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Steven M. Shavell, Foundations of Economic Analysis of Law (Belknap Press 2004).
Categories:
Disciplinary Perspectives & Law
,
Property Law
,
Civil Practice & Procedure
,
Banking & Finance
,
Criminal Law & Procedure
Sub-Categories:
Contracts
,
Criminal Justice & Law Enforcement
,
Sentencing & Punishment
,
Torts
,
Litigation & Settlement
,
Law & Economics
,
Property Rights
,
Eminent Domain
Type: Book
Abstract
What effects do laws have? Do individuals drive more cautiously, clear ice from sidewalks more diligently, and commit fewer crimes because of the threat of legal sanctions? Do corporations pollute less, market safer products, and obey contracts to avoid suit? And given the effects of laws, which are socially best? Such questions about the influence and desirability of laws have been investigated by legal scholars and economists in a new, rigorous, and systematic manner since the 1970s. Their approach, which is called economic, is widely considered to be intellectually compelling and to have revolutionized thinking about the law. In this book Steven Shavell provides an in-depth analysis and synthesis of the economic approach to the building blocks of our legal system, namely, property law, tort law, contract law, and criminal law. He also examines the litigation process as well as welfare economics and morality. Aimed at a broad audience, this book requires neither a legal background nor technical economics or mathematics to understand it. Because of its breadth, analytical clarity, and general accessibility, it is likely to serve as a definitive work in the economic analysis of law.
Louis Kaplow & Steven M. Shavell, Fairness versus Welfare, 114 Harv. L. Rev. 961 (2001).
Categories:
Legal Profession
,
Civil Practice & Procedure
,
Banking & Finance
,
Criminal Law & Procedure
,
Disciplinary Perspectives & Law
,
Discrimination & Civil Rights
Sub-Categories:
Contracts
,
Criminal Justice & Law Enforcement
,
Sentencing & Punishment
,
Torts
,
Litigation & Settlement
,
Law & Public Policy
,
Law & Economics
,
Legal & Political Theory
Type: Article
Abstract
The thesis of this Article is that the assessment of legal policies should depend exclusively on their effects on individuals'welfare. In particular, in the evaluation of legal policies, no independent weight should be accorded to conceptions of fairness, such as corrective justice and desert in punishment. (However, the logic leading to this conclusion does not apply to concern about equity in the distribution of income, which is often discussed under the rubric of fairness.) Our analysis begins with the argument that, when the choice of legal rules is based even in part on notions of fairness, individuals tend to be made worse off. Indeed, if any notion of fairness is ascribed evaluative weight, everyone will necessarily be made worse off in some situations. Moreover, when we examine principles of fairness and the literature that advances them, we find it difficult to identify reasons that, on reflection, justify granting importance to these principles at the expense of individuals' well-being. Nevertheless, policy analysts and the population at large obviously find notions of fairness appealing. We conjecture that the notions' attractiveness is rooted in several factors. Namely, individuals who believe in ideas of fairness tend to behave better toward others; the notions may serve as proxy goals for instrumental objectives; and individuals may have a taste for satisfaction of the notions. Furthermore, each of these factors is a reason that notions of fairness are relevant under a welfare-oriented normative approach to social decision making. As we explain, however, none of these factors warrants treating notions of fairness as independent evaluative principles. We develop our thesis through consideration of specific conceptions of fairness that are employed in major areas of the law: torts, contracts, legal procedure, and law enforcement. We also discuss the implications of our analysis for our primary audience, legal academics and other legal policy analysts, as well as for government officials, notably, legislators, regulators, and judges.
Steven M. Shavell, Economic Analysis of Accident Law (Harvard Univ. Press 1987).
Categories:
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
,
Corporate Law & Securities
,
Discrimination & Civil Rights
Sub-Categories:
Insurance Law
,
Torts
,
Torts - Negligence
,
Law & Public Policy
,
Law & Economics
Type: Book
Abstract
Accident law, if properly designed, is capable of reducing the incidence of mishaps by making people act more cautiously. Scholarly writing on this branch of law traditionally has been concerned with examining the law for consistency with felt notions of right and duty. Since the 1960s, however, a group of legal scholars and economists have focused on identifying the effects of accident law on people's behavior. Steven Shavell's book is the definitive synthesis of research to date in this new field.
A. Mitchell Polinsky & Steven Shavell, Subrogation and the Theory of Insurance When Suits Can Be Brought for Losses Suffered (Stanford Law & Econ. Olin Working Paper No. 506, Harvard Pub. Law Working Paper No. 17-04, Mar. 9, 2017).
Categories:
Civil Practice & Procedure
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Corporate Law & Securities
Sub-Categories:
Insurance Law
,
Torts
,
Litigation & Settlement
Type: Other
Abstract
The theory of insurance is considered here when an insured individual may be able to sue another party for the losses that the insured suffered—and thus when an insured has a potential source of compensation in addition to insurance coverage. Insurance policies reflect this possibility through so-called subrogation provisions that give insurers the right to step into the shoes of insureds and to bring suits against injurers. We show that subrogation provisions are a fundamental feature of optimal insurance contracts because they relieve litigation-related risks and result in lower premiums—financed by the litigation income of insurers. This income includes earnings from suits that insureds would not otherwise have brought. We also characterize optimal subrogation provisions in the presence of loading costs, moral hazard, and non-monetary losses.
Steven Shavell, A Simple Model of Optimal Deterrence and Incapacitation, 42 Int'l Rev. L. & Econ. 13 (2015).
Categories:
Disciplinary Perspectives & Law
,
Criminal Law & Procedure
Sub-Categories:
Sentencing & Punishment
,
Criminal Justice & Law Enforcement
,
Law & Economics
Type: Article
Abstract
The deterrence of crime and its reduction through incapacitation are studied in a simple multiperiod model of crime and law enforcement. Optimal imprisonment sanctions and the optimal probability of sanctions are determined. A point of emphasis is that the incapacitation of individuals is often socially desirable even when they are potentially deterrable. The reason is that successful deterrence may require a relatively high probability of sanctions and thus a relatively high enforcement expense. In contrast, incapacitation may yield benefits no matter how low the probability of sanctions is—implying that incapacitation may be superior to deterrence.
Steven Shavell, Law and Economics, in International Encyclopedia of the Social & Behavioral Sciences 448 (James D. Wright ed., 2d ed. 2015).
Categories:
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
,
Property Law
,
Banking & Finance
,
Criminal Law & Procedure
Sub-Categories:
Contracts
,
Criminal Justice & Law Enforcement
,
Torts
,
Litigation & Settlement
,
Law & Economics
,
Property Rights
,
Eminent Domain
Type: Book
Abstract
Economic analysis of law is concerned with (a) determination of the effects of legal rules and (b) evaluation of the desirability of the effects of legal rules, with respect to well-specified definitions of social welfare. This article surveys the approach as it applies to basic areas of law – accident, property, contract, and criminal law – as well as to the litigation process. The economic approach is also contrasted with traditional analysis of law, under which the effects of legal rules are not usually systematically assessed.
Steven Shavell, A General Rationale for a Governmental Role in the Relief of Large Risks, 49 J. Risk & Uncertainty 213 (2014).
Categories:
Banking & Finance
,
Government & Politics
,
Disciplinary Perspectives & Law
,
Taxation
,
Corporate Law & Securities
Sub-Categories:
Risk Regulation
,
Insurance Law
,
Law & Economics
,
Government Benefits
,
Tax Policy
Type: Article
Abstract
The government often provides relief against large risks, such as disasters. A simple, general rationale for this role of government is considered here that applies even when private contracting to share risks is not subject to market imperfections. Specifically, the optimal private sharing of risks will not result in complete coverage against them when they are sufficiently large. Hence, when such risks eventuate, the marginal utility to individuals of governmental relief may exceed the marginal value of public goods. Consequently, social welfare may be raised if the government reduces public goods expenditures and directs these freed resources toward individuals who have suffered losses.
Steven Shavell, Risk Aversion and the Desirability of Attenuated Legal Change, 16 Am. L. & Econ. Rev. 366 (2014).
Categories:
Corporate Law & Securities
,
Banking & Finance
,
Disciplinary Perspectives & Law
Sub-Categories:
Risk Regulation
,
Insurance Law
,
Law & Economics
Type: Article
Abstract
This article develops two points. First, insurance against the risk of legal change is largely unavailable, primarily because of the correlated nature of the losses that legal change generates. Second, given the absence of insurance against legal change, it is generally desirable for legal change to be attenuated. Specifically, in a model of uncertainty about two different types of legal change—in regulatory standards and in payments for harm caused—it is demonstrated that the optimal new regulatory standard is less than the conventionally efficient standard and that the optimal new payment for harm is less than the harm.
A. Mitchell Polinsky & Steven Shavell, Costly Litigation and Optimal Damages, 37 Int’l Rev. L. & Econ. 86 (2014).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Law & Economics
Type: Article
Abstract
A basic principle of law is that damages paid by a liable party should equal the harm caused by that party. However, this principle is not correct when account is taken of litigation costs, because they too are part of the social costs associated with an injury. In this article we examine the influence of litigation costs on the optimal level of damages, assuming that litigation costs rise with the level of damages. Due to this consideration, we demonstrate that optimal damages can lie anywhere between zero and the harm plus the victim's litigation costs.
Steven Shavell, A Fundamental Enforcement Cost Advantage of the Negligence Rule over Regulation, 42 J. Legal Stud. 275 (2013).
Categories:
Disciplinary Perspectives & Law
,
Government & Politics
,
Civil Practice & Procedure
Sub-Categories:
Torts - Negligence
,
Law & Economics
,
Administrative Law & Agencies
Type: Article
Abstract
Regulation and the negligence rule are both designed to obtain compliance with desired standards of behavior, but they differ in a primary respect: compliance with regulation is ordinarily assessed independently of the occurrence of harm, whereas compliance with the negligence rule is evaluated only if harm occurs. It is shown in a stylized model that because the use of the negligence rule is triggered by harm, the rule enjoys an intrinsic enforcement cost advantage over regulation. Moreover, this cost advantage suggests that the examination of behavior under the negligence rule should often be more detailed than under regulation—as it frequently is in fact.
A. Mitchell Polinsky & Steven Shavell, Mandatory Versus Voluntary Disclosure of Product Risks, 28 J.L. Econ. & Org. 360 (2012).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
,
Government & Politics
,
Consumer Finance
Sub-Categories:
Consumer Protection Law
,
Torts - Product Liability
,
Torts
,
Law & Economics
,
Administrative Law & Agencies
Type: Article
Abstract
We analyze a model in which firms are able to acquire information about product risks and may or may not be required to disclose this information. We initially study the effect of disclosure rules assuming that firms are not liable for the harm caused by their products. Mandatory disclosure is obviously superior to voluntary disclosure given the information about product risks that firms possess, since such information has value to consumers. But firms acquire more information about product risks under voluntary disclosure because they can keep silent if the information is unfavorable. This effect could lead to higher social welfare under voluntary disclosure. The same result holds if firms are liable for harm under the negligence standard of liability. Under strict liability, however, mandatory and voluntary disclosure rules are equivalent because information concerning product risks is irrelevant to consumers.
Steven Shavell, When Is Compliance with the Law Socially Desirable?, 41 J. Legal Stud. 1 (2012).
Categories:
Disciplinary Perspectives & Law
,
Government & Politics
,
Discrimination & Civil Rights
Sub-Categories:
Social Welfare Law
,
Law & Economics
,
Public Law
,
Politics & Political Theory
Type: Article
Abstract
When would an individual expect adherence to the law to advance the social good? This time-honored question is of more than intellectual interest, for if individuals have some desire to foster social welfare, the answer to it may help to explain and guide actual compliance with the law. In the model that I study, an individual’s knowledge of factors relevant to social welfare is inferior to lawmakers’ in some respects and superior in others. Thus, in assessing whether obeying legal rules would promote social welfare, an individual must consider that rules will impound certain superior information of lawmakers but also that rules may fail to reflect his private information. A second issue that an individual must consider in deciding whether following the law would be desirable is a compliance externality: the effect of the witnessing of his compliance behavior on the compliance behavior of observers. The conclusions from the model are interpreted, including their implications for actual compliance and for the moral obligation to obey the law.
Steven Shavell, Corrective Taxation versus Liability, Am. Econ. Rev., May 2011, at 273.
Categories:
Taxation
,
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts
,
Law & Economics
,
Tax Policy
Type: Article
Abstract
Taxation and liability are compared as means of controlling harmful externalities, with a view toward explaining why the use of liability predominates over taxation. Taxation suffers from a disadvantage in the analysis: because taxes do not reflect all the variables affecting expected harm, inefficiency results, whereas efficiency under liability requires only assessment of actual harm. However, liability also suffers from a disadvantage: incentives are diluted because injurers escape suit. Joint use of taxation and liability is examined, and it is shown that liability should be employed fully, with taxation taking up the slack due to escape from suit.
Steven M. Shavell, Should BP Be Held Liable for Economic Losses Due to the Moratorium on Oil Drilling Imposed after the Deepwater Horizon Accident?, 64 Vand. L. Rev. 1995 (2011).
Categories:
Disciplinary Perspectives & Law
,
Environmental Law
,
Civil Practice & Procedure
Sub-Categories:
Torts
,
Remedies
,
Law & Economics
,
Oil, Gas, & Mineral Law
Type: Article
Abstract
In the aftermath of the Deepwater Horizon accident and the BP oil spill, the government imposed a moratorium on deepwater oil drilling in the Gulf of Mexico. The question addressed here is whether on grounds of policy BP should be held responsible for moratorium-related economic losses caused by the spill. The answer that is developed is no. The reason, in essence, is that although the spill caused the moratorium, the moratorium might be viewed as a socially beneficial event on net because its purpose was to avert a significant danger.
Howell E. Jackson, Louis Kaplow, Steven M. Shavell, W. Kip Viscusi & David Cope, Analytical Methods for Lawyers (Found. Press 2nd ed. 2010).
Categories:
Legal Profession
,
Disciplinary Perspectives & Law
Sub-Categories:
Legal Theory & Philosophy
,
Legal Education
Type: Book
Abstract
This law school casebook was developed by a team of professors at Harvard Law School to introduce students with little or no quantitative background to the basic analytical techniques that attorneys need to master to represent their clients effectively. This casebook presents clear explanations of decision analysis, games and information, contracting, accounting, finance, microeconomics, economic analysis of the law, fundamentals of statistics, and multiple regression analysis. References and examples have been thoroughly updated for this 2d edition, and exposition of a number of key topics has been reworked to reflect insights gained from teaching these topics using the 1st edition to many hundreds of Harvard Law students over the past decade.
A. Mitchell Polinksky & Steven Shavell, A Skeptical Attitude About Product Liability Is Justified: A Reply to Professors Goldberg and Zipursky, 123 Harv. L. Rev. 1949 (2010).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts - Product Liability
,
Empirical Legal Studies
Type: Article
Abstract
In The Uneasy Case for Product Liability, we maintained that the benefits of product liability are likely to be less than its costs for many products, especially widely sold ones. Our article was intended to alter the dominant view held by the judiciary and commentators that product liability has a clear justification on grounds of public policy. We argued instead that a skeptical attitude toward product liability should be adopted. Professors John Goldberg and Benjamin Zipursky strongly criticize our article in The Easy Case for Products Liability Law: A Response to Professors Polinsky and Shavell. To a significant extent, however, they attack a straw man, for they impute to us a radical thesis – that product liability should be eliminated for all widely sold products – that we manifestly did not advance. In fact, we argued that whether product liability is undesirable depends on the particular product. Goldberg and Zipursky also ascribe to us other opinions that exaggerate what we said in our article – notably, they state that we believe that product liability has no beneficial effect on product safety for widely sold products. It is not surprising, therefore, that they are unable to support these mischaracterizations with citations to statements in our article. The major claim that Goldberg and Zipursky develop is that our benefit-cost analysis fails to demonstrate that the case for product liability is uneasy. In our view, their critique is deficient on multiple accounts, including that it contains numerous distortions and errors, and hence does not alter our original conclusion.
A. Mitchell Polinsky & Steven Shavell, The Uneasy Case for Product Liability, 123 Harv. L. Rev. 1437 (2010).
Categories:
Civil Practice & Procedure
,
Government & Politics
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts - Product Liability
,
Law & Economics
,
Administrative Law & Agencies
Type: Article
Abstract
In this Article we compare the benefits of product liability to its costs and conclude that the case for product liability is weak for a wide range of products. One benefit of product liability is that it can induce firms to improve product safety. Even in the absence of product liability, however, firms would often be motivated by market forces to enhance product safety because their sales may fall if their products harm consumers. Moreover, products must frequently conform to safety regulations. Consequently, product liability might not exert a significant additional influence on product safety for many products – and empirical studies of several widely sold products lend support to this hypothesis. A second benefit of product liability is that it can improve consumer purchase decisions by causing product prices to increase to reflect product risks. But because of litigation costs and other factors, product liability may raise prices excessively and undesirably chill purchases. A third benefit of product liability is that it compensates victims of product-related accidents for their losses. Yet this benefit is only partial, for accident victims are frequently compensated by insurers for some or all of their losses. Furthermore, the award of damages for pain and suffering tends to reduce the welfare of individuals because it effectively forces them to purchase insurance for a type of loss for which they ordinarily do not wish to be covered. Opposing the benefits of product liability are its costs, which are great. Notably, the transfer of a dollar to a victim of a product accident through the liability system requires more than a dollar on average in legal expenses. Given the limited nature of the benefits and the high costs of product liability, we come to the judgment that its use is often unwarranted. This is especially likely for products for which market forces and regulation are relatively strong, which includes many widely sold products. Our generally skeptical assessment of product liability for such products is in tension with the broad social endorsement of this form of liability.
Steven Shavell, Eminent Domain versus Government Purchase of Land Given Imperfect Information about Owners' Valuations, 53 J.L. & Econ. 1 (2010).
Categories:
Property Law
,
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Eminent Domain
,
Real Estate
Type: Article
Abstract
Governments employ two basic policies for acquiring land: taking it through the exercise of their power of eminent domain, and purchasing it. The social desirability of these policies is compared in a model in which the government’s information about landowners’ valuations is imperfect. Under this assumption, the policy of purchase possesses the market test advantage that the government obtains land from an owner only if its offer exceeds the owner’s valuation. However, the policy suffers from a drawback when the land that the government needs is owned by many parties. In that case, the government’s acquisition will fail if any of the owners refuses to sell. Hence, eminent domain becomes appealing if the number of landowners is large. This conclusion holds regardless of whether the land that the government seeks is a parcel at a fixed location or instead is a contiguous parcel that may be located anywhere in a region.
Steven M. Shavell, On the Design of the Appeals Process: The Optimal Use of Discretionary Review versus Direct Appeal, 39 J. Legal Stud. 63 (2010).
Categories:
Civil Practice & Procedure
,
Government & Politics
,
Legal Profession
Sub-Categories:
Litigation & Settlement
,
Practice & Procedure
,
Courts
,
Judges & Jurisprudence
,
Legal Reform
Type: Article
Abstract
The socially desirable design of the appeals process is analyzed assuming that it may involve either an initial discretionary review proceeding—under which the appeals court would decide whether to hear an appeal—or else a direct appeal. Using a stylized model, I explain that the appeals process should not be employed when the appellant’s initial likelihood of success falls below a threshold, that discretionary review should be used when the likelihood of success lies in a midrange, and that direct appeal should be sought when this likelihood is higher. Further, I emphasize that appellants should often be able to choose between discretionary review and direct appeal, notably because appellants may elect discretionary review to save themselves (and thus the judicial system) expense. This suggests the desirability of a major reform of our appeals process: appellants should be granted the right of discretionary review along with the right that they now possess of direct appeal at the first level of appeals.
Steven M. Shavell, Should Copyright of Academic Works be Abolished?, 2 J. Legal Analysis 301 (2010).
Categories:
Legal Profession
,
Property Law
,
Technology & Law
,
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Legal Scholarship
,
Intellectual Property - Copyright
,
Cooperation, Peer-Production & Sharing
,
Information Commons
,
Intellectual Property Law
Type: Article
Abstract
The conventional rationale for copyright of written works, that copyright is needed to foster their creation, is seemingly of limited applicability to the academic domain. For in a world without copyright of academic writing, academics would still benefit from publishing in the major way that they do now, namely, from gaining scholarly esteem. Yet publishers would presumably have to impose fees on authors, because publishers would no longer be able to profit from reader charges. If these author publication fees would actually be borne by academics, their incentives to publish would be reduced. But if the publication fees would usually be paid by universities or grantors, the motive of academics to publish would be unlikely to decrease (and could actually increase) – suggesting that ending academic copyright would be socially desirable in view of the broad benefits of a copyright-free world. If so, the demise of academic copyright should probably be achieved by a change in law, for the “open access” movement that effectively seeks this objective without modification of the law faces fundamental difficulties.
Steven Shavell, ¿Es inmoral el incumplimiento contractual?, Ius et Veritas Diciembre 2009, at 16.
Categories:
Banking & Finance
,
Disciplinary Perspectives & Law
Sub-Categories:
Contracts
,
Legal Theory & Philosophy
Type: Article
Steven Shavell, Why Breach of Contract May Not be Immoral Given the Incompleteness of Contracts, 107 Mich. L. Rev. 1569 (2009).
Categories:
Banking & Finance
Sub-Categories:
Contracts
Type: Article
Abstract
There is a widely held view that breach of contract is immoral. I suggest here that breach may often be seen as moral, once one appreciates that contracts are incompletely detailed agreements and that breach may be committed in problematic contingencies that were not explicitly addressed by the governing contracts. In other words, it is a mistake generally to treat a breach as a violation of a promise that was intended to cover the particular contingency that eventuated.
Steven M. Shavell, Liability for Accidents, in The New Palgrave Dictionary of Economics (Steven N. Durlauf & Lawrence E. Blume eds., 2nd ed. 2008).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts
,
Remedies
,
Torts - Negligence
,
Torts - Product Liability
,
Litigation & Settlement
,
Law & Economics
Type: Book
Abstract
Legal liability for accidents determines the circumstances under which injurers must compensate victims for harm. The effects of liability on incentives to reduce risk, on risk-bearing and insurance (both direct coverage for victims and liability coverage for injurers), and on administrative expenses are considered. Liability is also compared with other methods of controlling harmful activities, notably, with regulation and corrective taxation.
A. Mitchell Polinsky & Steven M. Shavell, Public Enforcement of Law, in The New Palgrave Dictionary of Economics (Steven N. Durlauf & Lawrence E. Blume eds., 2nd ed. 2008).
Categories:
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
,
Criminal Law & Procedure
Sub-Categories:
Sentencing & Punishment
,
Torts
,
Remedies
,
Litigation & Settlement
,
Law & Economics
,
Law & Behavioral Sciences
Type: Book
Abstract
This article surveys the economic analysis of public enforcement of law – the use of public agents (inspectors, tax auditors, police, prosecutors) to detect and to sanction violators of legal rules. We first discuss the basic elements of the theory: the probability of imposition of sanctions, the magnitude and form of sanctions (fines, imprisonment), and the rule of liability. We then examine a variety of extensions, including the costs of imposing fines, mistakes, marginal deterrence, settlement, self-reporting, repeat offences, and incapacitation.
Steven M. Shavell, On Optimal Legal Change, Past Behavior, and Grandfathering, 37 J. Legal Stud. 37 (2008).
Categories:
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
,
Environmental Law
Sub-Categories:
Torts
,
Torts - Negligence
,
Law & Behavioral Sciences
,
Law & Economics
Type: Article
Abstract
When is it socially advantageous for legal rules to be changed in the light of altered circumstances? In answering this basic question here, a simple point is developed-that past compliance with rules tends to reduce the social advantages of change. The reasons are twofold: adjusting to a new legal rule involves costs, and the social benefits of change are only in addition to those of past compliance. The general implications are that legal rules should be more stable than would be appropriate were the relevance of past behavior not recognized and that grandfathering, namely, permitting noncompliance, is sometimes desirable. These points have broad relevance, often explaining what we observe but also indicating possibilities for reform, such as in the regulation of pollution. The analysis is related to the conventional reliance-based justification for the stability of the law, the literature on legal transitions, and economic writing on optimal legal standards.
A. Mitchell Polinsky & Steven M. Shavell, Economic Analysis of Law, in The New Palgrave Dictionary of Economics (Steven N. Durlauf & Lawrence E. Blume eds., 2nd ed. 2008).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
Type: Book
Abstract
This article surveys the economic analysis of five primary fields of law: property law; liability for accidents; contract law; litigation; and public enforcement and criminal law. It also briefly considers some criticisms of the economic analysis of law.
Steven M. Shavell, Law and Economics, in 4 International Encyclopedia of the Social Sciences 367 (William A. Darity ed., 2nd ed. 2008).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
Type: Book
Steven M. Shavell, Contractual Holdup and Legal Intervention, 36 J. Legal Stud. 325 (2007).
Categories:
Banking & Finance
,
Disciplinary Perspectives & Law
Sub-Categories:
Contracts
,
Law & Economics
Type: Article
Abstract
This article develops the point that incentive and risk‐bearing problems associated with contractual holdup may justify legal intervention. Contractual holdup is considered both for fresh contracts and for modifications of contracts. One type of legal intervention is flat voiding of contracts. Such intervention tends to be advantageous when holdup situations are engineered. Another type of intervention is price‐conditioned voiding of contracts—voiding only if the price is excessive. This policy tends to be advantageous when contracts are socially desirable (bad weather puts a ship in jeopardy and it needs rescue). Price‐conditioned voiding prevents the imposition of holdup prices but still allows contracts (to tow ships in distress) to be made. Both types of legal intervention in contracts and their modifications are employed by courts to counter problems of pronounced holdup. In addition, various price control regulations appear partly to serve the same objective.
Steven M. Shavell, Do Excessive Legal Standards Discourage Desirable Activity?, 95 Econ. Letters 394 (2007).
Categories:
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
Sub-Categories:
Torts - Negligence
,
Torts
,
Law & Economics
Type: Article
Abstract
Overly strict legal standards are commonly thought to discourage parties from engaging in socially desirable activities. It is explained here, however, that excessive legal standards cannot lead to undesirable curtailment of activities when legal standards are enforced by liability for negligence, essentially because parties can choose to be negligent rather than comply. But excessive legal standards can lead to undesirable reduction of activities when adherence to the standards is required by the regulatory system.
Louis Kaplow & Steven Shavell, Moral Rules, the Moral Sentiments, and Behavior: Toward a Theory of an Optimal Moral System, 115 J. Pol. Econ. 494 (2007).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Behavioral Sciences
,
Law & Economics
Type: Article
Abstract
How should moral sanctions and moral rewards - the moral sentiments involving feelings of guilt and of virtue - be employed to govern individuals' behavior if the objective is to maximize social welfare? In the model that we examine, guilt is a disincentive to act and virtue is an incentive because we assume that they are negative and positive sources of utility. We also suppose that guilt and virtue are costly to inculcate and are subject to certain constraints on their use. We show that the moral sentiments should be used chiefly to control externalities and further that guilt is best to employ when most harmful acts can successfully be deterred whereas virtue is best when only a few individuals can be induced to behave well. We also contrast the optimal use of guilt and virtue to optimal Pigouvian taxation and discuss extensions of our analysis.
Steven M. Shavell, On the Proper Magnitude of Punitive Damages: Mathias v. Accor Economy Lodging, Inc., 120 Harv. L. Rev. 1223 (2007).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Remedies
,
Torts
,
Law & Economics
Type: Article
1, 2 Handbook of Law and Economics (A. Mitchell Polinsky & Steven Shavell eds., Elsevier 2007).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
Type: Book
Steven M. Shavell, Liability for Accidents, in 1 Handbook of Law and Economics 139 (A. Mitchell Polinsky & Steven Shavell eds., Elsevier 2007).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts
,
Torts - Negligence
,
Torts - Product Liability
,
Law & Economics
Type: Book
Steven M. Shavell, Optimal Discretion in the Application of Rules, 9 Am. L. & Econ. Rev. 175 (2007).
Categories:
Civil Practice & Procedure
,
Government & Politics
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Dispute Resolution
,
Law & Economics
,
Judges & Jurisprudence
,
Courts
Type: Article
Abstract
Discretion is examined as a feature of the design of rule-guided systems. That is, given that rules have to be administered by some group of persons, called adjudicators, and given that their goals may be different from society's (or a relevant organization's), when is it socially desirable to allocate discretionary authority to the adjudicators and, if so, to what extent? The answer reflects a trade-off between the informational advantage of discretion - that adjudicators can act on information not included in rules - and the disadvantage of discretion - that decisions may deviate from the desirable because adjudicators' objectives are different from society's. The control of discretion through limitation of its scope, through decision-based payments to adjudicators, and through the appeals process, is also considered.
A. Mitchell Polinsky & Steven M. Shavell, Public Enforcement of Law, in 1 Handbook of Law and Economics 403 (A. Mitchell Polinsky & Steven M. Shavell eds., Elsevier 2007).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
,
Criminal Law & Procedure
Sub-Categories:
Sentencing & Punishment
,
Remedies
,
Torts
,
Litigation & Settlement
,
Law & Economics
,
Law & Behavioral Sciences
Type: Book
Steven M. Shavell, On the Writing and the Interpretation of Contracts, 22 J.L. Econ. & Org. 289 (2006).
Categories:
Banking & Finance
,
Disciplinary Perspectives & Law
Sub-Categories:
Contracts
,
Law & Economics
Type: Article
Abstract
The major theme of this article is that the interpretation of contracts is in the interests of contracting parties. The general reasons are (a) that interpretation may improve on otherwise imperfect contracts; and (b) that the prospect of interpretation allows parties to write simpler contracts and thus to conserve on contracting effort. A method of interpretation is defined as a function whose argument is the written contract and whose value is another contract, the interpreted contract, which is what actually governs the parties' joint enterprise. It is shown that interpretation is superior to enforcement of contracts as written, and the optimal method of interpretation is analyzed.
Steven M. Shavell, Specific Performance Versus Damages for Breach of Contract: An Economic Analysis, 84 Tex. L. Rev. 831 (2006).
Categories:
Civil Practice & Procedure
,
Banking & Finance
,
Disciplinary Perspectives & Law
Sub-Categories:
Contracts
,
Remedies
,
Law & Economics
Type: Article
Abstract
When would parties entering into a contract want performance to be specifically required, and when would they prefer payment of money damages to be the remedy for breach? This fundamental question is studied here and a novel answer is provided, based on a simple distinction between contracts to produce goods and contracts to convey property. Setting aside qualifications, the conclusion for breach of contracts to produce goods is that parties would tend to prefer the remedy of damages, essentially because of the problems that would be created under specific performance if production costs were high. In contrast, parties would often favor the remedy of specific performance for breach of contracts to convey property, in part because there can be no problems with production cost when property already exists. The conclusions reached shed light on the choices made between damages and specific performance under Anglo-American and civil law systems, and they also suggest the desirability of certain changes in our legal doctrine.
David Rosenberg & Steven Shavell, A Solution to the Problem of Nuisance Suits: The Option to Have the Court Bar Settlement, 26 Int'l Rev. L. & Econ. 42 (2006).
Categories:
Civil Practice & Procedure
,
Government & Politics
,
Legal Profession
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts
,
Remedies
,
Private Law
,
Practice & Procedure
,
Litigation & Settlement
,
Law & Economics
,
Courts
,
Judges & Jurisprudence
Type: Article
Abstract
A solution to a broad category of nuisance suits is examined in this paper. The solution is to give defendants the option to have courts prevent settlements (by refusing to enforce them). Then, if a defendant knows he is facing a plaintiff who would not be willing to go to trial, the defendant would exercise his option to bar settlement, forcing the plaintiff to withdraw. And because the plaintiff would anticipate this, he would not bring his nuisance suit in the first place.
Steven M. Shavell, Is Breach of Contract Immoral?, 56 Emory L.J. 439 (2006).
Categories:
Banking & Finance
,
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
,
Legal Profession
Sub-Categories:
Contracts
,
Remedies
,
Law & Economics
,
Legal Theory & Philosophy
,
Legal Ethics
Type: Article
Abstract
When, and why, might it be thought immoral to commit a breach of contract? The answer to this fundamental question is not obvious, because, as is stressed, and as has been overlooked in addressing the question, contracts do not usually provide explicitly for the particular events that are observed to occur. When a contract does not expressly address a contingency that occurs, the morality of breach is assumed here to depend on what the contract would have said had it addressed the contingency. This assumption is explained to imply that breach is not immoral if expectation damages would have to be paid for breach, but that breach might be immoral if damages are less than the true expectation, as is probable. This conclusion is related to the results of a survey that was conducted of individuals' attitudes toward the morality of breach. The conclusion is also related to the views of commentators on the morality of breach and of those on the "efficiency" of breach.
Steven M. Shavell, The Appeals Process and Adjudicator Incentives, 35 J. Legal Stud. 1 (2006).
Categories:
Civil Practice & Procedure
,
Government & Politics
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Dispute Resolution
,
Law & Economics
,
Courts
,
Judges & Jurisprudence
Type: Article
Abstract
The appeals process—whereby litigants can have decisions of adjudicators reviewed by a higher authority—is a general feature of formal legal systems (and of many private decision-making procedures). The appeals process leads to the making of better decisions because it constitutes a threat to adjudicators whose decisions would deviate too much from socially desirable ones. Further, it yields this benefit without absorbing resources to the extent that adjudicators can anticipate when appeals would occur and would want to make decisions to forestall the actual occurrence of appeals.
David Rosenberg & Steven M. Shavell, A Simple Proposal to Halve Litigation Costs, 91 Va. L. Rev. 1721 (2005).
Categories:
Civil Practice & Procedure
,
Government & Politics
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts
,
Remedies
,
Private Law
,
Litigation & Settlement
,
Law & Economics
,
Courts
Type: Article
Abstract
This Essay advances a simple proposal that could reduce civil litigation costs in the country by about half, yet without compromising the functioning of our liability system in a significant way. The proposal has two parts. First, courts would select randomly for litigation only half the cases brought before them; courts would not allow the other half to proceed. Second, in cases accepted for litigation and in which judgments for damages issue, courts would double the level of damages. Thus, the proposal might be described as one of random adjudication with dobule damages.
Louis Kaplow & Steven M. Shavell, Fairness versus Welfare: Notes on the Pareto principle, preferences, and distributive justice, 32 J. Legal Stud. 331 (2003).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Law & Social Change
Type: Article
Abstract
In Fairness versus Welfare, we advance the thesis that social policies should be assessed entirely on the basis of their effects on individuals’ well‐being. This thesis implies that no independent weight should be accorded to notions of fairness (other than many purely distributive notions). We support our thesis in three ways: by demonstrating how notions of fairness perversely reduce welfare, indeed, sometimes everyone’s well‐being; by revealing numerous other deficiencies in the notions, including their lack of sound rationales; and by providing an account of notions of fairness that explains their intuitive appeal in a manner that reinforces the conclusion that they should not be treated as independent principles in policy assessment. In this essay, we discuss these three themes and comment on issues raised by Richard Craswell, Lewis Kornhauser, and Jeremy Waldron.
Howell Jackson, Louis Kaplow, Steven Shavell, W. Kip Viscusi & David Cope, Analytical Methods for Lawyers (Found. Press 2003).
Categories:
Disciplinary Perspectives & Law
,
Legal Profession
Sub-Categories:
Legal Theory & Philosophy
,
Legal Education
Type: Book
Louis Kaplow & Steven Shavell, Fairness Versus Welfare (Harvard Univ. Press 2002).
Categories:
Disciplinary Perspectives & Law
,
Discrimination & Civil Rights
Sub-Categories:
Law & Public Policy
,
Social Welfare Law
,
Legal Theory & Philosophy
Type: Book
Abstract
By what criteria should public policy be evaluated? Fairness and justice? Or the welfare of individuals? Debate over this fundamental question has spanned the ages. Fairness versus Welfare poses a bold challenge to contemporary moral philosophy by showing that most moral principles conflict more sharply with welfare than is generally recognized. In particular, the authors demonstrate that all principles that are not based exclusively on welfare will sometimes favor policies under which literally everyone would be worse off. The book draws on the work of moral philosophers, economists, evolutionary and cognitive psychologists, and legal academics to scrutinize a number of particular subjects that have engaged legal scholars and moral philosophers. How can the deeply problematic nature of all nonwelfarist principles be reconciled with our moral instincts and intuitions that support them? The authors offer a fascinating explanation of the origins of our moral instincts and intuitions, developing ideas originally advanced by Hume and Sidgwick and more recently explored by psychologists and evolutionary theorists. Their analysis indicates that most moral principles that seem appealing, upon examination, have a functional explanation, one that does not justify their being accorded independent weight in the assessment of public policy. Fairness versus Welfare has profound implications for the theory and practice of policy analysis and has already generated considerable debate in academia.
Steven M. Shavell, Law Versus Morality as Regulators of Conduct, 4 Am. L. & Econ. Rev. 227 (2002).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Law & Behavioral Sciences
Type: Article
Abstract
It is evident that both law and morality serve to channel our behavior. Law accomplishes this primarily through the threat of sanctions if we disobey legal rules. Morality too involves incentives: bad acts may result in guilt and disapprobation, and good acts may result in virtuous feelings and praise. These two very different avenues of effect on our actions are examined in this article from an instrumental perspective. The analysis focuses on various social costs associated with law and morality, and on their effectiveness, as determined by the magnitude and likelihood of sanctions and by certain informational factors. After the relative character of law and of morality as means of control of conduct is assessed, consideration is given to their theoretically optimal domains - to where morality alone would appear to be best to control behavior, to where morality and the law would likely be advantageous to employ jointly, and to where solely the law would seem desirable to utilize. The observed pattern of use of morality and of law is discussed, and it is tentatively suggested that the observed and the optimal patterns are in rough alignment with one another.
Louis Kaplow & Steven M. Shavell, On the Superiority of Corrective Taxes to Quantity Regulation, 4 Am. L. & Econ. Rev. 1 (2002).
Categories:
Disciplinary Perspectives & Law
,
Taxation
Sub-Categories:
Law & Economics
,
Tax Policy
Type: Article
Abstract
The traditional view of economists has been that corrective taxes are superior to direct" regulation of harmful externalities when the state's information about control costs is incomplete. " In recent years, however, many economists seem to have adopted the view that either corrective" taxes or quantity regulation could be superior to the other. One argument for this view with Weitzman (1974), holds only if the state is constrained to use a fixed tax rate (a linear tax" schedule) even when harm is nonlinear. Corrective taxes are indeed superior to quantity" regulation if -- as seems more plausible -- the state can impose a nonlinear tax equal to the" schedule of harm or can adjust the tax rate upon learning that it diverges from marginal harm. " Another argument, associated with Baumol and Oates (1988), is that quantity regulation gains" appeal when the state is uncertain about the harm caused by an externality. In this case however, a corrective tax schedule (equal to the expected harm schedule) is superior to quantity" regulation.
Steven Shavell & Kathryn E. Spier, Threats Without Binding Commitment, 2 Topics in Econ. Analysis & Pol'y (2002).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
Type: Article
Abstract
This paper explores the power of threats in the absence of binding commitment. The threatener cannot commit to carry out the threat if the victim refuses payment, and cannot commit not to carry out the threat if payment is made. An important assumption of the model is that once the threat is carried out it cannot be repeated. If exercising the threat is costly to the threatener, then the threat cannot succeed in extracting money from the victim. If exercising the threat would benefit the threatener, however, then the threat's success depends upon whether the threat may be repeated after a payment is made. In the equilibrium of a finite-period game, the threat is carried out and the victim makes no payments. In an infinite-horizon game, however, it is an equilibrium for the victim to make a stream of payments over time. The expectation of future payments keeps the threatener from exercising the threat.
Steven M. Shavell & Tanguy van Ypersele, Rewards Versus Intellectual Property Rights, 44 J.L. & Econ. 525 (2001).
Categories:
Property Law
,
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Intellectual Property - Copyright
,
Intellectual Property - Patent & Trademark
Type: Article
A. Mitchell Polinsky & Steven Shavell, Corruption and Optimal Law Enforcement, 81 J. Pub. Econ. 1 (2001).
Categories:
Criminal Law & Procedure
,
Government & Politics
,
Disciplinary Perspectives & Law
Sub-Categories:
Criminal Justice & Law Enforcement
,
Law & Economics
,
Corruption
Type: Article
Abstract
We analyze corruption in law enforcement: the payment of bribes to enforcement agents, threats to frame innocent individuals in order to extort money from them, and the actual framing of innocent individuals. Bribery, extortion, and framing reduce deterrence and are thus worth discouraging. Optimal penalties for bribery and framing are maximal, but, surprisingly, extortion should not be sanctioned. The state may also combat corruption by paying rewards to enforcement agents for reporting violations. Such rewards can partially or completely mitigate the problem of bribery, but they encourage framing. The optimal reward may be relatively low to discourage extortion and framing, or relatively high to discourage bribery.
Lucian A. Bebchuk & Steven M. Shavell, Reconsidering Contractual Liability and the Incentive to Reveal Information, 51 Stan. L. Rev. 1615 (1999).
Categories:
Banking & Finance
Sub-Categories:
Contracts
Type: Article
Lucian A. Bebchuk & Steven M. Shavell, Information and the Scope of Liability for Breach of Contract: The Rule of Hadley v. Baxendale, 7 J.L. Econ. & Org. 284 (1991).
Categories:
Banking & Finance
Sub-Categories:
Contracts
,
Economics
Type: Article
Abstract
According to the contract law principle established in the famous nineteenth century English case of Hadley v. Baxendale, and followed ever since in the common law world, liability for a breach of contract is limited to losses "arising ... according to the usual course of things," or that may be reasonably supposed "to have been in the contemplation of both parties, at the time they made the contract, ..." Using a formal model, we attempt in this paper to analyze systematically the effects and the efficiency of this limitation on contract damages. We study two alternative rules: the limited liability rule of Hadley, and an unlimited liability rule. Our analysis focuses on the effects of the alternative rules on two types of decisions: buyers' decisions about communicating their valuations of performance to sellers; and sellers' decisions about their level of precautions to reduce the likelihood of nonperformance. We identify the efficient behavior of buyers and sellers. We then compare this efficient behavior with the decisions that buyers and sellers in fact make under the limited and unlimited liability rules. This analysis enables us to provide a full characterization of the conditions under which each of the rules induces, or fails to induce, efficient behavior, as well as the conditions under which each of the rules is superior to the other.
Steven Shavell, Damage Measures for Breach of Contract, 11 Bell J. Econ. 466 (1980).
Categories:
Banking & Finance
,
Disciplinary Perspectives & Law
Sub-Categories:
Contracts
,
Law & Economics
Type: Article
Abstract
This article studies rules of "damage measures" that determine how much money must be paid by a party who defaults on a contract to the other party to the contract. The theme of the article is that damage measures serve as a substitute for completely specified contracts. In particular, it is shown that under an incompletely specified contract damage measures can induce parties to behave in a way that approximates what they would have explicitly agreed upon under a fully specified contract. Moreover, it is argued on familiar lines that because it is often costly or impossible to make contractual provisions for contingencies at a very detailed level, there is an evident need for such substitutes for well-specified contingent contracts as are afforded by damage measures.
Steven Shavell, Strict Liability versus Negligence, 9 J. Legal Stud. 1 (1980).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
,
Discrimination & Civil Rights
Sub-Categories:
Torts
,
Torts - Negligence
,
Torts - Product Liability
,
Law & Public Policy
,
Law & Economics
Type: Article
Abstract
The aim of this article is to compare strict liability and negligence rules on the basis of the incentives the provide to "appropriately" reduce accident losses. It will therefore be both convenient and clarifying to abstract from other issues in respect to which the rules could be evaluated. In particular, there will be no concern with the bearing of risk - for parties will be presumed risk neutral - nor with the size of "administrative costs" - for the legal system will be assumed to operate free of such costs - nor with distributional equity - for the welfare criterion will be taken to be the following aggregate: the benefits derived by parties from engaging activities less total accident losses less total accident prevention costs.