Showing papers on "Damages published in 2004"

Dollars and Death

Abstract: Administrative regulations and tort law both impose controls on activities that cause mortality risks, but they do so in puzzlingly different ways. Under a relatively new and still-controversial procedure, administrative regulations rely on a fixed value of a statistical life representing the hedonic loss from death. Under much older law, tort law in most states excludes hedonic loss from the calculation of damages, and instead focuses on loss of income, which regulatory policy ignores. Regulatory policy also disregards losses to dependents; tort law usually allows dependents to recover for loss of support. Regulatory policy generally treats the loss of the life of a child as equivalent to the loss of the life of an adult; tort law usually treats the loss of the life of a child as less valuable. Regulatory policy implicitly values foreigners as equal to Americans; tort law does not. We argue that both areas of law make serious mistakes in valuing life and that each should learn from the other. Regulatory policy properly focuses on hedonic loss from death, and tort law should adopt this approach. But regulatory policy should imitate tort law's individualized approach to valuing the loss from death, including its inclusion of losses to dependents. If these changes were made, tort awards would be more uniform and predictable, and regulations would be less uniform and more stringent. In addition, average tort damages for wrongful death would be at least twice as high as they are today. With respect to dollar judgments for mortality risks, a pervasive issue is how to combine accuracy with administrability and predictability; both bodies of law could do far better on this score.

Post-cartel pricing during litigation

Abstract: Standard methods in the U.S. for calculating antitrust damages in price-fixing cases are shown to create a strategic incentive for firms to price above the non-collusive price after the cartel has been dissolved. This results in an overestimate of the but for price and an underestimate of the level of damages. The extent of this upward bias in the but for price is greater, the longer the cartel was in place and the more concentrated the industry.

Measuring Economic Impacts of Disasters: Interregional Input-Output Analysis Using Sequential Interindustry Model

Abstract: The damages and losses by disasters, such as earthquakes, floods, tornadoes, and other major natural disasters, or man-made disasters, have significant and intense impacts on a region’s economy. In addition, the impacts from the damages will spread over time, and will bring serious economic effects to other regions in a long run. Furthermore, the impacts of disasters are very complex, including not only the negative effects from damages and losses, but also the positive economic effects from the recovery and reconstruction activities. Most economic models and techniques cannot confront these significant changes in a relatively short time period, since they assume incremental, and/or predictable changes in systems over time. And, the unexpected nature of these events, especially in the case of earthquakes, creates a further complication of measuring the indirect impacts (Okuyama et al., 2002). At the same time, most available data for the direct damages and losses and of the recovery processes are engineering oriented, i. e., physical damages and disruption of lifelines and their repair and restoration, and the dimension and unit of these data are quite different from the economic counterpart—very detailed and short time span in engineering data while aggregated and longer time span in economic models. Consequently, these differences pose great challenges in order to model economic impacts of disasters.

The Employment Consequences of Wrongful-Discharge Laws: Large, Small, or None at All?

Abstract: Uniquely in the industrialized world, the United States has long had the presumption that employers may legally fire workers “at will,” that is, “for good cause, bad cause, or no cause at all.” During the 1970’s and 1980’s, this presumption eroded rapidly: most U.S. state courts created three classes of common-law restrictions that limited employers’ ability to fire. These exceptions garnered media headlines, created costly litigation, and perhaps as importantly, generated substantial uncertainty among employers about when they could terminate workers with impunity. We refer to these common-law exceptions as wrongful-discharge laws. Briefly summarized: the “public policy” exception prevents employee discharges that would thwart an important public policy, for example, performing jury duty, filing a worker’s compensation claim, reporting an employer’s wrongdoing, or refusing to commit perjury. The “good faith” exception prohibits employers from firing workers to deprive them of earned benefits, such as sales commissions or pension bonuses. The “implied contract” exception makes informal employer assurances of ongoing employment, such as those found in personnel manuals or promotion letters, legally enforceable. Under the implied-contract exception, an employer implicitly offering ongoing employment can only terminate a worker for good cause. Understanding the economic consequences of these doctrines is essential to an evaluation of the costs of using litigation to protect “employment rights.” Fortunately for empirical analysis, states vary greatly in the timing and extent of adoption of wrongful-discharge laws. Most state courts have adopted at least one wrongfuldischarge law in the last three decades. Three states (Florida, Georgia, and Rhode Island) have never adopted an exception, while 10 states recognize all three exceptions. One may potentially use this cross-state, over-time variation to analyze how wrongful-discharge laws affected employment and earnings in state labor markets. We are not the first authors to recognize this opportunity. In an influential paper, James N. Dertouzos and Lynn A. Karoly (1992; DK hereafter) estimated that the adoption of wrongfuldischarge laws was economically equivalent to a 10-percent employer-side tax on wages, leading to a 3-percent reduction in aggregate employment, in states that allow workers to sue for punitive (“tort”) damages for wrongful discharge, as is typically true under the good-faith and public-policy exceptions. Moreover, DK found that states that adopted a doctrine under which plaintiffs may sue only for economic (“contract”) losses (typically the implied-contract † Discussants: Henry Farber, Princeton University; Joshua Angrist, Massachusetts Institute of Technology; Richard Thaler, University of Chicago.

Damages Caps, Insurability, and the Performance of Medical Malpractice Insurance

Abstract: This paper uses the complete property and casualty insurance files of the National Association of Insurance Commissioners from 1984-1991 to assess the effect of medical malpractice reforms pertaining to damages levels and the degree to which these damages are insurable. Limits on noneconomic damages were most influential in affecting insurance market outcomes. Several punitive damages variables specifically affected the medical malpractice insurance market, including limits on punitive damage levels, prohibitions of the insurability of punitive damages, and prohibition of punitive damages awards. Estimates for insurance losses, premiums, and loss ratios indicate effects of reform in the expected directions, where the greatest constraining effects were for losses. The quantile regression analysis of losses indicates that punitive damages reforms and limits were most consequential for firms at the high end of the loss spectrum. Tort reforms also enhanced insurer profitability during this time period.

Valuing health damages from water pollution in urban Delhi, India: a health production function approach

Abstract: Diarrhoeal diseases are endemic in Delhi. The causes of diarrhoeal illness involve both the household and the public sector as a provider of a public good, namely water supplies. Questions of both adequacy and quality of the water supply available to the household for drinking purposes are of crucial importance. The present study conducts an objective assessment of the health damages incurred by urban households by adopting a health production function approach. A model for valuing the damages from contaminated water supplies, based on the theory of utility-maximizing consumer behaviour is developed for estimating the probability of illness for a household. An estimate for the predicted probability of observing illness in a household is obtained. This probability measure is subsequently used along with data on illness to derive treatment costs and the wage-loss arising from the illness. Thus, a measure of the total costs of illness is obtained.

In the Aftermath of Dresden: New Directions in German Flood Insurance

Abstract: The German flood disaster of summer 2002 highlighted a dilemma concerning insurance against damages caused by natural forces. On the one hand, mindful of the rising incidence of natural disasters, private insurance companies are increasingly withdrawing coverage against natural catastrophes such as wind storms and floods. On the other, the availability of emergency relief and private donations is systematically weakening the incentive for potential victims to implement preventive measures so as to reduce the risk of damages. The dilemma is further exacerbated by the evident overestimation of the extent of damages in the immediate aftermath of natural disasters, resulting in the unnecessary withdrawal of private demand and the ad hoc reprogramming of public investment. Most of these problems could be resolved by the introduction of a general mandatory insurance against natural catastrophes. This paper proposes a practicable natural hazard insurance for Germany that is based on two principles. First, all basic natural disasters (wind storms, floods, earthquakes, etc.) would be covered by a single policy. This pooling approach would increase both the efficiency of risk coverage and the level of acceptance for the new type of insurance. Second, in the case of floods, only “once-a-century” damages would be insured. Regularly recurring floods, however, would not be covered. The state would step in as the final insurer in cases of accumulating damages, but state intervention would be strictly limited to covering extreme loss.

On Financial Crises

Abstract: In the wake of September 11th, the crisis field has gained a great deal of relevance in both academic and practitioner circles. Suddenly, policymakers and managers have become interested in crisis research findings, funding is forthcoming, and academics of many a feather are flocking to the scene. Crisis used to be a ‘sexy’ topic, but it is now red hot. The crisis field is marked by ill-defined boundaries. It is made up of specialized academics drawn from many disciplines (i.e. disaster sociology, public administration, political science, international relations and management). They tend to define crisis in terms of some basic threat to the core values of a system, necessitating urgent response under conditions of severe uncertainty. It is this catch-all character of the crisis definition that allows for communication between these academics and makes for what I here refer to as a ‘generic’ crisis field. So what interesting research findings has this field yielded? This is best discussed and evaluated on the basis of two crucial questions, which, incidentally, signal the societal relevance of this research field. The first question asks why a social system – a firm, a town, a nation or a global network – experiences a crisis. The second question asks why some systems manage to minimize the crisis impact where others suffer severe damages. A general consensus is emerging in the crisis field with regard to these questions, and can be summarized in a handful of principles. The first principle, which can be considered the bottom line of this research consensus, holds that crises will always be with us. We may learn from previous out-of-the-box events and develop tailor-made coping repertoires only to discover that the nature of crisis is continuously changing. The implications are sobering: crisis prevention is a good idea, but it will never make us safe from new crises. Increased airport safety may be great, but it will not protect us from future terrorist attacks. The second principle is deduced logically from the first. If crisis prevention is essentially impossible, organizational and societal resilience must be the proper way to prepare for and deal with crises. The idea of resilience, perhaps explained best by the late Aaron Wildavsky (1988) in his classic Searching for Safety, directs our energy toward the design of organizational structures that facilitate flexible and resourceful answers to unknown future problems. This translates into a formidable challenge. Whereas modern organizations are typically geared toward routine production – effective and efficient – this principle of crisis management demands inherent redundancy. However, this is not something stockholders, stakeholders or voters tend to reward. British Journal of Management, Vol. 15, 191–195 (2004) 191

Exclusion and Property Rules in the Law of Nuisance

Abstract: This Article offers a theory of nuisance law based on information costs. Like trespass, much of the law of nuisance relies on a strategy of exclusion in which rights are defined using low-cost signals like boundary crossings that are only indirectly tied to particular uses. Nuisance law also supplements and fine-tunes this Blackstonian package of entitlements by means of a governance strategy, which relies on signals more directly tailored to particular uses. The information-cost advantage of strategies close to the exclusion end of the spectrum helps explain why, despite repeated calls for more balancing, nuisance law focuses on who caused invasions of whose land. Also consistent with an exclusion strategy are the staying power of traditional nonreciprocal notions of causation and the virtual nonexistence in nuisance of Rule 4 liability rules, under which plaintiffs would be permitted to invoke the law to force the polluter either to abate or shut down upon payment of the polluter's damages. Applying Hohfeldian analysis, the Article shows that the common law gives polluters at most a privilege to pollute and that Rule 4 does not refine the basic exclusion regime but rather undermines it. The general question becomes when to soften exclusion with governance and the Article concludes by arguing that, in situations such as oil and gas fields and Boomer-style pollution cases with numerous victims, only small judicial governance-style safety valves are necessary, especially if legislative and administrative solutions are forthcoming. More generally, the information-cost theory of nuisance brings the utilitarian and corrective justice approaches to nuisance closer together. Nuisance law is not a mess or mystery but does contain within it the inflection point between exclusion and governance.

Are damages caps regressive? A study of malpractice jury verdicts in California.

Abstract: Caps on damages have emerged as the most controversial legislative response to the new malpractice crisis. We analyzed a sample of high-end jury verdicts in California that were subjected to the state’s $250,000 cap on noneconomic damages. We found strong evidence that the cap’s fiscal impact was distributed inequitably across different types of injuries. In absolute dollar terms, the reductions imposed on grave injury were seven times larger than those for minor injury; the largest proportional reductions were for injuries that centered on pain and disfigurement. Use of sliding scales of damages instead of or in conjunction with caps would mitigate their adverse impacts on fairness.

National Remedies Before the Court of Justice: Issues of Harmonisation and Differentiation

Abstract: The Court of Justice has delivered an extensive body of caselaw concerning the obligation of domestic courts to provide effective judicial protection to claimants relying upon Community law rights - including such landmark judgments as Factortame and Francovich. This book offers a critical analysis of the Court's fast-changing approach to national procedural autonomy,and explores the difficult conceptual framework underpinning the caselaw. The author demonstrates how Community intervention in the domestic systems of judicial protection cannot remain unaffected by wider debates about the evolving European integration project, in particular, the tension between uniformity and differentiation as competing values influencing the exercise of Community regulatory competence. Because of its emphasis on an ideal of uniformity which has become increasingly untenable within the contemporary Community legal order, much of the existing academic discourse about national remedies and procedural rules now seems ripe for reconsideration. It is argued that the Court's jurisprudence on the decentralised enforcement of Treaty norms needs to be interpreted afresh, having regard to the recent growth of regulatory differentiation within the Community system. National Remedies Before the Court of Justice provides a challenging account of this crucial field of EU legal studies. It includes detailed discussion of issues such as Member State liability in damages, Community control over national limitation periods, and the principles governing state aid and competition law enforcement. This book is of value to academics and practitioners alike.

Are Damages Caps Regressive? A Study of Malpractice Jury Verdicts

Abstract: Caps on damages have emerged as the most common legislative response to the new malpractice crisis; they are also the most controversial. Critics decry caps as unfair, yet surprisingly little is known about the specific circumstances in which they are applied. We analyzed a sample of high-end jury verdicts in California that were subjected to the state's $250,000 cap on noneconomic damages. We found strong evidence that the cap's fiscal impact was distributed inequitably across different types of injuries. Considering the average impact of the cap in absolute dollar terms, the reductions imposed on grave injury were seven times larger than those for minor injury. In proportional terms, the largest reductions occurred for injuries in which the harm centered on pain and disfigurement. We found no evidence that women or the elderly were disparately impacted by the cap. Use of sliding scales of damages instead of or in conjunction with caps would mitigate their adverse impacts on fairness.

Torts, Expertise and Authority: Liability of Physicians and Managed Care Organizations

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

Punitive Damages: How Judges and Juries Perform

Abstract: This paper presents the first empirical analysis that demonstrates that juries differ from judges in awarding punitive damages. Our review of punitive damages awards of $100 million or more identified 63 such awards, of which juries made 95 percent. These jury awards are highly unpredictable and are not significantly correlated with compensatory damages. Using data on jury and bench verdicts from the Civil Justice Survey of State Courts, 1996, we find that juries are significantly more likely to award punitive damages than are judges and award higher levels of punitive damages. Jury awards are also less strongly related to compensatory damages. The differential effect of juries is most pronounced among the largest awards. Juries also tend to award higher levels of compensatory damages, which in turn boost the punitive damages award. The findings are robust with respect to controlling for self‐selection of jury or bench trial.

Non-Pecuniary Remedies in ICSID Arbitration

Abstract: ICSID tribunals have almost always granted relief in the form of pecuniary damages. Is this due to a limitation contained in the ICSID Convention? Is it due to a limitation inherent in litigation against sovereign states? Can ICSID tribunals issue injunctions and order specific performance, or are they restricted to granting monetary awards?

Intellectual Property: Licensing and Joint Venture Profit Strategies

Abstract: Preface.1. Emergence of Intellectual Property Exploitation Strategies.1.1 Factors Driving Strategic Alliance: Time, Cost, and Risk.1.2 A Short History of Corporate Strategies.1.3 Legal Attitudes Enhance Value.1.4 Onward.2. Introduction to Exploitation Strategies.2.1 Some History.2.2 Enter Technological Change.2.3 Business Enterprise Model.2.4 Economics of Exploitation.2.5 Development of Intellectual Property.2.6 Source of Production Factors.2.7 Internal Strategies.2.8 The Entrepreneuring Corporation.2.9 Acquisition.2.10 External Strategies.2.11 Ownership Alliances.2.12 Other Liquidity Concerns.2.13 Establishing a Cross-ownership Alliance.2.14 Strategic Alliances-Rapid Technological Change.2.15 Summary.3. Introduction to the History and Economics of Legal Limits on Licensing Intellectual Property Rights.3.1 A Brief History of the Legal Limits on Licensing.3.2 The Economic Principles Underlying Legal Limits on Licensing Patent and Related Rights.3.3 The Basic Options of Intellectual Property Owners.3.4 The Law and the Basic Options of Intellectual Property Owners.4. Creating Industry Standards.4.1 Eastman Kodak.4.2 Apple Computer.4.3 Aluminum Corporation of America.4.4 Avoiding a Free-For-All.4.5 Free Access Can Still be Profitable.5. Economic Analysis of Exploitation-Underlying Theory.5.1 Underlying Theory.5.2 Essential Ingredients.5.3 Discounted Cash Flow.5.4 Application to Intellectual Property.5.5 When Specific Data is Unavailable.5.6 Summary.6. Economic Contributions of Intellectual Property.6.1 Intellectual Property Contributes Powerfully to Earnings.6.2 Intellectual Property Sustains Superior Earnings.6.3 Enhanced Profits and Intellectual Property.6.4 Investment Rates of Return Analysis.6.5 Discounted Cash Flow Analysis.6.6 Comparable License Transactions.6.7 Simplistic Rules of Thumb.7. Use of the 25% Rule in Valuing Intellectual Property.7.1 Introduction.7.2 History of the Rule.7.3 Explanation of the Rule.7.4 Illustration of the Rule.7.5 Application of the Rule.7.6 Justification for the Rule.7.7 Criticisms of the Rule.7.8 Empirical Test of the Rule.7.9 Conclusions.8. Determining a Royalty Rate-An Example.8.1 Description of the Patented Dermapulse Invention.8.2 Financial Review.8.3 Intellectual Property Economic Contribution.8.4 Analysis of Specific market Transactions.8.5 Conclusion.9. An Infringement Damages Analysis for Determining a Royalty Rate.9.1 Georgia-Pacific v. United States Plywood.9.2 Summary.10. Risks of Exploitation.10.1 Elements of Risk.10.2 Risk and Royalties.10.3 Intellectual Property Economic Life.10.4 Summary.11. Licensing Economics and Royalty Rates.11.1 Pricing the Alternatives.11.2 Licensing.11.3 Primary Economic Drivers.11.4 Secondary Economic Drivers.11.5 Evaluating the Net Present Value.11.6 Summary.12. Dealing with Early-Stage Intellectual Property.12.1 Early-stage Technology.12.2 Development Costs.12.3 Risk.12.4 Time.12.5 The DCF Mechanism.12.6 Using DCF as a Measuring Tool.13. Trademark Licensing.13.1 Trademark Royalties.13.2 Royalty Quantification.14. Licensing Internet Assets.14.1 Internet Background.14.2 Internet Economics.14.3 Internet Licensing.15. Licensing Negotiations and Agreements.15.1 Licensing Negotiations.15.2 Licensing Agreements.15.3 Critical Questions.15.4 Licensing-in Technology.15.5 Licensing-Out Technology.15.6 Conclusion.16. Another View of Licensing Strategies.16.1 Defensive Strategies.16.2 Cost Centers.16.3 Profit Centers.16.4 Integrated Management.16.5 Visionary Intellectual Property Management.16.6 Making the Big Bucks.16.7 Intellectual Property Touches all Aspects of Life.16.8 Intangible Assets at the Center of Deals.16.9 E-Commerce and Intellectual Property.16.10 Specific Trends in Intellectual Property Deal Making.16.11 Trademark Strategies.16.12 Intangible Riches.17. Joint Venture.17.1 Ownership Split.17.2 Expansion at Overboard Industries, Inc.17.3 Consumer Electronics.17.4 Access to the Technology.17.5 Access to the market.17.6 Measuring Potential Value from Pin-Point.17.7 Weighted Average Cost of Capital.17.8 Internal Technology Development.17.9 Internal Trademark Development.17.10 Going it Alone.17.11 Summary.17.12 Special Problems with Strategic Alliances.18. Corporate Acquisition as an Exploitation Strategy.18.1 The Acquisition Process.18.2 Impact on Intangible Assets and Intellectual Property in a Merger.18.3 Focus on Intangibles.18.4 Summary.19. University Technology Transfer.19.1 University Technology Transfer Goals.19.2 University Offices of Technology Transfer.19.3 Conflicts of Interest.19.4 Nonexclusive Licenses.19.5 Finding Technology.19.6 Rewards of Inventorship.19.7 Harvard University-Royalty Sharing Policy for Intellectual Property.19.8 John Hopkins University-Sharing of Revenue From Intellectual Property.19.9 Dealing with Universities.20. Global Exploitation Potential.20.1 Impact of the International Environment.20.2 Accounting Issues.20.3 Taxes.20.4 Transfer Pricing.20.5 Methods for Determining Intangible Asset Transfer Prices.20.6 Political Risk.20.7 New Markets.20.8 Repatriation.20.9 Cultural Issues.20.10 Investment Risk.20.11 Legal Protection.20.12 Summary.21. Organizing for the Future.21.1 Mapping Intellectual Property.21.2 Identification.21.3 Assembled Workforce.21.4 Captive Spare Parts Annuity.21.5 Computer Software.21.6 Copyrights.21.7 Customer Lists.21.8 Distribution Networks.21.9 Trademarks.21.10 Strategic Plan and Gap Analysis.22. Understanding the Business and Risks of Licensing.22.1 Introduction.22.2 Overview of Licensing.22.3 Licensing Business Risks.22.4 License Management.22.5 "Auditing" the Royalty Obligations.22.6 Common Audit Procedures and Findings.22.7 Remedies from Breaches of Licensing Contracts.22.8 Conclusion.A. Investment Rate of Return Requirements.B. Financial and Business Information Sources.C. Licensing Transaction Examples and Royalty Rates.Index.

Exclusion and Property Rules in the Law of Nuisance

Abstract: This Article offers a theory of nuisance law based on information costs. Like trespass, much of the law of nuisance relies on a strategy of exclusion in which rights are defined using low-cost signals like boundary crossings that are only indirectly tied to particular uses. Nuisance law also supplements and fine-tunes this Blackstonian package of entitlements by means of a governance strategy, which relies on signals more directly tailored to particular uses. The information-cost advantage of strategies close to the exclusion end of the spectrum helps explain why, despite repeated calls for more balancing, nuisance law focuses on who caused invasions of whose land. Also consistent with an exclusion strategy are the staying power of traditional nonreciprocal notions of causation and the virtual nonexistence in nuisance of Rule 4 liability rules, under which plaintiffs would be permitted to invoke the law to force the polluter either to abate or shut down upon payment of the polluter's damages. Applying Hohfeldian analysis, the Article shows that the common law gives polluters at most a privilege to pollute and that Rule 4 does not refine the basic exclusion regime but rather undermines it. The general question becomes when to soften exclusion with governance and the Article concludes by arguing that, in situations such as oil and gas fields and Boomer-style pollution cases with numerous victims, only small judicial governance-style safety valves are necessary, especially if legislative and administrative solutions are forthcoming. More generally, the information-cost theory of nuisance brings the utilitarian and corrective justice approaches to nuisance closer together. Nuisance law is not a mess or mystery but does contain within it the inflection point between exclusion and governance.

Embedded Options and the Case Against Compensation in Contract Law

Abstract: Despite the fact that compensation is the governing principle in contract law remedies, it has tenuous historical, economic and empirical support. A promisor's right to breach and pay damages (which is subject to the compensation principle) is only a subset of a larger family of termination rights that do not purport to compensate the promisee for losses suffered when the promisor walks away from the contemplated exchange. These termination rights can be characterized as embedded options that serve important risk management functions. We show that sellers often sell insurance to their buyers in the form of these embedded options. We explain why compensation is of little relevance to the option price agreed to by the parties, which is a function of the value of the option to the buyer, its cost to the seller and the market in which they transact. We thus propose a novel justification for why penalty liquidated damages may be higher than seller's costs: they are option prices that reflect the value of the options to the buyer. The regulation of liquidated damages is thus tantamount to price regulation, which is outside the realm of contract law. Moreover, in light of the heterogeneity among optimal option prices, we also make the case against having an expectation damages default rule to begin with. In thick markets, we argue for enforcing the parties ex ante risk allocation with market damages. In thin markets, we propose that parties be induced to agree explicitly with respect to all termination rights, including breach damages, by the threat of specific performance of their contemplated exchange or, in the case of consumers, by a default rule that provides them a termination option at no cost.

The Effect of Bad-Faith Laws on First-Party Insurance Claims Decisions

Abstract: This Article represents the first empirical study of the effects of bad-faith laws on claims decisionmaking by insurance companies. One of the most notable and debated developments in the law of tort and insurance since the 1970s has been the recognition in many states of an extracontractual cause of action against insurers for the bad-faith denial of a claim filed by an insured for benefits allegedly due under the policy. We examine whether the existence of this remedy affects the amount, timing, or allocation of payments to insureds made in the “shadow of the law” of bad faith. We drew on the 1992 closed claims database developed by the Insurance Research Council compiling thousands of closed claims under automotive insurance policies by over 60 insurance companies. These claims include many categories of payments; we concentrated on claims for uninsured motorist coverage (UM) or underinsured motorist coverage (UIM) because these are categories of “first-party” insurance to which the extracontractual bad faith remedy applies in states that allow such a remedy. Although a majority of states recognizes a remedy for bad faith, 15 states within the IRC database did not recognize bad faith claims. Thus, by controlling for other variables that could affect payment - including significance of injury, tort reform measures, attorney involvement, and others - we could determine whether the existence of a bad faith remedy affects the timing, amount, or allocation of insurance payments for UM or UIM claims. The study shows that the presence of a bad faith remedy is tied to higher claims payments for claims. In addition, the higher overall settlements apply both to the economic and to the noneconomic aspects of the damages underlying the claims. Further, and somewhat surprisingly, we found that bad faith laws are associated with a greater increase in settlement amounts when plaintiffs are not represented by an attorney.

Law and Building Services Maintenance in Hong Kong

Abstract: In Hong Kong, statutory requirements applicable to building services maintenance activities appear in a wide variety of ordinances and regulations, which can be confusing and may be misinterpreted or overlooked. This paper reviews the key statutory requirements, common problems with complying with the requirements, and the potential liabilities consequent upon non-compliance. To help focus the analysis, the statutory requirements were categorised with reference to the involved compliance procedures, and a process model was devised to represent the procedures under each category. Attention of individuals and firms responsible for maintenance work is drawn to their liability for damages that could arise due to negligent acts to show that maintenance work shall be conducted not simply to satisfy statutory requirements, but far beyond.

Outside Directors and Lawsuits: What are the Real Risks?

Abstract: We often hear that hardly anyone wants to sit on corporate boards these days, largely because they fear personal liability. Our investigation of seven representative countries (Australia, Britain, Canada, France, Germany, Japan, and the United States) suggests that the liability concern is overdone. Although there are good reasons for outside directors to fulfill their duties diligently, fear of liability should not be one of them. Outside directors face only a tiny risk of paying damages or legal fees out of their own pockets. This article is a revised and condensed version of Bernard Black, Brian Cheffins, and Michael Klausner, Liability Risk for Outside Directors: A Cross-Border Analysis, European Financial Management vol. 10 (forthcoming 2004), available at http://ssrn.com/abstract=557070, which in turn is a summary of two longer papers, Bernard S. Black, Brian R. Cheffins, and Michael Klausner, Outside Director Liability (working paper 2004), available at http://ssrn.com/abstract=382422, and Bernard S. Black and Brian R. Cheffins, Outside Director Liability Across Countries (working paper 2003), available at http://ssrn.com/abstract=438321.

International Financial Institutions and Financial Accountability

Abstract: While useful proposals to reform International Financial Institutions (IFIs) have been widely discussed, the lack of meaningful financial accountability has received little attention. Considering the substantial damage done by IFIs, this is surprising both from an ethical and an economist's point of view. In a market economy anyone must face the economic consequences of their actions and decisions. If consultants give advice negligently or without obeying minimal professional standards, they have to pay compensation for the damage they have caused. National liability and tort laws serve the purpose of compensating those suffering unlawful damages and of deterring such behavior. By contrast, tortious damage caused by IFIs must be paid by IFIs' borrowers, including many of the world's poorest people. IFIs may even gain financially from their own negligence by extending new loans necessary to repair damages done by their prior loans. One failed adjustment program calls for the next. This mechanism makes IFI-flops generate IFI-jobs and additional income. This perverted incentive system rewarding errors, negligence, and even violations of the very constitutions of IFIs is absolutely at odds with the principles on which Western market economies rest. It must be brought to an end. This essay presents the idea of financial accountability, showing how easily reforms making IFIs financially accountable could be implemented. Moreover, embracing financial accountability would bring IFI operations closer to the intentions of their founders, who wanted IFIs subject to the basic legal and economic concepts of financial accountability not exempt from it. The market mechanism and its beneficial incentive system must finally be brought to IFIs.

Panel Data Evidence on Upland Agricultural Land Use in the Philippines: Can Economic Policy Reforms Reduce Environmental Damages?

Abstract: How do farmers in poor, remote upper-watershed areas of developing countries respond to price signals? Until relatively recently, it was widely assumed that most upland agriculture was primarily for subsistence. If correct, this has important implications for the design of upland development programs, as subsistence farmers, by definition, are beyond the reach of economic policies, and programs addressing upland poverty alleviation or environmental protection must depend on direct interventions. Such interventions, including command and control policies to conserve natural resources, remain at the core of most resource conservation strategies in countries of the humid tropics. In this respect, most upland development and conservation strategies no longer reflect the reality of upland agriculture. While pockets of pure subsistence production persist in least accessible regions, road and other infrastructure improvements have brought the majority of upland farmers into contact with markets and thereby have transformed the basis of production decisions. Accumulating evidence indicates that farmers in remote areas are increasingly willing to specialize in production of commercial

Modelling the choice between regulation and liability in terms of social welfare

Abstract: Using a formal political economy model with asymmetric information, we illustrate the conditions under which an environmental protection system based on extending liability to private financiers is welfare superior, inferior, or equivalent to a system based on an incentive regulatory scheme subject to capture by the regulatees We explicitly consider the following factors: the cost of care and its efficiency in reducing the probability of an environmental accident, the social cost of public funds, the net profitability of the risky activities, the level of damages, and the regulatory capture bias We characterize in such a parameter space the regions where one system dominates the other JEL classification: D82, K32

Should Plaintiffs Win What Defendants Lose?: Litigation Stakes, Litigation Effort, and the Benefits of 'Decoupling'

Abstract: In a 1991 paper, Polinsky and Che argue that lowering plaintiffs’ recovery and raising defendants’ damages can deliver the same level of deterrence with fewer filed suits. A subsequent paper by Kahan and Tuckman provisionally corroborates Polinsky and Che’s analysis in an extended model that accounts for the effect of litigation states on litigation effort levels. In contrast, we show that when litigation effort is endogenous, Polinsky and Che’s proposal to lower recovery and raise damages may no longer improve social welfare. We then characterize the kinds of suits where it is in fact suboptimal to set recovery below damages. Of significance for the current policy debate, we find that such suits share many of the empirical premises about litigation that ground conventional arguments in favor of making recovery less than damages. Our findings are robust to the possibility of out‐of‐court settlement, plaintiffs’ employment of contingent‐fee lawyers, and alternative fee‐shifting rules.

Climate change economics. Why international accords fail

Abstract: Although the full extent of the potential damages from global warming remain unknown, scientists have long argued that action should be taken now to mitigate any possible adverse consequences. However, in making such policy recommendations, economic arguments need to be considered as much as scientific ones. This volume examines the appropriate economic incentives for implementing policy to mitigate climate change and then exposes the flaws in current international agreements. The book begins by providing the economic foundations for understanding climate change. It examines how Kyoto's flexibility mechanism departs from more efficient and less-costly approaches for reducing atmospheric carbon dioxide, and highlights the problems that terrestrial carbon credits pose for emissions trading. Unique case studies of Canada, Japan and The Netherlands indicate that most countries will be unable to meet their own Kyoto obligations. The author then uses an economic analysis of the potential damages to show that even though some countries will experience a detrimental effect from climate change, the majority will actually benefit. In this way, he clearly demonstrates that not only will current policies do little to avert global warming, most countries will also have less incentive to sign up to any future international agreements. Academics, economists and policymakers involved in the climate change debate will find this succinct yet comprehensive analysis of the economic instruments available for mitigating climate change to be essential reading.