its trading partner to accept an adverse renegotiation of contract terms, that is, engage in a "holdup," which again leaves the innocent party worse off than if the initial contract had been performed and perhaps worse off than if a contract had never been made.1 The demand for renegotiation will be acceded to, of course, only if the consequences of default are more onerous. As suggested by Klein and Leffler, three general ways exist to assure reliability.2 The first is vertical integration whereby the two contracting parties become one and any gains to a breaching party from unreliability disappear.3 The second is a repeat-purchase mechanism where unreliability is met by cessation of the commercial relationship. For this to be successful, a price premium must be paid to make the continued commercial relationship desirable; and competitive equilibrium requires this premium be used to purchase an asset, such as a brand name, with value only

Applied Social Science Research: What Does It Say about the Effectiveness of School Desegregation Plans?

Abstract: SOME twenty-five years after Brown v. Board of Education, confusion reigns among the public, lawyers, judges, and scholars over the impact of school desegregation on children and on the communities in which they live. If we depend largely on news reports and word-of-mouth accounts, the public consensus appears to be that school desegregation does not work and that it creates more violence and interracial hostility during its implementation than it will ever be able to eliminate thereafter. The validity of this conclusion in large measure depends on a quantity of relatively inaccessible research-some of it unpublished and much more of it scattered in diverse journals. The dispersion of the literature makes it quite impossible for scholars, much less laymen, to obtain a complete and accurate picture of the current situation. Distorted and incomplete findings are often cited by desegregation advocates and opponents alike in court cases, congressional hearings, and administrative proceedings. The decisions taken thereafter, whether on the structure of a desegregation plan, the content of a statute, or the finding of an agency, show the ill effects of the poor information upon which they implicitly or explicitly rely. The purpose of this paper is to organize the available information on school desegregation plans in order to elevate the quality of the current debate. Thus the paper seeks to identify what policy issues can be illuminated by social science research; to clarify the extent of agreement this research has generated; and to discover, where possible, what characteristics of desegregation plans effectively help to reduce racial isolation, to curb white flight, and to achieve an overall positive community response. To this end, the first section of the paper explores the effects of

A Note on Private versus Social Incentives to Sue in a Costly Legal System

Abstract: THIS note analyzes whether the costs of litigation result in a nonoptimal number of suits. Litigation costs cause too many or too few suits by creating a divergence between the private and the social incentives to sue. This issue has been studied previously by Shavell.' An implication of Shavell's analysis is that, in the absence of a divergence between the private and social benefits to sue, there will be a tendency toward excessive litigation.2 This results because plaintiffs bear only their own litigation costs (and not the litigation costs of other parties) when they sue. This paper demonstrates that the tendency toward excessive litigation implied by Shavell's analysis is overridden by the injuring party's ability to influence the likelihood of suit. The approach taken here is to focus on the injurer's choice of damage level. The key observation is that it is possible for the injurer to preclude suit by setting the level of damages below the victim's litigation costs; that is, the victim will have no incentive to sue when his litigation costs exceed his expected gain from suit (recovery of damages). Therefore, the injurer can harm the victim up to the value of the victim's litigation cost without inducing suit. Consequently, when the injurer provokes suit, he sacrifices in profits that do not have to be paid out to the victim as damages an amount equal to the victim's litigation costs. Thus the injurer will induce

A Comparison of Taxes, Regulation, and Liability Rules under Imperfect Information

Abstract: ECONOMISTS have devoted a great deal of ink and effort over the past several years to analyzing the effects of existing and alternate government regulatory programs in the pollution area and asking what type of program can best achieve the government's regulatory goals. Much of the debate has focused on comparing the effects of price incentive approaches (effluent taxes or subsidies), quantity controls or liability rules as alternate regulatory instruments for achieving the same goals.1 Much of the literature makes the assumption of perfect information. However the choice among regulatory instruments depends in practice not only on their theoretical qualities, but also on the costs of translating theory into practice. Different programs may be more or less costly to administer because information requirements differ, because uncertainty affects them in different ways, or because more or less difficult administrative decisions need to be made more or less frequently. In this paper we present a simple general framework for analyzing the costs of operating different types of pollution control programs under the

Cost of Completion or Diminution in Market Value: The Relevance of Subjective Value

Abstract: In contract cases-typically construction or mining cases-courts frequently measure the damages of the innocent party either by the diminution in the market value at the time of breach from less than perfect performance or by the cost of rendering performance perfect. The diminution measure is objective; that is, observers external to the contract, such as the judge or jury in a lawsuit, can ascertain its amount with reasonable accuracy at a tolerable cost. Yet this objective measure can undercompensate the aggrieved party, thereby contradicting contract law's principle that damages should place the injured party in the same position as if the contract were performed. For example, consider construction of a family dwelling that deviates from the contract specifications by changing the location and size of some of the rooms while leaving the total square footage of the house unchanged. This breach need not diminish market value: preferences for housing style vary considerably, and the builder might simply sell the house to another buyer at the price the original purchasing party had offered. Nevertheless, the original purchaser may value the house promised more highly than the house actually delivered. Because market value did not decrease, there is no damage by the objective measure. Nevertheless, damage does exist, albeit of a nonpecuniary or subjective nature.

The Contract-Tort Boundary and the Economics of Insurance

Abstract: My aim in this paper is to develop a framework for analyzing problems of the contract-tort boundary and then to illustrate its utility by applying it to some doctrinal issues. The framework I propose is a simple extension of the economic theories of contract and of tort. In constructing it, I draw freely on the work of other scholars, seeking to synthesize and extend their contributions. The main issues or problems analyzed are these: Should the test of remoteness of damage be the same in contract and tort, or different? I conclude that the label "remoteness of damage" is used in the common law to handle two quite distinct problems, either of which can occur in both tort and contract, and that failure to distinguish these problems has led to confusion' over whether the rules are different in tort and contract. Should the defense of contributory negligence be available in contract? I conclude that an economic model leads to the conclusion that contributory negligence will often be appropriate in contract. Are contract and tort likely to converge, as some scholars have predicted, into a grand synthesis of the law of obligations? I conclude that, when considered from the perspective of the economic model used here, convergence is unlikely. In this paper I fit a complex reality into a rather rigid theoretical structure. At some points the fit is very imperfect. But I hope that the usefulness of such a procedure in clarifying some key issues will justify the strains on the legal doctrines and the economic theories.

Notice Filing and the Problem of Ostensible Ownership

Abstract: IN 1600,' a Hampshire farmer named Pierce conveyed his sheep to his creditor Twyne to satisfy a preexisting debt. Twyne, however, allowed Pierce to remain in possession of the sheep, to shear them, and to mark them as his own. When a sheriff tried to seize the sheep under a writ of execution on behalf of another creditor, Twyne forcibly resisted, maintaining that the sheep were his. Edward Coke, then attorney general, brought a criminal action against Twyne in the Star Chamber. That court held that because the transfer to Twyne was secret it was fraudulent and therefore void.2 Few principles of Anglo-American law have been so long-lived and so widely held, as the one in Twyne's Case.3 The principle that secret inter-

The Death and Transfiguration of Benefit Taxation: Special Assessments in Nineteenth-Century America

Abstract: W HENEVER local governments collect taxes that are then spent for public goods, it may be asked who gains and who loses. The answer to this question is in part a function of the type of tax imposed. With a general property tax, the question is actually evaded rather than answered, as there is no effort to correlate specific tax receipts with specific expenditures. In contrast, benefit taxes-of which special assessments are the most common form-attempt to apportion the cost of a particular public improvement according to the benefit that parties have received from it. By their nature, special assessments are designed to avoid the redistribution of private wealth through government intervention that a

ERA Voting: Labor Force Attachment, Marriage, and Religion

Abstract: The literature that examines the development during the past two decades of the womens liberation movement indicates three bases for support of or opposition to the Equal Rights Amendment (ERA): the relationships of voting constituencies to the labor market to the family and to organized religion. In this paper I develop and test a model to investigate whether these factors have been significant in state legislative ratification and rescission votes for ERA. My analytical framework incorporates both Stiglers theory that legislation results from the interaction of groups that stand to gain or lose from enactment and the findings of Kau and Rubin that ideology may also have a role in determining legislative outcomes. (excerpt)

Taxes and Compensation for Lost Earnings

Abstract: THIS paper analyzes several problems associated with evaluating lifetime income streams within the context of a rising marginal tax structure. Our analysis was prompted by a recent U.S. Supreme Court decision in which the court held that evidence concerning the effects of federal income taxes on a decedent's future earnings is admissable in assessing damages in cases brought under the Federal Employer's Liability Act.' Income taxes have an impact at two points in the determination of a proper award: (a) they influence the disposable income which would have been available to the decedent had he lived; and (b) they influence the amount of the award required to reproduce this disposable income. Although the award proper is not taxable, the future interest earnings from the award are taxable, and the Court recognized that the amount of the award should be adjusted to reflect the tax on these interest earnings. The typical procedure for determining an award has been to calculate a present value by discounting future gross earnings of the decedent at some appropriate discount rate and using the present value of future earnings as the basis for an appropriate lump-sum award. It turns out, however, that adjusting for taxes makes it difficult to determine the appropriate award by applying standard discounting procedures. Our approach, therefore, is from the point of view of consumption alternatives rather than present values.2 This means that we ask first what consumption patterns (through time) would have been available had the decedent lived. For a given lifetime earnings pattern, the alternative consumption pat-

Liberty and Property: The Problem of Government Benefits

Abstract: IT is a commonplace feature of modern life that administrative agencies are charged with substantive decisions in a wide array of individual cases.1 The procedures used to dispose of these cases are in the first instance determined by the legislature or agency, as the case may be. Yet once established, these procedures are subject on constitutional grounds to review under the due process clauses of the Fifth and Fourteenth Amendments-the former being applicable to the United States and the latter to the individual states. Neither clause affords a right to due process per se; both provide only that a person shall not be deprived of \"life, liberty, or property, without due process of law.\" The task of judicial review therefore entails a preliminary search to see whether any interest impinged upon by the disputed agency decision falls within any of those categories. Only if the affected interest amounts to life, liberty, or property need the court go on to evaluate the procedures employed in reaching the decision.2 In the context of government-provided \"benefits,\" courts have experienced difficulty deciding whether such a deprivation has occurred. The

The Pricing of Surrogate Crime and Law Enforcement

Abstract: A train carrying a notorious criminal winds its way through the countryside. While stopped at a small town to take on fuel and water, the train is taken over by the residents of the town who are intent on freeing the criminal. Before succumbing to the demands of the townspeople, the guard says, "Remember, if you let him go free, you make yourselves liable for his crimes." The people set the criminal free.

Childhood competence and autonomy.

Abstract: FAMILY autonomy and children's rights issues involve subtle empirical and moral problems. The empirical issues relate to childhood judgmental capacities both in general and in specific contexts. The moral issues are wide-ranging and relate to some of the most fundamental issues in moral philosophy and social policy. While the impetus for much of the social interest in children's rights issues is the depressing statistic of child abuse and neglect, the continuous rethinking of social relationships in general and a concern for social justice have also contributed to the intensity of the debate and the range of the alternatives proposed. Legal and social institutions are increasingly integrating children's expressions of their preferences into the catalog of interests that institutions take as carrying weight.' This reflects a reevaluation of the child's social status as something more than an extension of parental interests. While this reevaluation is commendable, it calls into question the place of the child in the family-the child's primary environment. In what follows I want to focus on the relationship between parents and children, especially pre-adolescent and early adolescent children. The particular points I wish to develop can be summarized as follows: There is apparently good evidence that the judgmental capacities of children through age fourteen suffer biases that are significant and germane to autonomy issues; however, such biases have no immediate public policy implications because we lack a precise theory supporting any baseline

Taxes and Compensation for Lost Earnings: A Comment

Abstract: PROFESSORS Bell, Bodenhorn, and Taub's recent article raises a number of questions regarding the issue of taxation of lost future earnings.' It is the purpose of this paper to elaborate further for a more complete analysis and understanding of the problems involved in the issue of taxation. Specifically, three questions in which taxation has implications for personal injury or wrongful death awards are addressed below: (a) whether lump sum awards overcompensate the plaintiff; (b) whether Bell et al.'s solution to calculating Liepelt awards is the most efficient; and (c) what party benefits from taxing the awarded transfer payment.2