Steven Shavell

Samuel R. Rosenthal Professor of Law and Economics

Director, John M. Olin Center for Law, Economics & Business

Biography

Steven Shavell graduated from the University of Michigan in 1968, was an officer in the U.S. Public Health Service at the Centers for Disease Control from 1968 to 1970, and obtained a Ph.D. in Economics from MIT in 1973.  He was on the faculty of the Department of Economics at Harvard University from 1974 to 1980 and moved to the faculty of Harvard Law School in 1980.  His focal interests are in the economic analysis of the basic subject areas of law—contracts, torts, property, and criminal law—and in the legal process.  Shavell is the founder and director of the School’s John M. Olin Center for Law, Economics, and Business, a past director of the Law and Economics Program of the National Bureau of Economic Research, and a co-founder and past president of the American Law and Economics Association. He was a Guggenheim Fellow, is an elected Fellow of the Econometric Society, an elected member of the American Academy of Arts and Sciences, and a recipient of the Ronald H. Coase Medal for research in law and economics.  He is the author of numerous articles and several books, including the treatise, Foundations of Economic Analysis of Law, Harvard University Press, 2004.

Areas of Interest

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.
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.
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 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 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
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.
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.
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.
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.

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