Search

This article analyzes the socially optimal liability allocation when strictly liable Cournot firms delegate their safety and output choices to managers whose potential biases are chosen by firm owners and consumers misperceive product risks. Firm owners always hire managers who are overconfident about their product safety's effectiveness in reducing product-related accident risk. However, the extent of overconfidence depends on consumers' risk perceptions and the allocation of liability. As a result, the socially optimal liability allocation hinges on whether consumers underestimate or overestimate product risk. When consumers overestimate product risks, firms should be held liable for all losses incurred by consumers. However, when consumers underestimate risk, firms should only be held liable for a part of consumer losses. We also show that, in some circumstances, negligence produces socially more desirable outcomes than strict liability (JEL : K13, L13, L14). [ABSTRACT FROM AUTHOR]

This paper analyzes the deterrence implications of different inmate assistance programs (IAPs), carefully distinguishing between deterrence of first offenses and recidivism. All IAPs considered in our model reduce recidivism, and we identify IAPs that also reduce the first offense rate. However, IAPs which increase work opportunities, improve the reintegration of exiting inmates, and moderate individual's self-control issues may lower the deterrence of first offenses, if this possibility is not adequately anticipated when designing these IAPs. [ABSTRACT FROM AUTHOR]

We analyze how a plaintiff acquires damage-level information and discloses it to the defendant during the discovery process when the plaintiff knows that the defendant is privately informed about the plaintiff's probability of winning at trial. The plaintiff can design the process for generating the damage-level information but cannot omit or misrepresent it. She does this with an understanding of how the defendant's updated beliefs after the discovery stage will impact pretrial negotiations. We find that the plaintiff prefers full disclosure when deciding between a pooling or a screening settlement demand depends on the damages level. In other scenarios, she is indifferent to how much information the discovery stage conveys about the damage level to the defendant. [ABSTRACT FROM AUTHOR]

When a victim loses property due to an injurer's wrongful act, it must be decided whether the damages award should include the sales taxes associated with the lost property's replacement. This is especially acute when the victim can make other use of the damages award than replacement. This paper compares regimes that differ in how they treat sales taxes, focusing on possible distortions of consumption and care choices. We find that regimes that include sales taxes in damages awards only when incurred to replace the lost property (as, for instance, the German Civil Code does) induce suboptimal consumption and care incentives. Distortions of care incentives also depend on the nature of care expenditures (monetary or non-monetary). [ABSTRACT FROM AUTHOR]

Moral rules and social norms influence whether individuals break the law. We characterize optimal law enforcement when some individuals obey internalized moral rules and implement social norms for other individuals who prefer to comply with them. Moral individuals and norm followers are linked via the endogenous social norm and this induces the social planner to create an expected sanction for norm setters that is higher than without the link. The optimal expected sanction for moral individuals is higher than the one for norm followers if the moral rule is weak but the reverse ranking is true when it is strong. [ABSTRACT FROM AUTHOR]